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AFRICAN RAINBOW MINERALS LIMITED - Interim Results for the six months ended 31 December 2020 and Interim Dividend Declaration

Release Date: 03/03/2021 07:05
Code(s): ARI     PDF:  
Wrap Text
Interim Results for the six months ended 31 December 2020 and Interim Dividend Declaration

African Rainbow Minerals Limited
(Incorporated in the Republic of South Africa)
(Registration number 1933/004580/06)
JSE Share code: ARI
ISIN: ZAE000054045
(“ARM” or the “Company”)


This short form announcement is the responsibility of the board of
directors of ARM (the "Board") who acknowledge their responsibility
to ensure the integrity of the interim results.

The details contained in this announcement are only a summary of
the information in the full announcement and do not contain full
details of the company’s financial performance and position or
other relevant information about the business for the six months
under review. Any investment decisions by investors and/or
shareholders should therefore be based on the full announcement
published on the Company’s website at and is
available on the following link:

The full announcement is also available for inspection free of
charge during business hours (excluding weekends and public
holidays) from Wednesday, 03 March 2021 at the registered office
of ARM at ARM House, 29 Impala Road, Chislehurston, Johannesburg.
In addition, copies of the full announcement may be requested by
emailing   the  Company’s   investor   relations  department   on

Salient features
   - Headline earnings for the six months ended 31 December 2020
     (1H F2021) increased by 134% to R5 039 million or R25.87 per
     share (1H F2020: R2 155 million or R11.14 per share).
   - Segmental earnings before interest, tax, depreciation and
     amortisation (EBITDA) increased by R3 569 million to R5 089
     million (1H F2020: R1 520 million).
   - An interim dividend of R10.00 per share was declared (1H
     F2020: R5.00 per share).
   - ARM Platinum headline earnings increased by R1 532 million to
     R2 021 million (1H F2020: R489 million) underpinned by higher
     US dollar prices for platinum group metals (PGMs)                                                                 
   - ARM Ferrous headline earnings were 60% higher at R2 955
     million (1H F2020: R1 848 million) mainly due to increased US
     dollar iron ore prices.
   - Basic earnings were R4 868 million or R24.99 per share, and
     included an attributable impairment (after tax) of the Assmang
     investment in Sakura Ferroalloys of R169 million.
   - Net cash improved by R1 075 million to R4 812 million at 31
     December 2020 (30 June 2020: R3 737 million restated).
   - Production unit costs at most operations increased above
     inflation due to operational  challenges which were
     exacerbated by the Covid-19 lockdown and related
   - Strict measures and protocols to prevent the spread of Covid-
     19 are ongoing at all operations.
   - The group net asset value per share increased by 10% to
     R158.00 per share (at 30 June 2020: R143.65 per share).

Safety performance
Regrettably, two colleagues were fatally injured in separate
accidents at Modikwa Mine during the period under review.

On 13 September 2020, Mr Dennis Hlengani Mdaka, a rock drill
operator at Modikwa Mine, was fatally injured when he entered an
unventilated development end at South 2 Shaft.

On 7 October 2020, Mr Johannes Mahlalela, a team leader at Modikwa
Mine, sustained an injury to his right arm during a shift. Mr
Mahlalela was stable post an operation, however, he passed away in
hospital on 11 October 2020 following medical complications.

We extend our sincere condolences to the families of Mr Mdaka and
Mr Mahlalela and to their colleagues and friends.
Remedial actions as agreed with the Department of Minerals
Resources and Energy (DMRE), were implemented at Modikwa Mine
following the two incidents. Initiatives are ongoing at all
operations to ensure that safety training continues and that safety
standards are strictly upheld.

The group lost-time injury frequency rate (LTIFR) per 200 000 man-
hours improved to 0.40 (1H F2020: 0.48). There were 40 lost-time
injuries (LTIs) reported in 1H F2021 compared to 52 in the
corresponding period (1H F2020). Of these, 24 were reportable
injuries (1H F2020: 41).

Note: LTIs and LTIFR are presented on a 100% basis and are reported
for those operations where ARM has direct or joint management and
exclude the ARM Coal, Sakura and Harmony operations.

Financial performance

Headline earnings
Despite Covid-19-related global economic challenges and
uncertainty, ARM is pleased to report record headline earnings of
R5 039 million (or R25.87 per share) for 1H F2021. The 134% increase
in headline earnings compared to the corresponding six months ended
31 December 2019 (1H F2020) was underpinned by higher US dollar
iron ore and PGM prices, coupled with increased export iron ore
and manganese ore sales volumes.
Our operations navigated these turbulent times well, responding in
an agile and responsible manner.

We declared an interim dividend of R10.00 per share for 1H F2021
(1H F2020: R5.00 per share) and improved our financial position
which affords ARM flexibility to opportunistically pursue value-
enhancing growth prospects.

The 11% weakening of the rand against the US dollar also contributed
positively to headline earnings as the average realised rand versus
US dollar exchange rate weakened from R14.69/US$ in 1H F2020 to
R16.26/US$ in 1H F2021. For reporting purposes, the closing
exchange rate was R14.65/US$ (31 December 2019: R14.00/US$).

The 1H F2021 headline earnings include re-measurement gains on the
partner loans of R15 million (1H F2020: R112 million).

ARM Ferrous headline earnings were 60% higher at R2 955 million
(1H F2020: R1 848 million) driven by a 99% increase in headline
earnings in the iron ore division. This was partially offset by a
69% decrease in headline earnings in the manganese division.

Headline earnings in the iron ore division were positively impacted
by an increase in the average US dollar iron ore prices, higher
export sales volumes and a weaker average exchange rate, which were
partially offset by a 16% increase in unit cost of sales.

The ARM Ferrous headline earnings include an attributable R919
million positive unrealised fair value adjustment to revenue
related to open iron ore sales which are expected to be realised
at higher prices compared to the initial prices recorded.

Lower headline earnings in the manganese division were driven by a
decrease in the average realized US dollar manganese ore and alloy
prices as global manganese markets remained under pressure.

Headline earnings for the manganese ore operations were R429
million (1H F2020: R960 million) while the manganese alloys                                                                   
operations (including Sakura) reported an attributable headline
loss of R155 million for the period (1H F2020: R80 million).

ARM Platinum attributable headline earnings increased by R1 532
million to R2 021 million (1H F2020: R489 million). The Two Rivers
and Modikwa mines benefited from a 35% and 162% increase in average
realised US dollar palladium and rhodium prices, respectively.
Rhodium comprised 45% and 47% of Modikwa and Two Rivers basket
prices respectively.

Two Rivers Mine production volumes increased by 9% while production
unit costs on a rand per 6E ounce basis were 6% lower. Modikwa
Mine, on the other hand, reported a 29% decrease in production
volumes owing to safety-related stoppages following the two fatal
accidents (discussed above) as well as 12 days of industrial
action. Commensurate with the lower production volumes, production
unit costs at Modikwa Mine were 39% higher. The mine is ramping up
volumes as more production stopes are being opened and is expected
to return to normalized production rates in 2H F2021. Production
unit costs are expected to improve as the mine ramps up production.
The ARM Mining Consortium headline earnings includes a re-
measurement loss of R107 million on partner loans (1H F2020: R51

Nkomati Mine reported attributable headline earnings of R280
million for the period under review (1H F2020: R211 million
headline loss). Production volumes are scaling down to place the
open-pit mine on care and maintenance in preparation for closure.
Production is expected to cease in March 2021 (previously September

ARM Coal reported an attributable headline loss of R222 million
(1H F2020: R101 million) which includes a re-measurement gain of
R2 million (1H F2020: R104 million re-measurement gain) on partner
The headline loss was mainly as a result of the sharp decline in
export thermal coal prices, lower sales volumes (due to reduced
Eskom offtake and logistics and mining challenges) and above-
inflation production unit cost increases.

ARM Corporate and other headline earnings were R345 million
compared to an R8 million headline loss in 1H F2020. The higher
headline earnings were mainly due to increased re-measurement gains
of R120 million in the current period (1H F2020: R59 million) and
higher management fees received which increased to R779 million
(1H F2020: R351 million). The Machadodorp Works headline loss was
R60 million as research into the development of energy-efficient
smelting technology progressed.

Basic earnings and impairments
Basic earnings were R4 868 million or R24.99 per share (1H F2020:
R2 132 million or R11.02 per share) and include an impairment of
the Sakura Ferroalloys investment recognised on Assmang’s
equity?accounted investment of R337 million. ARM’s attributable
share of the impairment loss amounted to R169 million after tax.

This impairment was largely due to:
   - A decline in forecast long-term manganese alloys prices.
   - Lower sales volumes at Sakura Ferroalloys compared to the
     prior year forecast.

In terms of International Financial Reporting Standards, a
discounted cash flow valuation was performed to determine the fair
value less cost of disposal of the investment. The recoverable
amount of Assmang’s investment in Sakura Ferroalloys amounted to
R401 million at 31 December 2020 (ARM attributable portion: R200

Financial position
At 31 December 2020, ARM was in a net cash position of R4 812
million (30 June 2020: R3 737 million restated), an improvement of
R1 075 million compared to the net cash at the end of the 2020
financial year.

This amount excludes attributable cash and cash equivalents held
at ARM Ferrous (50% of Assmang) of R3 338 million (30 June 2020:
R3 208 million and 30 December 2019: R3 107 million). There was no
debt at ARM Ferrous in any of these reporting periods.

There was a R20 million negative mark-to-market movement on the
Harmony investment following the decrease in Harmony’s share price
from R71.86 per share at 30 June 2020 to R71.60 at 31 December

Cash flow
Cash generated from operations increased by R1 105 million to R2
026 million (1H F2020: R921 million) despite a R3 587 million
outflow in working capital requirements (1H F2020: R1 280 million)
which was mainly due to an increase in debtors at the PGM operations
and ARM Corporate, commensurate with increased sales revenue.

The dividends received from Two Rivers and Assmang amounted to R432
million and R1 500 million, respectively (1H F2020: R90 million
from Two Rivers and R2 000 million from Assmang).
In 1H F2021, R1 364 million in dividends was paid to ARM
shareholders (representing the final dividend of R7.00 per share
declared for F2020 (1H F2020: R1 741 million representing the R9.00
final dividend declared for F2019).

Net cash inflow from investing activities was R13 million (1H
F2020: R492 million outflow) and includes net proceeds from
financial assets matured of R856 million.

Borrowings of R177 million (1H F2020: R147 million) were repaid
during the period, resulting in gross debt of R2 003 million as at
31 December 2020 (30 June 2020: R1 978 million restated). Modikwa
Mine repaid R686 million of its partner loans.

Capital expenditure
Segmental capital expenditure was R1 877 million (1H F2020: R1 573
million) and included R271 million of capitalised waste stripping
at the iron ore operations (1H F2020: R215 million). Capital
expenditure by division is shown below and is discussed in detail
in each division’s operational performance review.

ARM Coal receivable
ARM Coal in prior periods recorded an amount payable by Glencore
Operations South Africa (GOSA) to ARM Coal of R452 million (ARM’s
attributable portion: R230 million) as a long-term receivable

At the date of ARM’s previous report (which was for the financial
year ended 30 June 2020), GOSA had not agreed to the outstanding
balance of the receivable and ARM Coal was unable at that time to
provide sufficient evidence to validate this receivable in its
accounting records. Details of this and the resulting qualification
were included in the audited annual financial statements for the
financial year ended 30 June 2020, which can be found on

ARM has since completed an investigation and the entries which gave
rise to the long-term receivable have been identified and agreed
between ARM Coal, GGV Mine and GOSA. The results of the
investigation concluded that all the items included in the ARM Coal
long-term receivable were confirmed to be valid receivables,
however R283 million should have been classified as trade and other
receivables and R53 million should have been included in the long-
term borrowings rather than being accounted for as long-term
receivables in the statement of financial position.

Management has accounted for the above as a prior period error in
terms of IAS 8. The error was corrected by restating each of the                                                                   
affected line items in the statement of financial position and
therefore had no impact on the statement of profit or loss, the
statement of comprehensive income and the statement of cash flows.
Refer to note 5 to the financial statements for further details.

Dividend declaration
Dividends are at the discretion of the board of directors which
considers the company’s capital allocation guiding principles as
well as other relevant factors such as financial performance,
commodities outlook, investment opportunities, gearing levels as
well as solvency and liquidity requirements of the Companies Act.

For 1H F2021, the board approved and declared an interim dividend
of 1 000 cents per share (gross) (1H F2020: 500 cents per share).
The amount to be paid is approximately R2 244 million.

The dividend declared will be subject to dividend withholding tax.
In line with paragraphs 11.17(a) (i) to (x) and 11.17(c) of the JSE
Listings Requirements, the following additional information is
   - The dividend has been declared out of income reserves.
   - The South African dividends tax rate is 20%.
   - The gross local dividend is 1 000 cents per ordinary share for
     shareholders exempt from dividends tax.
   - The net local dividend is 800 cents per share for shareholders
     liable to pay dividends tax.
   - At the date of this declaration, ARM has 224 409 073 ordinary
     shares in issue.
   - ARM’s income tax reference number is 9030/018/60/1.

A gross dividend of 1 000 cents per ordinary share, being the
dividend for the six months ended 31 December 2020, has been declared
payable on Monday, 29 March 2021 to those shareholders recorded in
the books of the company at the close of business on Friday, 26
March 2021. The dividend is declared in the currency of South Africa.
Any change in address or dividend instruction applying to this
dividend must be received by the company’s transfer secretaries or
registrar not later than Wednesday, 24 March 2021. The last day to
trade ordinary shares cum dividend is Tuesday, 23 March 2021.
Ordinary shares trade ex-dividend from Wednesday, 24 March 2021. The
record date is Friday, 26 March 2021 while the payment date is
Monday, 29 March 2021.

No dematerialisation or rematerialisation of share certificates may
occur between Wednesday, 24 March 2021 and Friday, 26 March 2021,
both dates inclusive, nor may any transfers between registers take
place during this period.

Review by independent auditor
The financial results for the six months ended 31 December 2020
have been reviewed by the company’s registered auditor, Ernst &
Young Inc. (the partner in charge is PD Grobbelaar CA(SA)), who
expressed an unmodified conclusion with an emphasis of matter
thereon. The full review report can be found on the ARM website on

Basis of preparation
The condensed group interim financial statements for the six months
ended 31 December 2020 have been prepared on the historical cost
basis, except for certain financial instruments, which include
listed investments and unlisted investments that are fair valued.

The accounting policies used are consistent with those in the most
recent annual financial statements except for those listed in the
notes to the condensed group interim financial statements and
comply with IFRS. The condensed group interim financial statements
for the period have been prepared under the supervision of the
Finance Director, Miss TTA Mhlanga CA(SA).

The presentation and functional currency is the South African rand
and the condensed group interim financial statements are rounded
to the nearest R million.


For all investor relations queries please contact:

Jongisa Magagula
Executive Director: Investor Relations     and   New   Business
Tel:      +27 11 779 1507

3 March 2021

Sponsor: Investec Bank Limited


Date: 03-03-2021 07:05:00
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