CURRENTLY VIEWING: Results for the half-year ended 31 December 2011 ยป Commentary

COMMENTARY

RESULTS

Headline earnings for the six months to 31 December 2011 have increased by 48,5%, to R2 067 million, compared to the same period in the previous nancial year. This is due mainly to increased earnings for the period of Assmang Limited (“Assmang”), together with increased commissions earned on improved sales volumes of Group commodities.

Assore holds a 50% interest in Assmang, which is proportionately consolidated in accordance with International Financial Reporting Standards (“IFRS”). Assmang’s headline earnings increased by 57,2% to R3 949 million compared to the same period in the previous nancial year. Higher average US Dollar selling prices for iron ore and increased sales volumes for Assmang’s commodities compared to the six-month period ending 31 December 2010, combined with a weaker average Rand/US Dollar exchange rate for the period, contributed positively to the increased level of earnings.

Market conditions for most of the Group’s commodities have deteriorated, mostly due to the sovereign debt issues in Europe. With the exception of iron ore, demand has declined, with resultant price erosion in the current period under review, compared to the same period in the previous nancial year. Prices for iron ore were higher, although pricing in the current period was more volatile. The weaker Rand/US Dollar exchange rate compensated for some of the impact of the price erosion, while additional export volumes of iron ore resulted in an increased level of contribution to the Group’s earnings. Turnover for the period under review improved in comparison to the same period in the previous nancial year with an increase of 40,2% amounting to R6,4 billion from R4,6 billion in 2010.

On 8 December 2011, shareholders were advised of the Company’s intention to enter into the second phase of its third empowerment transaction, which was approved by shareholders in a meeting convened for this purpose on 19 January 2012. As a result, all of Assore’s black-controlled shares, amounting to 26,07% of the Company’s ordinary shares, are now controlled by broad-based BEE groupings, increasing the Group’s weighted number of treasury shares to 31,97 million. The bridging loan pursuant to the rst phase of the transaction will be settled by the issue of preference shares to the Standard Bank of South Africa Limited (“SBSA”). Refer “Event after the reporting period” below.

SALES VOLUMES

Sales volumes for the current period were higher for iron ore and manganese commodities, while sales of charge chrome and chrome ore were lower than for the comparable period.

The table below sets out Assmang’s sales volumes for the current period:

  Half-year ended  
Metric tons ’000 31 December
2011
31 December
2010
Increase/
(decrease)
%
Iron ore 6 781 4 039 68
Manganese ore* 1 590 1 456 9
Manganese alloys* 104 87 20
Charge chrome 86 91 (5)
Chrome ore* 211 213 (1)

* Excluding intra-group sales to alloy plants.

CAPITAL EXPENDITURE

The bulk of the Group’s capital expenditure occurs in Assmang, where more than R2,1 billion was spent on capital items in the period. R928 million was spent on Assmang’s Khumani Expansion Project (“KEP”), which remains within budget and ahead of schedule. An additional R669 million was spent at Khumani Mine on ramp-up capital, enabling the mine to produce the intended 14 million tons of iron ore per annum for the export market. The conversion of ferrochrome capacity to ferromanganese capacity at the Machadodorp Works continues, and R39 million was spent on the conversion of two furnaces. The bulk of the remainder of Assmang’s capital expenditure is of an ongoing replacement nature.

OUTLOOK

Chinese steel production has declined for the second consecutive quarter, while sovereign debt issues in Europe persist. Prices for iron ore appear to have settled in a band lower than the high levels experienced in the second half of the previous nancial year. Certain high cost Chinese iron ore miners have stopped production as a result, causing reasonably strong demand for seaborne iron ore. Slow economic growth in Europe and elsewhere is also placing pressure on prices of the Group’s other commodities. Since most of the Group’s commodities continue to be exported, it remains signi cantly exposed to uctuations in the Rand/US Dollar exchange rate. These factors make it dif cult to predict the future performance of the Group in the second half of the nancial year with any certainty.

DIVIDENDS

The results in the announcement include the nal dividend relating to the previous nancial year of 250 cents (2010: 240 cents) per share, which was declared on 24 August 2011 and paid to shareholders on 19 September 2011. The board intends declaring an interim dividend in April 2012 of 250 (2011: 200) cents per share, having regard to the requirements of the Companies Act and other regulatory requirements.

ACCOUNTING POLICIES AND BASIS OF PREPARATION

The nancial results for the period under review have been prepared under the supervision of Mr CJ Cory, CA(SA) and in accordance with IAS 34 – Interim Financial Reporting. The accounting policies applied are consistent with those adopted in the nancial year ended 30 June 2011. Revisions and amendments to, and interpretations of IFRS effective in the period have not had any impact on the results or disclosures of the Group.

EVENT AFTER THE REPORTING PERIOD

The special and ordinary resolutions tabled at the general meeting of shareholders on 19 January 2012 relating to the second phase of the Group’s third empowerment transaction were approved by the requisite majorities of shareholders. In terms of the transaction, the Company will issue preference shares to SBSA on 21 February 2012, which will replace the bridging loan provided to a special-purpose vehicle (“SPV”), while subscribing for preference shares in the same amount in the SPV. Accordingly, an amount of R2,2 billion will be transferred to interest-bearing long-term liabilities from interest-bearing current liabilities.

DIRECTORS

Since 1 July 2011, the following changes to the board of directors have taken place:

  • 19 August 2011 โ€“ following the conclusion of the first phase of the third empowerment transaction, Mr MC Ramaphosa (and his alternate, Mr RM Smith) resigned as a non-executive director;
  • 7 October, and 1 November 2011 respectively, Ms ZP Manase was appointed and resigned as an independent non-executive director, due to a potential conflict of interest;
  • 10 October 2011 โ€“ Messrs AD Stalker and BH van Aswegen were appointed as alternate directors to Messrs CJ Cory and PC Crous respectively; and
  • 31 December 2011 โ€“ Dr JC van der Horst retired from the board, after an aggregate tenure of 17 years' service.
On behalf of the board    
Desmond Sacco CJ Cory Johannesburg
Chairman Chief Executive Officer 15 February 2012