Operational review and commentary

The financial results of the Assore group are largely dependent on the level of global economic growth, as almost all commodities produced are used in the production of crude and stainless steels, the consumption of which is intimately related to the incidence of global capital spend.

Group results are significantly affected by US dollar commodity prices, exchange rates and world economic growth, all of which are risks that cannot be directly controlled.

Refer “Risks and opportunities”.


The group

The group’s markets are mostly centred in the Far East, India, Europe, North America and South Africa. The market into which the group sells the majority of its products is the Chinese market. The group continues to develop other markets in an attempt to diversify this risk.

Customers in the group’s markets continue to show strong support for its products, but constrained economic growth during the year has limited real growth in their overall demand. India and China have demonstrated the highest potential for growth and relationships continue to be built in these markets.

As anticipated, world crude steel production declined by 2% in the 2015 calendar year, with a further decline expected for the 2016 calendar year. China continued to dominate world crude steel production, producing approximately 50% of the world total production, but following reduced demand for crude steel, production slowed. In order to maintain production levels, Chinese steel mills increased the level of exports from approximately 94 million tonnes in 2014 to approximately 112 million tonnes in 2015, with most of the product being sold into Southeast Asian markets. This caused a major disruption in all markets and contributed extensively to the decrease in pricing across all steel products.

Early in 2016, Chinese authorities applied economic stimulus measures, which, in conjunction with heightened environmental restrictions, assisted in maintaining or in some cases, strengthening the prices of the group’s commodities to more profitable levels

Contributions to the group’s headline earnings/(losses) by commodity were as follows:

  2016  2015
  R million  R million
Iron ore   1 215  1 248
Manganese   198  289
Chrome   (20) 81
Other group transactions   351  358
Per consolidated income statement   1 744  1 976

The group, through its wholly owned subsidiary Ore & Metal, is the sole marketing and distribution agent for all the group’s products, including those of Assmang.

The sales volumes for Assmang for the current and previous years were as follows:

  2016  2015 
  metric tons  metric tons  Increase/ 
  ’000  ’000  (decrease) 
Iron ore   17 008  16 185 
Manganese ore*   3 030  2 736  11 
Manganese alloys   175  223  (22)
Chrome ore   1 147  1 068 
* Excludes intra-group sales to alloy plants.

Iron ore

Iron ore sales volumes for the year increased to a record 17,0 million tonnes (2015: 16,2 million tonnes), up 5% compared to the previous year, mainly as a result of local sales volumes increasing by 15%. Export sales increased by 3% over the previous year on the back of improved production at the Khumani Iron Ore Mine and improved rail performance from the mine to Saldanha Bay port.

The geographical sales distribution was further optimised during the year, with specific focus applied to achieving improved diversification of sales to regions and customers, where higher net prices were realised. Sales volumes into Asia increased from 68% to 73% mainly as a result of a higher proportion of spot sales volume to the Chinese market due to increased production of steel, which also assisted in higher price realisation. The proportion of sales into India remained similar to the previous year, while export sales to the European market declined to 10% of total sales (2015: 14%).

The supply of global seaborne iron ore continued to grow over the year. As was the case in 2015, the major contributors to the increased supply of iron ore were the low-cost producers in Australia and Brazil.

Higher than anticipated Chinese steel production supported iron ore prices during the second half of the financial year. The average price for 62% iron content fines grade, delivered into China was 28% lower for the current financial year, at US$51 per tonne (2015: US$72 per tonne). The premium for lumpy grade ores (lumpy premium) has, on average, also been lower across the year at approximately US$7,80 per tonne (2015: US$12,00 per tonne). However, the average lumpy premium recovered during the second half of the financial year and increased to approximately US$10 per tonne as demand out of China increased as productivity improvements in blast furnaces were prioritised and steel demand improved. Approximately half of the group’s iron ore sold is “lumpy grade” product, which results in lower emission levels, when used in blast furnaces in the steel production process due to it replacing higher polluting sinter capacity.

Lower ocean freight rates also supported margins during the financial year, due in part to the continued excess global shipping capacity and lower oil prices. On a per-region basis, the sales volumes for the year and the previous financial year are illustrated as follows:

The contribution to Assore’s headline earnings by Assmang’s Iron Ore division decreased marginally by 2,6% to R1 215 million (2015: R1 248 million). Capital expenditure during the year in Assmang’s Iron Ore division amounted to R901 million (2015: R1,6 billion) of which R383 million was spent on waste-stripping at both mines, with replacement capital comprising most of the balance spent.

Manganese ore and alloys

The manganese ore market during the year under review was marked by extreme volatility. Fairly rapid cycles of demand and lack of demand resulted in notable price instability. As in the past, China’s demand, resulting from internal factors and government stimulus, had the most significant influence on the seaborne market.

The oversupply of semi-carbonate ores from South Africa continued during the year, with miners in the Kalahari increasing both their production and export volumes in recent years. The lowest prices were experienced in January 2016 and these price levels prompted the significant withdrawal of export volumes and production cuts. A cycle of high demand followed with prices recovering gradually towards April, which in turn prompted increased supplies, causing the price to recede again. The average medium grade (lumpy) ore price index (36% manganese content) for the financial year was US$2,31 per dry metric tonne unit (dmtu), free on board from South Africa (2015: US$2,94 per dmtu).

The supply of high-grade ores (oxide ores) was steadier, but prices for these grades followed a pattern similar to the semicarbonate ores, since these two ore types are partly interchangeable. International suppliers also took advantage of the periodically higher prices, which compounded the overall lower price environment throughout the year. The average high-grade lumpy ore price index (44% manganese content) was US$2,88 per dmtu, delivered in China (2015: US$3,90 per dmtu). The distribution of manganese ore sales on a per-region basis for the current and previous financial year is illustrated as follows:

The global oversupplied situation that has lingered since the middle of 2015 and the reduced crude steel capacity utilisation (which has dropped below 70% from as high as 76%) have resulted in manganese alloy demand over the past 12 months remaining weak. As a result, world manganese alloy production has reduced in an attempt to match this lower demand, evidenced by the numerous plant closures over the past few months in comparison to new global projects. Notwithstanding these supply cuts, which net of new capacity of 840 000 tonnes, amounted to 2,7 million tonnes, the supply/demand balance is yet to be restored. A further obstacle to improved demand during the year has been the negative impact that the increased export of cheap Chinese steel has had on the global market. This has caused a reduction in domestic crude steel production in steel producing countries. Market prices therefore remained weak over the year and particularly over the past few months; however, some recent strengthening in prices has commenced, mainly on the back of stronger prices for manganese ores.

Sales volumes of manganese alloys for the year were lower than during the previous year as a result of the mothballing of the last operating furnace at Assmang’s Machadodorp Works. The distribution of ferromanganese sales on a per-region basis for the current and previous financial year are illustrated as follows:

The contribution to Assore’s headline earnings from Assmang’s Manganese division decreased by 31,5% to R198 million for the current year (2015: R289 million). Capital expenditure during the year in Assmang’s Manganese division amounted to R1,9 billion (2015: R2,0 billion), most of which (R1,7 billion) was spent on the expansion and continued sustainability of the Black Rock mines to reach a sustainable output capacity of at least four million tonnes of manganese product per annum by 2020.

Sakura Ferroalloys, Assmang’s jointventure ferromanganese smelting project in Malaysia, in which it has a 54,36% stake, commissioned one of its two furnaces in May 2016 to produce high-carbon ferromanganese. The construction of the second furnace has continued and remains within budget (US$328 million) and on time to be commissioned in September 2016. Once fully commissioned, the plant will be able to produce 110 000 tonnes of high-carbon ferromanganese and 70 000 tonnes of silico manganese annually.


In 2015, global stainless steel production contracted slightly to 42 million tonnes, with China’s contribution remaining at approximately half of this volume. In line with the contraction in the stainless steel market, global ferrochrome production also reduced.

China continues to be the driving force for demand of both chrome ore and ferrochrome. Lower than usual levels of port stocks towards the middle of 2016 resulted in prices recovering from the lows seen during December 2015 and January 2016. South Africa remains the world’s largest chrome ore supplier, with approximately 7,6 million tonnes supplied into China during the 2015 calendar year, representing 73% of this market. Prices for chrome ore (LG6 concentrate 44% grade, delivered in China) dropped from US$180 per tonne to lows of approximately US$90 per tonne in the early part of the 2016 calendar year, but recovered to levels of US$165 per tonne towards the end of the financial year. Due to South Africa’s contribution to the level of global supply of chrome ore, much of the pricing dynamic in this market is derived from the rand/US dollar exchange rate and the weaker rate during the year has supported favourable net prices. Combined with lower logistical costs, this has resulted in Dwarsrivier Chrome Mine (Dwarsrivier) recording a profit for the second consecutive year. Dwarsrivier achieved record sales volumes for the year, with sales of ore on a per-region basis for the current and previous financial years illustrated as follows:

Subsequent to the end of the financial year, the group acquired the remaining indirect 50% interest in Dwarsrivier from ARM (refer note 36 to the consolidated financial statements). Dwarsrivier spent R149 million on capital items during the year, of which approximately one-third was spent on shaft development.

During the year, Rustenburg Minerals sold approximately 135 000 tonnes (2015: 137 000 tonnes) of lumpy and concentrate grades and Zeerust sold approximately 4 000 tonnes of waste material. The open-cast resources at Rustenburg Minerals have been depleted and the underground shaft development was suspended in 2015, while the remaining waste material at Zeerust has been processed and sold. Accordingly, the facilities of these operations have been impaired in full (refer note 2 to the consolidated financial statements) and attempts are being made to dispose of these mines.


Since 1937, the group has mined a type of pyrophyllite which, for trade purposes, is referred to as Wonderstone. The deposit, which is located outside Ottosdal approximately 300 kilometres west of Johannesburg, is volcanic in origin and displays unique heat holding, insulation and pressure-resistant properties. The bulk of the material mined is beneficiated and reworked into components for export to the USA, the United Kingdom and the Far East. These components are utilised in various high-tech industrial applications, including the manufacture of synthetic diamonds and consumable products for the welding and electronics industries, and are sold as specialist ceramic products. The most significant market for Wonderstone products is its use in the manufacture of polycrystalline diamond (PCD) cutters for drilling in the oil and gas well industries. Other uses for Wonderstone occur in insecticides, while investigations into heat and energy storage are being undertaken.

The significant reduction in the oil price in the past few years has impacted on oil drilling activity with a resultant decline in demand for Wonderstone. However, the market is recovering and improved levels of sales are being recorded. There has also been growth in demand from local customers for Wonderstone powders and the sale of Wonderstone run-of-mine (ROM) material to China is growing steadily.

Alumina wear-resistant tiles are produced by Ceramox, a division of Wonderstone (Ceramox), most of which are supplied to local installers of wear-resistant linings, which have shown significant sales growth over the recent past. Wonderstone, through its division Groupline Projects (Groupline), specifies, selects and installs a range of lining products, including Ceramox alumina tiles, to assist in solving a wide range of industrial wear and flow problems associated with mined commodities. On account of depressed economic growth in South Africa, local market conditions in the past year were difficult and Ceramox and Groupline recorded losses for the year. Due to a shortage of its traditional project work, Groupline adopted a turnaround strategy, which includes expanding its footprint in South Africa, with branches established in Rustenburg, the Northern Cape and Richards Bay, which have improved its ability to deliver maintenance services.

Sales of Wonderstone’s various divisions for the current and previous financial years are illustrated as follows:

Capital expenditure by Wonderstone for the year amounted to R2,0 million (2015: R4,6 million), most of which was spent on mining and machining equipment.

Marketing and shipping

Wholly owned subsidiary Ore & Metal Company Limited is responsible for the marketing and shipping of all the group’s products, including those produced by the three divisions of Assmang. Strong relationships have been established with customers in the Far East, Europe, North America, South America, Africa and India, and products with a market value of approximately R21,1 billion (2015: R21,6 billion) were marketed and distributed in these regions during the year. The company is an established supplier to steel and allied industries worldwide and has operated effectively in these markets for over 80 years. Commission income is based on the value of sales negotiated during the year, and attributable profit after taxation for the year improved to R271,3 million (2015: R222,9 million) for the year under review, due mainly to higher sales volumes of ores, increased interest income and lower operating costs.

Minerais U.S. LLC

The group holds a 51% share in Minerais U.S. LLC (Minerais) which is a limited liability company registered in the state of New Jersey in the United States of America (USA). Minerais is responsible for marketing and sales administration of the group’s products in the USA, in particular manganese alloys, and it trades in other commodities related to the steelmaking industry. Reduced levels of sales of alloy products in the USA resulted in Minerais’ contribution to the group’s attributable profit for the year declining to R11,4 million (2015: R31,2 million).

Technical and operational management

As technical adviser to Assmang and other group companies, African Mining and Trust Company Limited provides operational management services to the group’s mines and plants. For these services it receives fee income, which is related to turnover in Assmang and other group companies. The impact of increased commissions received, arising from higher sales volumes of ores in Assmang and higher interest rates, in the amount of R17,0 million, was negated by increased operating costs (R5,5 million) and the cost of the exit from the iCerMax business (R18,3 million) (refer note 34.3 to the consolidated financial statements), resulting in its attributable net profit after taxation for the year decreasing to R101,5 million (2015: R109,8 million).

The group holds a 29,9% interest in IronRidge Resources Limited (IronRidge), which is accounted for using the equity method (refer note 5 to the consolidated financial statements for more detail). Exploration activities by IronRidge continue, with reconnaissance prospecting for iron ore in Gabon at an advanced stage. Other deposits, which are at various stages of assessment, include bauxite in Queensland, Australia, gold in Chad and lithium in the Ivory Coast. The market value of the group’s investment in IronRidge has increased from GBP2,9 million (R56,5 million) at 30 June 2015 to GBP9,0 million (R160,7 million) at 23 September 2016.


The group maintains a limited portfolio of listed shares which are selected and held in accordance with long-term investment criteria. In accordance with IFRS, the portfolio is valued in the financial statements at market value. During the year, the market value of this portfolio declined and the group recorded a loss of R41,8 million (2015: R93,0 million loss) on its revaluation (after allowing for capital gains taxation relief). At 30 June 2016, the market value of the portfolio was R180,1 million (2015: R233,9 million), based on a cost of R293,4 million (2015: R293,4 million). Other income for the group includes interest received of R210,4 million (2015: R155,3 million) generated on cash in excess of current requirements which was invested on a short-term basis in the money market. The higher amount of interest received is due to higher average available cash balances and higher rates of interest.