Assore - FINAL RESULTS 2009
     

COMMENTARY

Headline earnings for the fiscal year to 30 June 2009 have increased by 6,8% to R3 266 million due to a rise in the earnings of Assmang Limited (Assmang), and the increased commissions earned on the higher sales of Group products,mostly occurring in the first fiscal quarter. Assoreholds a50% interest in Assmang,which is proportionately consolidated in accordance with International Financial Reporting Standards (IFRS).

Assmang’s headline earnings increased by 13% to R6 288 million compared to the previous year, buoyed by record volumes of iron ore sales. The increase in earnings was achieved despite the world economic turmoil, which set in at the beginning of October 2008, and is largely attributable to a combination of substantially higher US Dollar prices for all products in the first fiscal quarter and weaker US Dollar/SA Rand exchange rates, prevalent in the second fiscal quarter. Markets for all products were strong in the first quarter with prices and volumes driven by increased production of carbon- and stainless steels worldwide, particularly in China.The second quarter saw a dramatic deterioration in market conditions on the back of the current world economic turmoil, resulting in decreased demand for all group products, except for iron ore, where export volumes are largely unaffected, but prices have declined. This situation improved over the remainder of the year, specifically impacting upon the level of spot transactions for manganese ore in the second half of the year.

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SALES VOLUMES AND DIVISIONAL CONTRIBUTION

Assmang's turnover for the period under review reached a record level of R15,3 billion (2008: R14,8 billion). However, with the exception of iron ore which was at record levels, sales volumes over the year were lower for all products due to the world economic turmoil referred to above that set in from the second fiscal quarter, as shown in the table below:

2009  
2008  
M tons ’000  
M tons ’000  
% change  
Iron ore 
7 409  
6 581  
13  
Manganese ore*
2 152  
3 711  
(42) 
Manganese alloys*
117  
247  
(53) 
Charge chrome
144  
275  
(48) 
Chrome ore* 
256  
304  
(16) 
* Excluding intra-group sales      

The divisional contributions to headline earnings of Assmang for the year were as follows:

 
2009  
 
2008  
 
Rm  
 
Rm  
% change  
Iron ore division   
2 160  
 
780  
177  
Manganese division   
3 915  
 
4 087  
-4  
Chrome division   
213  
 
683  
-69  
Total – Assmang   
6 288  
 
5 550  
13  
Attributable to Assore 50%   
3 144  
 
2 775  
13  


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CAPITAL EXPENDITURE

The bulk of the Group's capital expenditure occurs in Assmang and is summarised by division for the period under review as follows:

 
2009  
2008  
 
Rm  
Rm  
Iron ore division   
1 529  
2 231  
Manganese division   
854  
511  
Chrome division   
397  
158  
Total – Assmang   
2 780  
2 900  

The major capital expenditure for the year occurred in the iron ore and manganese divisions of Assmang. A total of R924 million was spent on infrastructural items at the recently commissioned Khumani Iron Ore Mine; R161 million was spent on the beneficiation plant at the Nchwaning Manganese Mine and R63 million being spent at the Dwarsrivier Chrome Ore Mine. Furnace rebuilding and emission reduction projects totalling R296 million were undertaken at Cato Ridge Works and at Machadadorp Works. Apart from the expenditure in Assmang, R48 million has been spent on the development of two underground shafts at the Rustenburg Chrome Ore Mine, which is 44% held by a black economic empowerment partner for the benefit of historically disadvantaged groups in the area surrounding the mining operations.The estimated expenditure to complete this development is R60 million.

The feasibility study to expand Khumani's annual capacity to 16 million tons per annum has been completed, and R5,5 billion of additional capital has been approved for this project, which will be funded from internally generated cash flows and existing borrowing facilities. Commitment to increase Assmang's annual export allocation on the Sishen/Saldanha line to 14 million tons per annum has been received from Transnet.

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OUTLOOK

Recent conditions in all markets have shown signs of improvement, with increased sales prices being realised. However, it is too early to assess the sustainability of these improvements.Therefore, it is not possible to estimate the extent of the impact of these developments on Group earnings with reasonable assurance or accuracy.

Assmang's 10 million tons Iron Ore Mine has been completed and approval to increase capacity to 16 million tons per annum has been granted.The Group's performance continues to be significantly exposed to fluctuations in exchange rates as the bulk of the Group's sales remain in the export market.

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DIVIDENDS

The results in this announcement include the interim dividend of 1 000 cents (2008: 250 cents) per share which was declared on 17 February 2009 and paid to shareholders on 16 March 2009.

In line with the results for the year the Board has maintained a final dividend of 1 000 cents making a total dividend for the year of 2 000 cents per share (2008: 1 250 cents).The final dividend will be paid to shareholders on or about 21 September 2009 and is not included in the results as it was declared after year-end.

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REVIEW BY AUDITOR

Ernst & Young Inc, the Group's auditors, has reviewed the financial results included in this announcement in accordance with ISRE 2410 - Review of Interim Financial Information Performed by the Independent Auditor of the Entity, whose unmodified report is available for inspection at the registered office of the company.

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ACCOUNTING POLICIES AND BASIS OF PREPARATION

The financial results included in this announcement are presented in terms of IAS 34 – Interim Financial Reporting and have been prepared in accordance with the principal accounting policies of the Group, which comply with IFRS and are consistent with those applied in the previous year, with the exception of the adoption of the following policies in response to changes in IFRS since the previous year-end:

IAS 39 and IFRS 7: Reclassification of Financial Assets – Amendments to IAS 39 Financial Instruments:
Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures
IFRIC 11 – Group and Treasury Share Transactions
IFRIC 12 – Service Concession Agreements
IFRIC 13 – Customer Loyalty Programmes
IFRIC 14 and IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

The adoption of these amendments to standards and interpretations has had no effect on the financial statements of the Group except for the disclosure of additional information.

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