CURRENTLY VIEWING: Results for the half-year ended 31 December 2012 » Commentary

COMMENTARY

RESULTS

Headline earnings for the six months to 31 December 2012 decreased by 46,5%, to R1 106 million, compared to the same period in the previous financial year. This is due mainly to decreased earnings of Assmang Limited (“Assmang”) for the period, together with reduced commissions earned on lower turnover within the Group.

Assore holds a 50% interest in Assmang, which is proportionately consolidated in accordance with International Financial Reporting Standards (“IFRS”). Assmang’s headline earnings declined by 46,3% to R2 122 million compared to the same period in the previous financial year. Average US Dollar selling prices for iron ore were 35,9% lower than the previous period. In addition, labour issues and production difficulties resulted in higher unit production costs in Assmang’s Manganese Division, which negatively impacted its contribution to headline earnings. The impact of the lower selling prices of iron ore was partly offset by a weaker Rand/US Dollar exchange rate, increased export volumes of iron and chrome ore and firmer prices for manganese ore.

Market conditions for all of the Group’s commodities were more volatile, compared to the previous corresponding period. These conditions, which were characterised by weaker Asian demand and continuing sovereign debt issues in Europe, continued to hamper a recovery in global economic growth. This was evidenced in the lower iron ore prices, and continued downward pricing pressure on the Group’s alloy products. Global shortages in certain grades of manganese ore and the weaker Rand/US Dollar exchange rate resulted in some pricing traction for these grades.

SALES VOLUMES

Sales volumes of iron and chrome ores were higher for the current period. Iron ore volumes were higher due to the availability of increased railage capacity over the period and following the reduction of charge chrome production at Assmang’s Machadodorp Works, additional volumes of chrome ore were available for export. Sales volumes of manganese products were similar to those of the previous period. The table below sets out Assmang’s sales volumes for the current period:

  Half-year ended  
Metric tons ’000 31 December
2012
31 December
2011
Increase/
(decrease)
%
Iron ore 7 433 6 781 10
Manganese ore* 1 513 1 590 (5)
Manganese alloys* 107 104 3
Charge chrome 48 86 (44)
Chrome ore* 483 211 129

* Excluding intra-group sales to alloy plants.

CAPITAL EXPENDITURE

The bulk of the Group’s capital expenditure occurs in Assmang, where more than R2,3 billion was spent on capital items in the current period (2012: R2,1 billion). R1,4 billion was spent in the iron ore division, with R446 million on waste stripping, R351 million on the Wet High Intensity Magnetic Separation (“WHIMS”) project and R181 million on the Khumani Expansion Project (“KEP”). The expansion of the manganese ore mines continues, and R144 million was spent at the Black Rock mines, while R83 million was spent on facilities to optimise existing logistical infrastructure. A further R219 million was spent on the conversion of ferrochrome capacity to ferromanganese capacity at the Machadodorp Works. Replacement capital makes up the remainder of the capital spent within Assmang.

OUTLOOK

Subsequent to the leadership change in China, increased economic activity in China has become apparent and has resulted in increased demand for the Group’s commodities. However, the resultant recovery in economic growth is fragile. In addition, the steel industry in Europe continues to be in a state of decline, albeit at a slower rate than in the previous calendar year. Whilst there are signs of a recovery in the United States economy, it is unclear as to the strength of this recovery. Recent increases in iron ore prices have been maintained and it is anticipated that prices for the remainder of the financial year will stabilise at levels higher than those for the first half of the financial year. Shortages of certain grades of manganese ore continue to support higher prices for some of the Group’s manganese products. The Group’s results remain exposed to fluctuations in the Rand/US Dollar exchange rate.

DIVIDENDS

The results in this announcement include the final dividend relating to the previous financial year of 300 cents (2011: 250 cents) per share, which was declared on 31 August 2012 and paid to shareholders on 1 October 2012. Based on the level of earnings for the period, the board has declared an interim dividend of 250 cents (2012: 250 cents) per share, which will be paid to shareholders on or about 11 March 2013..

ACCOUNTING POLICIES AND BASIS OF PREPARATION

The financial 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 financial year ended 30 June 2012. Amendments to IFRS effective in the period have not had any impact on the results or disclosures of the Group.

DIRECTORS

Since 1 July 2012, the following changes to the board of directors have taken place:

  • 31 August 2012 Mr PC (Phil) Crous resigned as Group Technical and Operations Director, following his decision to take early retirement;
  • 1 September 2012 – Messrs AD (Alastair) Stalker and BH (Tiaan) van Aswegen, were appointed as Group Marketing Director and Group Technical and Operations Director respectively; and
  • 15 October 2012 – Mr S (Sydney) Mhlarhi was appointed as an independent non-executive director and as a member of the Audit and Risk Committee.

DECLARATION OF INTERIM DIVIDEND

Shareholders are advised that the board of directors has declared Interim Dividend Number 112 (“the Dividend”), of 250 cents (2012: 250 cents) per share (gross) for the period ended 31 December 2012 on 12 February 2013.

In terms of paragraph 11.17 of the Listings Requirements of the JSE Limited, shareholders are advised of the following with regard to the declaration:

  1. the Dividend has been declared from accumulated revenue;
  2. the local Dividend Tax rate is 15%;
  3. the Company does not have any Secondary Companies Tax (“STC”) credit available to reduce the impact of the Dividend Tax;
  4. the net local dividend amount is 212,5 cents per share for shareholders liable to pay the Dividends Tax;
  5. the issued ordinary share capital of Assore is 139 607 000 shares, of which 36 400 000 shares are accounted for as treasury shares in terms of IFRS and are therefore excluded from earnings per share calculations; and
  6. Assore’s income tax reference number is 9045/018/84/4.

The salient dates are as follows:

Last day for trading to qualify and participate in the final dividend Friday, 1 March 2013
Trading “ex dividend” commences Monday, 4 March 2013
Record date Friday, 8 March 2013
Dividend payment date Monday, 11 March 2013
Dates (inclusive) between which share certificates may not be dematerialised or rematerialised Monday, 4 March 2013 to Friday, 8 March 2013
   
On behalf of the board    
Desmond Sacco CJ Cory Johannesburg
Chairman Chief Executive Officer 13 February 2013