Petmin’s Somkhele lifts H1 headline earnings, impairment sinks basic earnings

JOHANNESBURG (miningweekly.com) – JSE-listed Petmin on Monday posted a 70% increase in headline earnings a share to 14.32c for the six months to December 31, as its Somkhele anthracite mine, in KwaZulu-Natal, continued to deliver a “solid” performance.

However, a R115-million full impairment of an investment in the Veremo iron-ore to pig iron project, in Mpumalanga, led to a basic loss a share of 7.15c during the first half of the year, from basic earnings a share of 8.40c in the six months to December 2014.

“The decision to impair the Veremo investment was due to the continued lack of acceptable progress in discussions with the majority shareholders of Veremo on how best to take the project forward, the continued downward pressure on iron-ore prices, and the fact the mining right awarded in January 2014 has still not been executed,” the company explained.

The multicommodity miner reported an overall loss for the period under review of R38.4-million, against a profit of R47.1-million in the prior comparative period. However, gross profit was up 40% to R137-million and profit from operating activities was up 46% to R127-million during the first half under review.

Revenue during the six months to December increased 4% to R721-million.

At December 31, Petmin had R297-million cash-on-hand, an increase on the R10-million in the prior corresponding period.

Capital expenditure (capex) nearly doubled to R35-million, with R20-million used to develop new mining areas at Somkhele to secure future production.

SOMKHELE
Petmin’s Somkhele metallurgical anthracite operation registered a 6% decrease in the production of saleable anthracite to 637 000 tonnes, owing to geological conditions, while tonnes sold declined 6% to 621 000 t during the six months to December.

Production costs per tonne during the half-year increased some 7% from the comparative period in 2014, owing to reduced volume produced and the increasing rand/dollar exchange rate-linked costs of explosives and diesel.

It was expected that production costs would edge up 5% or less in the second half of the current financial year, as current geological conditions reduced anthracite production levels by 15%. Sales volumes were expected to reduce by 5% during the final six months of the financial year.

About half of Petmin’s planned R64-million capex for the next six months was allocated to the planned development and relocation expenditure to open up new mining areas at the operation.

PETMIN’S PRIORITY PROJECT FOCUS
Meanwhile, Petmin injected $2-million post period-end to take its shareholding in the North Atlantic Iron Corporation (NAIC) industrial project to 40%. This followed a $2-million investment during the six months to December to bring the shareholding up to 38%.

Petmin’s “priority project focus” was a robust North America-based development stage industrial project to produce high-quality low-cost merchant pig iron.

A bankable feasibility study (BFS), incorporating sales and marketing strategies and offtakes, was due in mid-2016, with the final engineering design and equipment costing for the first NAIC plant currently being concluded by Tenova and Tecint.

NAIC appointed SNC-Lavalin to manage the 12- to 15-month environmental permitting process.

Debt and equity funding processes for the plant construction would start once the BFS was concluded; however, discussions were already under way with export credit agencies on the fiscal funding mechanisms available to NAIC.