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Petmin Limited (PTMN)

Petmin Limited

Somkhele Expansion results
RNS Number : 1931P
Petmin Limited
30 September 2013

Incorporated in the Republic of South Africa
Registration Number 1972/001062/06
Share Code JSE: PET & ISIN: ZAE000076014
Share Code AIM: PTMN
("Petmin" or the "Company") 

30 September 2013


Somkhele expansion delivering results  

Financial highlights

Ø Earnings from continuing operations excluding impairments up 18% to 15.25 cents (2012: 12.98 cents)

Ø Headline earnings per share of 15.25 cents (2012: 19.06 cents - including 6.68 cents from SamQuarz)

Ø Profit after tax down 22% to R88 million (2012: R113 million) - excluding Veremo impairment

Ø 92% increase in second-half headline earnings per share ("HEPS") from improved performance compared to first half at Somkhele

Ø Additional US$6.5 million (2012: US$5 million) invested in North Atlantic Iron Corporation ("NAIC") to take Petmin shareholding to 25%

Ø R200 million impairment of investment in the Veremo project

Ø Dividend of 3 cents per share (20% of HEPS) declared on 30 September 2013 (2012: 5 cents)


Operational highlights

Ø Third plant successfully commissioned and fully operational in second half - producing 207 238 tonnes of energy product

Ø Successful smelt tests conducted at NAIC pig iron project

Ø Progress towards Preliminary Economic Assessment (PEA) on NAIC iron sands project


Petmin has reported earnings per share from continuing operations, excluding impairments, up 18% to 15.25 cents (2012: 12.98 cents) for the financial year ended 30 June 2013.


Profit for the year after tax, excluding a R200m impairment on the Veremo project, was down 22% to R88 million (2012: R113 million - includes R57 million from SamQuarz).


Second half profit, excluding the impairment on the Veremo project, was up 92% to R58 million, after production at the Somkhele anthracite mine recovered following first half-year disruptions due to excess rain and unprotected strike action. 


Petmin's operations remain strongly cash generative, generating R392 million in the year to 30 June 2013 (2012: R444 million - includes R37 million from SamQuarz).


After a R200m impairment against the value of the Veremo project, a loss for the year of R112m was reported from continuing operations (2012: profit of R56 million).


During the year under review, Petmin incurred capital expenditure of R243 million (2012: R460 million) in support of its growth and diversification strategy, of which R224 million was spent at Somkhele (2012: R388 million).


With the significant capital investment at Somkhele largely completed, the mine is now geared to produce up to 1.2 million tonnes per annum of anthracite and 480 000 tonnes per annum of energy product.


Petmin invested a further R92m in jointly controlled entities (2012: R46m). The investment of R43m in NAIC takes Petmin's interest at 30 June 2013 to 25.15% and provides funding for a Preliminary Economic Assessment ("PEA"), and recent smelt tests which successfully produced pig iron.


A net investment of R49m in a joint venture ("JV") with the mining contractor at Somkhele provides Petmin with a 50% stake in that business.


"After a challenging first half, Petmin recovered well to post results which are pleasing under the circumstances," said Petmin chief executive Jan du Preez. "Our Somkhele anthracite operation is now demonstrating the impact of our sustained investment and we are making good progress in our NAIC pig iron project in Canada."


Somkhele operations update

Somkhele reported increased production after a full year of operations from its second wash plant, together with the commissioning of a third wash plant in February 2013 to produce energy product.


During the year ended 30 June 2013, Somkhele produced 822 431 tonnes of anthracite (2012: 637 220 tonnes) and 207 238 tonnes of energy product (2012: nil).


Anthracite production increased by 80% in the second half to 528 666 tonnes (first half: 293 765 tonnes) after first half production difficulties were addressed.


Net profit margins reduced to 16% (2012: 26%) for the year ended 30 June 2013 as sales price increases in a subdued market could not compensate for the increased cost of mining, increased interest charges on the new debt, the impact of an unprotected strike, and operational challenges in the first half due to excess rain.


Management continues to seek ways to reduce costs and improve productivity.


The commissioning of the third plant for a total cost of R62m provides Somkhele with the capacity to produce 480 000 tonnes per annum of product as a blend for the energy market.


Tendele Coal Mining (Proprietary) Limited ("Tendele") and its major customer for this product are in dispute. Tendele and its legal advisers believe the matter should be resolved in Tendele's favour and no liability has been recognised at 30 June 2013. Petmin has engaged a number of additional customers, some of whom have taken trial shipments of its energy product and have indicated their willingness to sign off-take agreements.


Exploration and resource definition activities conducted at Somkhele during the year have borne fruit and management expects to report substantially increased SAMREC -compliant reserves by November 2013.


After the granting of a new order 20-year mining right for an extension to the existing mining area, mining has commenced in the Luhlanga area. This provides flexibility to blend production to supply improved yields and quality of product, and reduces the risk of production delays by having multiple pits in production.


In June 2013, Tendele submitted an application for a mining right over the remainder of Areas 4 and 5 at Somkhele, following an extensive drilling programme conducted over the past three years.


A campaign was undertaken to stockpile an additional 100 000 run on mine ("ROM") tonnes to ensure an adequate amount of available coal for the wash plants in the event of a repeat of the production difficulties incurred in the first half. At 30 June 2013, Somkhele had 142 298 ROM tonnes on stockpile.


During the year in review, Petmin's 100% owned operating company at Somkhele, Tendele, entered into a JV with mining contractor Sandton Plant Hire ("SPH"). The mining JV is jointly controlled by Tendele and SPH and gives Tendele more control over production, productivity and efficiency, and ensures that human resources policies are consistent on the mine.


Somkhele outlook and market review

The export market for anthracite remains soft with downward pressure on prices. In the domestic market, Petmin has agreed to a roll-over of prices with its major local customer.


Somkhele has budgeted to produce and sell approximately one million tonnes of anthracite and 390 000 tonnes of energy product (approximately 80% of the production capacity) for the year ending 30 June 2014.


Cost pressures remain an issue with demands from labour for increases exceeding inflation and the impact of a weaker South African Rand on imported capital equipment, fuel and explosives.


Management is engaging with labour in an attempt to reach a workable solution for all parties in the current wage negotiations.


A key focus for management in the year ahead is to drive mining efficiencies as mining represents more than 60% of the operating cost at the mine.


Capital expenditure at Somkhele in FY 2014 is expected to be approximately R91m (including R40m for infrastructure and roads, and R10m for exploration). In addition, development cost of the pits (pre-stripping) is expected to be approximately R6m.


NAIC (iron sands to pig iron project in Canada)

During the year to end-June 2013, Petmin invested an additional US$6.5 million (2012: US$5 million) in NAIC, acquiring an additional 8% interest to take Petmin's shareholding in the project to 25%. NAIC is a highly-prospective iron sands to pig iron project in Canada's Labrador province, aiming to become one of the lowest cost pig iron producers in the world.


Petmin has joint management control of NAIC, with an earn-in option to acquire up to 40% for a total of US$25 million, plus a further option to acquire an additional 9.9% at a market-related price.


An updated NI43-101 compliant statement was published by SRK Consulting in February 2013 which confirms an indicated resource of 334 million tonnes with a further 260 million tonnes in the inferred category. This resource statement only covers 3% of NAIC's 450km² claim.


Significant progress has been made in the project with smelt tests having been conducted at a smelter commissioned in Forks, Pennsylvania, for purposes of testing the cold briquetted feed and also a pre-reduced feed process using a rotary hearth for pre reduction. Tenova and Hatch are reviewing the smelt test results and will sign-off on the process.


An alternative coal-fired smelting process using the Outotec AusIron process was also successfully tested in Outotec's facility in Australia.


NAIC outlook

Petmin's immediate focus is on the finalisation of the NI43-101 compliant PEA and thereafter to implement the corporate restructuring of NAIC in readiness for an exchange listing in the Canadian market.


The PEA will provide detailed information in respect of geology (resource definition), mining methodology and mine design, processing, smelting, logistics and market analysis.  


The overall project economics look favourable.  A number of key work streams are underway to refine and optimise the project's initial business plan in the draft PEA, to progress the project to a bankable level, and to possibly source a strategic development partner. It is anticipated the final signed off PEA will be published in late Q4 2013.


Veremo (iron ore project in Mpumalanga, South Africa)

Significant progress has been made at Veremo and development capital of R112 million has been invested to date by the controlling shareholders and the previous owners. MCC International Incorporation Limited ("MCC") was commissioned by Veremo 18 months ago to perform a feasibility study and, during the year under review, finalised their report on the project and concluded that it is economically viable. The Veremo management team is in the process of evaluating and reviewing the report, and awaits the approval of a new order mining licence application.


The controlling shareholders of Veremo Holdings (Proprietary) Limited ("Veremo") were to fund and develop the project to commence production within 48 months of 30 April 2008. Veremo was to distribute to Petmin the larger of a cash payment of R65m per year for three years, or 25% of the profit after tax from Veremo. 


The first of the three cash payments of R65 million fell due on 28 February 2013 and this payment has not been received. Petmin has entered into discussions with the controlling shareholders regarding the payment due.


 Notwithstanding the above, and bearing in mind weakness in global markets, Petmin has reviewed the economic value of the project and deemed it prudent to reduce the project value by R200m. 


Iron Bird Resources Plc (iron ore project in Liberia)

Petmin continues to seek a potential merger or acquisition partner for its iron ore exploration project in Liberia, which is a 50/50 JV with gold explorer Hummingbird.


During the year ended 30 June 2013, an application for a two-year extension to the exploration permits was made. This extension is expected to be granted shortly.


Red Crescent Resources Limited ("RCR") (Turkey)

In the year ended 30 June 2013, Petmin invested C$325 000 (2012: C$5 million) to acquire 6.5 million shares in RCR together with 6.5 million share warrants that provide the holder with the right to acquire RCR shares for 7 Canadian cents per share for three years.


The ruling share price of RCR at 30 June 2013 was 10 cents per share. The investment maintains Petmin's shareholding in RCR at approximately 10% following a private placement by RCR to recapitalise the business and to settle debt. Following the restructuring of its board and senior management, RCR commissioned a dense media separation plant at its Hakkari Zinc Project in November 2012, and has produced and sold 6 140 tonnes of direct shippable ore in the period to 30 June 2013.


Change in role of director

On 1 October 2013, Ian Cockerill will assume the position of non-executive chairman of Petmin, and will continue to be available as a consultant to Petmin.


Renewal of cautionary announcement

Further to the cautionary announcement dated 9 September 2013, Petmin shareholders are advised that negotiations are still in progress which if successfully concluded, may have a material effect on the price of the Company's securities.  Accordingly, shareholders are advised to continue exercising caution when dealing in the Company's securities until a full announcement is made.


De-listing and termination of Petmin's AIM listing

On 12 September 2013, Petmin announced that it will de-list and terminate its secondary listing on AIM, as the low volumes of Petmin shares traded on AIM did not warrant the cost of maintaining the secondary listing.


Presentation available

A detailed presentation will be made available on the Company's website  from Tuesday 1 October 2013.


Call with management

Investors, analysts and media are invited to join a teleconference and Q&A with management at 11h00 South African time on Monday 30 September 2013. 

A playback facility will be available after the call. Dial-in details below.

Live Call Access Numbers For Participants


Access Number

Other Countries (Intl Toll)

+27 11 535 3600

Other Countries - Alternate

+27 10 201 6800

South Africa (Toll-Free)

0 800 200 648

South Africa - Cape Town

021 819 0900

South Africa - Durban

031 812 7600

South Africa - Johannesburg

011 535 3600

South Africa - Johannesburg Alternate

010 201 6800

UK (Toll-Free)

0808 162 4061

Playback Access Numbers


Access Number

Other Countries (Intl Toll)

+27 11 305 2030

South Africa (Telkom)

011 305 2030

UK (Toll-Free)

0 808 234 6771





Bradley Doig
+27 11 706 1644


Jonathon Rees
+27 76 185 1827


Sponsor and Corporate Advisor (JSE)
River Group
Andrew Lianos
+27 834 408 365


Nominated Adviser and Broker (AIM)
Macquarie Capital (Europe) Limited
Steve Baldwin, Nicholas Harland
+44 20 3037 2000

This information is provided by RNS
The company news service from the London Stock Exchange
Data provided by FE. Care has been taken to ensure that the information is correct, but FE neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.

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