Business
African Rainbow Minerals looking to cut costs, invest in capital expenditure – Motsepe
Mining company African Rainbow Minerals (ARM) is looking to cut costs given the tough economic conditions resulting from a slump in global prices.
According to chairman Patrice Motsepe, the company would be divesting its’ 50 percent stake in the Dwarsrivier Chrome Mine given the 56 percent loss in headline earnings for the six months ended December 31 2014 at R1.026 billion (US$83 million).
Much of this was attributable to a negative environment where commodity prices tumbled in the latter part of the year. The average realized export iron ore price was particularly damaging as it went down 45 percent in 2014, with the iron ore division’s earnings crippling by 68 percent to R590 million (US$48 million).
On the plus side, however, cash generated from non-ferrous operations increased significantly by R624 million (US$51 million) to R1.485 billion (US$120 million), cash generated from platinum operations increased to R1.323 billion (US$107 million) from R663 million (US$54 million) in the previous corresponding period.
The group also paid R1.3 billion (US$105 million) in dividends in October, up 18 percent.
“There are certain things that all mining companies do in this environment,” said Motsepe at the interim results presentation on Monday. ”They focus on optimizing cash flow and look very carefully at their capital allocation.”
And so it has been at African Rainbow Minerals, which has managed below inflation cost increases during the half-year period for all but two of their operations, namely the Manganese Ore and Modikwa Platinum operations.
Motsepe also noted that, while it had made losses, the Lubambe Copper Mine had increased production by 18.9 percent to 12 563 tonnes, even though the ramp-up of the mine had been slower than planned.
The R400 million (US$32.4 million) acquisition of Tamboti Platinum, a property adjacent to Two Rivers, and acquisitions of prospecting rights from Impala of other neighboring areas, mean the Two Rivers’ life has been extended from seven to about 37 years, Motsepe said. That being said, the costs that were not contained over the past year have been viewed as significant by the market.
According to Barend Ritter, senior portfolio manager at Sanlam Investment Management, while the results were not great, but, going forward, he is encouraged by African Rainbow Minerals focusing on curbing costs and putting more into capital expenditure programs to be ready for the commodity cycle’s upswing.