Wrap Text
Reviewed Provisional Results for the year ended 31 December 2013
Palabora Mining Company Limited
and its Subsidiaries
("Group" or "Palabora" or "Company")
Incorporated in the Republic of South Africa
Registration Number: 1956/002134/06
JSE Code: PAM ISIN: ZAE000005245
REVIEWED PROVISIONAL RESULTS
for the year ended 31 December 2013
Company Secretary: KN Mathole
Registered address: 1 Copper Road, Phalaborwa, 1389
PO Box 65, Phalaborwa, 1390
Transfer Secretaries: Computershare Investor Services Proprietary Limited
70 Marshall Street, Johannesburg, 2001
PO Box 61051, Marshalltown, 2107
Sponsor: One Capital
The preparation of the condensed consolidated provisional financial information was
supervised by:
Dikeledi L Nakene (CA) SA
Chief Financial Officer
Key group financial statistics
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
Post hedge revenue R'm 11 625 8 716
Net profit/(loss) for the year R'm 1 032 (97)
Basic earnings/(loss) per share Cents 2 136 (201)
Earnings before interest, tax, depreciation and
amortisation (EBITDA) R'm 1 669 413
Adjusted EBITDA (excluding non-recurring items
and growth costs) R'm 2 536 1 097
Headline earnings/(loss) R'm 1 033 (82)
Headline earnings/(loss) per share Cents 2 138 (171)
Cash and cash equivalents R'm 3 342 1 980
Exploration, development and growth costs
(expense) R'm 845 684
Overview
Palabora reached a number of key milestones during the year of 2013.
- The Company welcomed new investors, a consortium of Chinese and South African
entities led by Hebei Iron & Steel Group Co. Limited and the Industrial Development
Corporation of South Africa SOC Limited (IDC), as the Rio Tinto and Anglo American
divestment process was finalised during the second half of 2013.
- The Broad Based Black Economic Empowerment (BBBEE) Transaction came to
effect on 15 July 2013.
- The hedge facility expired at the end of September 2013 with the last payment made
in October 2013, which brings much needed relief to the copper business as it
approaches the end of life of mine for the current Lift I operations in 2015.
- The major shareholders (Consortium) of Palabora made an offer to the remaining
shareholders to acquire all their Palabora ordinary shares at the JSE Limited (JSE).
Palabora will delist from the JSE once all shares have been mandatorily acquired in
terms of the Take-over Regulation Panel (TRP). The Consortiums' interests were
99.2% at year end. An application to delist was lodged with the JSE on 10 February
2014 and management expect to be delisted by 15 April 2014.
- On 28 November 2013 the Board of Directors approved capital expenditure to the
amount of R707 million to progress the Lift II project from prefeasibility to feasibility
study. The feasibility study will be conducted from 1 January 2014 and is expected to
be concluded around May 2014.
Magnetite sales volumes increased 30% to 6.38Mt compared to 4.89Mt for 2012 mainly due
to increased road trucking to the Maputo port and improved rail capacity to both the Maputo
and Richards Bay ports. The magnetite operations continues to do well and remains critical
to the business during the copper contraction phase pending on the Board's decision on Lift
II to extend the life of mine. Magnetite exports through the Maputo port were negatively
affected during the first quarter of 2013 by a rail bridge collapse due to a derailment in
Mozambique.
There were a number of challenges which affected copper production. During the first
quarter the underground south hoisting winder bearing failed followed by an unfortunate
illegal sit-in strike by underground employees. In the second quarter production was affected
by the underground north hoisting winder tail rope entanglement and a second unprotected
strike by smelter employees which compounded operational challenges at the same plant.
Eight Section 54s served by the Department of Mineral Resources (‘DMR') during the year
also affected production due to production days lost.
Taking the production challenges into consideration, Palabora's adjusted EBITDA, excluding
non-recurring items and growth costs increased 131% to R2.5 billion compared to 2012.
Palabora also managed to maintain a healthy cash position of R3.34 billion as at 31
December 2013 compared to R1.98 billion at 31 December 2012. This was mainly achieved
through an increase in magnetite sales, receipt of the insurance claim relating to the guide
rope failure in 2012 and the weakening of the rand against the US dollar.
Non-recurring items consist of the following transactions:
- Insurance claim of R244 million received during June and July 2013 in respect of the
underground guide rope failure in the third quarter of 2012. In terms of the Palabora
business interruption insurance policy the first 30 days were not covered and
additionally the excess limit was US$10 million. See note 6 of the consolidated
provisional financial information.
- A cost of R78 million (GBP4.7 million) for a debt under section 75 of the United
Kingdom Pensions Act 1995 payable to the Rio Tinto Pension Fund. Palabora
Europe Limited (PEL) is a subsidiary of Palabora and participated in a group pension
arrangement of the Rio Tinto Pension Fund in the United Kingdom. Due to the
divestment PEL ceased to participate in the Fund on 30 November 2013, which
triggered the debt, payable to the Fund. The cost is included under "employee benefit
expense" on note 8 of the consolidated provisional financial information.
- BBBEE share based expense of R151 million and minimum dividend liability expense
of R37 million relating to the 6% shareholding by Palabora BEE Investment Company
Proprietary Limited (BEE Consortium). See note 7 of the consolidated provisional
financial information.
Safety
All injuries for 2013 decreased to 23 compared to 24 injuries for 2012, with an all injury
frequency rate of 0.46 for 2013 compared to 0.49 for 2012. The safety of our employees and
contractors remain the foremost priority for Palabora. For this reason sustaining capital
expenditure is largely restricted to safety and regulatory compliance during the copper
contraction phase of the current Lift I operation.
Copper production
Ore hoisted increased by 9% to 9.4Mt for 2013 compared to 8.6Mt for 2012 mainly due to
production recovery from the guide rope failure in 2012, partially offset by production
challenges highlighted above.
The ore grade was lower compared to 2012 (0.57% vs 0.59%) and consistent with
expectation as the current Lift I operations draw to an end in 2015.
Total ore treated increased by 3% to 9.5Mt for 2013 compared to 9.2Mt for 2012 and in line
with ore hoisted.
New concentrate smelted increased by 33% to 209kt compared to 157kt for 2012 due to
supplementary concentrate imports in 2013 (8.9kt contained copper) and production
recovery from the guide rope failure in 2012.
New copper anode production increased by 24% (51kt vs 41kt) and refined copper
production increased 20% to 49kt compared to 41kt for 2012.
Magnetite production
Total magnetite production, consisting of course material (65% fe), iron oxide (56% fe) and
dense medium separation fine material (DMS), increased to 6.5Mt from 5.3Mt in 2012. This
increase is in line with increased logistical capacity from road trucking to the Maputo port,
partially offset by the impact of a rail bridge collapse following a derailment in Mozambique
which affected production for two months during the first quarter of 2013.
Vermiculite production
Vermiculite production was deliberately decreased by 4% to 128kt compared to 133kt for
2012 to ensure continued alignment with sales in line with competitive market conditions.
Profit for the year
The increase in profit after tax to R1 032 million profit in 2013 from R97 million loss in 2012
is mainly due to:
- Post tax insurance claim of R176 million for the underground guide rope failure in
2012;
- Net foreign exchange gains due to weakening of the rand against the US dollar
(R9.65/US$ in 2013 vs R8.19/US$ in 2012);
- Increase in magnetite sales volumes and realised prices; and
- Hedge expiring on 30 September 2013.
The increase in profit after tax is partially offset by increase in growth costs, PEL pension
fund expense and the BBBEE share based costs.
Revenue
Turnover variance analysis (R'm)
Turnover for the year ended 31 December 2012 8 716
Copper price (389)
Magnetite price 263
Vermiculite and by-products prices (30)
Hedge 144
Foreign exchange 1 736
Flexed turnover 10 440
Copper volume (731)
Magnetite volume 1 838
Vermiculite volume 23
By-product volume 55
Turnover for the year ended 31 December 2013 11 625
Revenue increased by 33% mainly due to the following:
- Increased magnetite sales volumes (6.4Mt vs 4.9Mt) from increased trucking to
Maputo and marginally improved wagon availability from Transnet increased turnover
by R1.8 billion;
- Weaker rand on foreign currency denominated sales increased turnover by R1.7
billion;
- Lower copper prices and copper volumes (55kt vs 65kt) reduced turnover by R389
million and R731 million respectively.
For the year For the year
ended ended
31 December 31 December
2013 2012 % change
Copper sales volume mix (kt)
Copper rod* 53.6 51.6 4
Cathode 1.4 5.9 (76)
Refined copper scrap 0.2 7.9 (97)
Total copper sold 55.2 65.4 (16)
* Includes rod produced from imported cathode
For the year For the year
ended ended
31 December 31 December
2013 2012 % change
Magnetite sales volumes (kt)
Export 6 152 4 619 33
Rail: Maputo port 2 139 1 688 27
Rail: Richards Bay port 1 558 1 551 -
Trucking: Maputo port 2 455 1 380 78
Local sales 232 273 (15)
Total magnetite sold 6 384 4 892 30
Selling, distribution and administration costs
Selling and distribution costs increased 50% to R4.5 billion from R3 billion in 2012 mainly
due to increased magnetite sales and weaker rand against the US dollar. Magnetite sales
exports increased by 33% to 6.15Mt compared to 4.6Mt in 2012.
Administration expenses increased by 9% to R845 million compared to R772 million in 2012.
Cash flow and Capital
Cash generated from operating activities increased by 866% to R1.43 billion from R148
million in 2012 mainly due to the insurance claim received, increase in magnetite volumes
and realised prices and higher foreign exchange gains realised.
Capital expenditure increased to R406 million from R366 million in 2012. Growth capital
expenditure in respect of a magnetite belt filter plant and magnetite expansion project was
R85 million in 2013 compared to R111 million in 2012. Sustaining capital expenditure will be
maintained at minimum levels until the end of life of mine of Lift I unless such expenditure
can benefit Lift II.
Broad Based Black Economic Empowerment (‘BBBEE') Transaction
The group has fully met the equity ownership (26%) objectives of the Mineral and Petroleum
Resources Development Act as it recognises that the transformation of the equity ownership
of the company is a key strategic goal. Our BBBEE partners comprise our employees
(Palabora Employee Trust at 10% shareholding), the community (Leolo Trust at 10%
shareholding) and BBBEE Consortium (6% shareholding).
As part of the BBBEE Transaction a subsidiary of Palabora Mining Company Limited,
Palabora Copper Proprietary Limited was formed. On 15 July 2013 the BBBEE Transaction
was implemented, where after Palabora Copper Proprietary Limited became the operating
company and Palabora Mining Company Limited became the holding company.
On the effective date Palabora Mining Company Limited sold its business comprising the
copper, magnetite and vermiculite operations to Palabora Copper Proprietary Limited and
also transferred all existing contracts with suppliers and customers, assets (except cash in
excess of R400 million) and liabilities to Palabora Copper Proprietary Limited.
Palabora Copper Proprietary Limited issued shares to the BBBEE partners such that the
BBBEE partners collectively have 26% interest in Palabora Copper Proprietary Limited. The
ownership of Palabora Copper Proprietary Limited, since 15 July 2013, is structured as
follows:
- 74% owned by Palabora Mining Company Limited;
- 10% owned by Palabora Employee Trust;
- 10% owned by Leolo Trust i.e. the Community Trust; and
- 6% owned by Palabora BEE Investment Company Proprietary Limited.
Social responsibility
During the year Palabora disbursed R38 million (2012: R43 million) in support of Enterprise
and Socio Economic Development through the Palabora Foundation in terms of the BBBEE
Act and the Mining Charter to ensure self sustainability of the surrounding communities.
Directorship
Pursuant to the completion of the Rio Tinto and Anglo American Divestment, the following
non-executive directors Messrs Craig Kinnell, Jean-Sabastien Jacques (and his alternate,
Eric Yan), Hendrik Faul and the Managing Director, Anthony Lennox, have resigned with
effect from 31 July 2013.
Mr Jinghua Han was appointed as a non-executive, non-independent director effective from
31 July 2013. With effect from 1 November 2013 he was appointed as an executive director
and Chief Executive Officer of Palabora.
With effect from 31 July 2013, Messrs Jie Yan, Abel Patrick Malinga and George Maanda
Negota were appointed as non-executive, non-independent directors of the company.
Messrs Zejun Tian and Ng Tze For (‘Benjamin') were appointed as non-executive, non-
independent alternate directors, with effect from 31 July 2013.
Mr Abel Patrick Malinga resigned from the Board with effect from 1 November 2013 and Ms
Katinka Schumann was appointed as non-executive, non-independent director with effect
from 1 November 2013.
At 31 December 2013 the Palabora Board was constituted as follows:
Directors
1. Clifford N Zungu (Chairman)^
2. Jinghua Han (Chief Executive Officer)* (Chinese)
3. Dikeledi L Nakene (Chief Financial Officer)*
4. Francine A du Plessis^
5. Moegamat R Abrahams^
6. Nhlanhla A Hlubi^
7. Peter K Ward^
8. George M Negota#
9. Jie Yan (Chinese) #
10. Katinka Schumann#
*Executive director
^ Independent non-executive
# Non-executive
Alternate directors
Ng Tze For (Chinese)
Appreciation
We are grateful to all the employees, contractors and all stakeholders for their continued
support and dedication to Palabora.
CN Zungu J Han DL Nakene
Chairman Chief Executive Officer Chief Financial Officer
28 February 2014
Group selected statistics
31 31
December December
2013 2012
Revenue
Copper (net of hedge) Rand million 3 074 3 283
Magnetite Rand million 7 862 4 890
By-products Rand million 222 138
Industrial minerals Rand million 467 405
Net profit/(loss) before tax Rand million 1 534 (110)
Copper
Dry ore hoisted kilo tonnes 9.4 8.6
Underground ore treated kilo tonnes 9.5 9.2
Average copper grade % Cu 0.57 0.59
New copper in concentrate produced kilo tonnes 41.4 49.1
Cathode produced kilo tonnes 48.9 40.9
Average copper price realised USc/lb 337.1 365.2
Average LME copper price USc/lb 333.4 360.7
Average ZAR/US$ exchange rate R/US$ 9.65 8.19
Spot ZAR/US$ exchange rate R/US$ 10.49 8.48
Average copper price realised (pre-hedge) R/tonne 71 710 65 943
Average copper price realised (post-hedge) R/tonne 55 746 50 250
Magnetite
Magnetite produced kilo tonnes 6 517 5 280
Magnetite sold kilo tonnes 6 384 4 892
Average magnetite price realised R/tonne 1 231 1 000
Average magnetite price realised US$/tonne 128 122
Vermiculite
Vermiculite sold tonnes 121 490 115 428
Average vermiculite price realised R/tonne 3 845 3 508
Anode slimes
Anode slimes sold tonnes 165 121
Average anode slimes price realised R/tonne 1 220 667 1 008 842
Nickel sulphate
Nickel sulphate sold tonnes 144 155
Average nickel sulphate price realised R/tonne 27 666 28 621
Sulphuric acid
Sulphuric acid sold tonnes 75 140 65 502
Average sulphuric acid price realised R/tonne 226 182
Imported concentrate purchased
Volumes (copper contained) tonnes 8 848 -
Cost Rand million 661 -
Average unit purchase price R/tonne 74 745 -
31 31
December December
2013 2012
Imported cathode purchased
Volumes tonnes 6 457 12 585
Cost Rand million 468 860
Average unit purchase price R/tonne 72 528 68 311
Imported rod purchased
Volumes tonnes - 6 735
Cost Rand million - 440
Average unit purchase price R/tonne - 65 350
Cash flow
Net cash generated from operating activities Rand million 1 430 148
Cash and cash equivalents Rand million 3 342 1 980
Costs
Production cost (excluding product
purchases) Rand million 2 702 2 460
Cost of sales Rand million 4 411 4 338
Total capital expenditure Rand million 406 366
Sustaining capital Rand million 321 255
Growth capital Rand million 85 111
Share capital
Authorised ordinary shares of R1 each R'000 100 000 100 000
Issued ordinary shares of R1 each R'000 48 337 48 337
Net asset value per share R/share 126 86
Palabora Mining Company Ltd and its subsidiaries
Reviewed condensed consolidated income statement
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
Note 2013 2012
R'm R'm
Sale of products 12 506 9 741
Hedge loss realised (881) (1 025)
Revenue 11 625 8 716
Cost of sales (4 411) (4 338)
Gross profit 7 214 4 378
Selling and distribution costs 4 (4 543) (3 018)
Administration expenses (845) (772)
Mineral and petroleum royalty (98) (47)
Exploration, development and growth costs 5 (845) (684)
Impairment of property, plant and equipment - (22)
Other income 6 271 23
Share based payment and minimum dividends 7 187 -
Other expenses (41) (31)
Profit/(loss) before net finance income and
tax 8 926 (173)
Net finance income 9 608 63
Finance income 9 669 122
Finance cost 9 (61) (59)
Profit/(loss) before tax 1 534 (110)
Income tax (expense) / income 10 (502) 13
Profit/(loss) for the year 1 032 (97)
Profit/(loss) for the year attributable to:
Equity holders of the parent 1 032 (97)
Earnings/(loss) per share attributable to the
equity holders of the parent (expressed in
cents per share)
Basic and diluted earnings/(loss) per share
(cents) 11 2 136 (201)
The notes on pages 15 to 25 are an integral part of the condensed consolidated provisional
financial information.
Reviewed condensed consolidated statement of comprehensive income
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
Profit/(loss) for the year 1 032 (97)
Other comprehensive income:
Items that will not be reclassified to profit or loss - (14)
Actuarial loss on defined benefit plans - (19)
Income tax relating to items that will not be
reclassified - 5
Items that may be subsequently reclassified to
profit or loss 762 695
Available-for-sale investments
- Valuation gains arising during the year 134 57
Exchange differences on translation of foreign
operations 48 16
Cash flow hedges
- Mark to market losses arising during the year (30) (150)
- Transferred to profit or loss for the year 881 1 025
- Hedge ineffectiveness 4 6
Income tax relating to items that may be
subsequently reclassified (275) (259)
Other comprehensive income for the year, net
of tax 762 681
Total comprehensive income for the year 1 794 584
Total comprehensive income attributable to:
Equity holders of the parent 1 794 584
The notes on pages 15 to 25 are an integral part of the condensed consolidated provisional
financial information.
Reviewed condensed consolidated statement of financial position
Reviewed Audited
As at As at
31 December 31 December
2013 2012
Note R'm R'm
Assets
Non-current assets 3 042 3 098
Property, plant and equipment 2 254 2 474
Intangible assets 13 12
Financial assets 757 612
Deferred income tax asset 13 18 -
Current assets 5 852 4 033
Stores inventories 169 167
Product inventories 952 871
Trade and other receivables 1 389 851
Cash and cash equivalents 3 342 1 980
Current income tax assets - 164
Total assets 8 894 7 131
Equity attributable to owners of parent
Share capital and premium 629 629
Other reserves 584 (328)
Retained earnings 4 874 3 842
Total equity 6 087 4 143
Liabilities
Non-current liabilities 1 687 1 305
Close down and restoration obligation 952 771
Retirement benefits obligation 219 205
Cash settled share based payment liability 7 28 -
Deferred income tax liabilities 13 488 329
Current liabilities 1 120 1 683
Financial liabilities - 847
Retirement benefits obligation - 8
Cash settled share based payment liability 7 9 -
Trade and other payables 970 641
Related party payables - 187
Current income tax liabilities 141 -
Total liabilities 2 807 2 988
Total equity and liabilities 8 894 7 131
The notes on pages 15 to 25 are an integral part of the condensed consolidated provisional
financial information.
Reviewed condensed consolidated statement of changes in equity
Attributable to owners of the parent
Share Share Other Retained
capital premium reserves earnings Total
R'm R'm R'm R'm R'm
Balance at 1 January 2012 48 581 (1 023) 4 053 3 659
Total comprehensive income/
(loss) for the year - - 695 (111) 584
Dividends paid - - - (100) (100)
Balance at 31 December 2012 48 581 (328) 3 842 4 143
Total comprehensive income for
the year - - 762 1 032 1 794
BBBEE share option plan - - 150 - 150
Balance at 31 December 2013 48 581 584 4 874 6 087
Reviewed condensed consolidated statement of cash flows
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
Cash flows from operating activities
Cash generated from operating activities 1 729 514
Interest received 31 28
Dividends paid - (100)
Income tax paid (330) (294)
Net cash generated from operating activities 1 430 148
Cash flows from investing activities
Acquisition of property, plant and equipment (399) (354)
Acquisition of intangible assets (7) (12)
Proceeds on disposal of property, plant and
equipment - 2
Investment in available-for-sale financial asset (11) (110)
Net cash used in investing activities (417) (474)
Net increase/(decrease) in cash and cash
equivalents 1 013 (326)
Cash and cash equivalents at beginning of year 1 980 2 210
Effects of exchange rate changes on the balance
of cash held in foreign currencies 349 96
Cash and cash equivalents at end of year 3 342 1 980
The notes on pages 15 to 25 are an integral part of the condensed consolidated provisional
financial information.
Notes to the condensed consolidated provisional financial information
1. Corporate Information
Palabora Mining Company Limited is an investment company which hold 74% in the
equity of Palabora Copper Proprietary Limited. Palabora Copper and its subsidiaries
extracts and beneficiates copper, magnetite and vermiculite from its mines in the
Limpopo Province, South Africa. It is the primary aim of the Group, to achieve
excellence in all aspects of its activities and to develop the Group's resources and
assets in a socially and environmentally responsible way for the maximum benefit of
its shareholders, employees, customers and the community in which it operates. It is
the Group's firm belief that efficient and profitable operations go hand-in-hand with
high quality products and comprehensive and effective safety, health and
environmental protection programmes.
The Group is incorporated and domiciled in South Africa. The address of its
registered office is 1 Copper Road, Phalaborwa, 1389. The Company is a public
limited company which is listed on the stock exchange operated by the JSE Limited.
The condensed consolidated provisional financial statements of Palabora for the year
ended 31 December 2013 were authorised for issue in accordance with a resolution
of the Board of Directors passed on 28 February 2014.
2. Basis of preparation and accounting policies
2.1 Basis of preparation
The condensed consolidated provisional financial statements are prepared in
accordance with the requirements of the JSE Limited Listings Requirements for
provisional reports and the requirements of the Companies Act of South Africa. The
Listings Requirements require provisional reports to be prepared in accordance with
the framework concepts and the measurement and recognition requirements of
International Financial Reporting Standards (IFRS) and the SAICA Financial
Reporting Guides as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council and to
also, as a minimum, contain the information required by IAS 34 Interim Financial
Reporting. The accounting policies applied in the preparation of the condensed
consolidated provisional financial statements are in terms of IFRS and are consistent
with those applied in the previous consolidated annual financial statements.
2.2 Significant accounting policies
The condensed consolidated financial report has been prepared in accordance with
the historical cost convention except for certain financial instruments, which are
stated at fair value, and is presented in rand, which is Palabora's functional and
presentation currency.
The accounting policies applied in the preparation of the condensed consolidated
provisional financial information are in terms of IFRS and consistent with those
followed in the preparation of the Group's annual financial statements for the year
ended 31 December 2012.
2.3 Independent audit review
These condensed consolidated financial statements for the year ended 31 December
2013 have been reviewed by PricewaterhouseCoopers Inc., who expressed an
unmodified review conclusion. A copy of the auditor's review report is available for
inspection at the companys' registered office together with the financial statements
identified in the auditors' report.
The auditors' report does not necessarily report on all of the information contained in
these financial results. Shareholders are therefore advised that in order to obtain a
full understanding of the nature of the auditors' engagement they should obtain a
copy of the auditors' report together with the accompanying financial information from
the issuers' registered office.
3. Changes in estimates
3.1 Close down and restoration obligation
The provision for close-down and restoration costs was impacted by an increase in
the nominal discount rate from 7.3% to 9% which resulted in a R120 million increase
during the year ended 31 December 2013.
3.2 Retirement benefits obligation
The cost of post employment medical benefits is determined using actuarial
valuations. The actuarial valuation involves making assumptions about discount
rates, mortality rates and income at retirement. Due to the long term nature of these
plans, such estimates are subject to significant uncertainty. The net employee liability
at 31 December 2013 is valued at R219 million compared with R213 million at 31
December 2012.
The valuation resulted in a pre-tax actuarial loss of R0.2 million (2012: R19 million
loss) as a result of a decrease in real discount rate and an increase in medical
contributions being recognised in the statement of comprehensive income.
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
4. Selling and distribution costs
Magnetite (4 418) (2 877)
Freight (1 424) (934)
Port charges (628) (427)
Sales commission and sundry costs (199) (133)
Rail costs (1 118) (835)
Trucking costs* (1 049) (548)
Vermiculite (122) (130)
Copper and by-products (3) (11)
(4 543) (3 018)
*Includes trucking to Mica station for onward railing
5. Exploration, development and growth costs
Lift II exploration and development (845) (646)
Transfer from property, plant and equipment - (38)
(845) (684)
Lift II exploration and development costs relate to pre-feasibility drilling and
development of a copper mineralisation area under the current footprint. Some of the
Western extension project assets are being used for Lift II activities and have been
transferred out of property, plant and equipment to Lift II exploration and
development costs in 2012.
On 28 November 2013 the Board of Directors approved the progress of Lift II from
prefeasibility to feasibility study commencing on 1 January 2014. All costs incurred
during the feasibility study phase will be capitalised.
6. Other income
Included in "other income" on the income statement is the business interruption
insurance claim amounting to R244 million received during June and July 2013 in
respect of the underground production shaft guide rope failure on 4 July 2012 which
affected ore hoisting until 9 September 2012.
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
7. Share based payment and minimum dividends
Share-based payment (151) -
Minimum dividends (37) -
(188) -
The share-based payment (IFRS 2 expense) of R151 million included above is
discussed in detail in note 15. The minimum dividend liability expense of R37 million
which is payable to Palabora BEE Investment Company Proprietary Limited is as per
a contractual agreement and is payable during the loan financing period.
8. Profit/(loss) before net finance income and tax
Profit/(loss) before net finance income and tax is
stated after charging, amongst other items:
Depreciation and amortisation charges 743 586
Employee benefit expense 1 404 1 124
Product purchases 1 130 1 300
Repairs and maintenance 1 401 1 393
9. Net finance income
Finance income 669 122
Interest income on short-term bank deposits 16 18
Interest income on available-for-sale financial
asset 6 6
Interest income on account receivable balances 9 4
Net foreign exchange gain on operating activities 289 -
Net foreign exchange gain on financing activities 349 94
Finance cost (61) (59)
Unwinding of discount on close-down and
restoration costs (61) (46)
Net foreign exchange loss on operating activities - (13)
608 63
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
10. Income tax (expense)/income
Normal income tax (636) (55)
South African
Mining tax: Current (602) (50)
Mining tax: Prior years (37) -
Foreign tax: Current 3 (5)
Secondary tax on companies - (10)
Deferred income tax 134 78
South African tax
Current 100 80
Prior years 34 (2)
Income tax (expense)/income reported in the
income statement (502) 13
Tax rate reconciliation:
% %
Current statutory rate 28.0 28.0
Adjusted for:
Secondary tax on companies - (9.1)
Tax rate differential on foreign subsidiaries 1.2 (4.0)
Prior year adjustment 0.2 (1.8)
Disallowable expenditure 3.3 (1.3)
Effective tax rate 32.7 11.8
11. Earnings/(loss) per share
Basic and diluted
Reconciliation of net profit/(loss) to earnings per
share
Net profit/(loss) attributable to equity holders of
the parent (rand million) 1 032 (97)
Reconciliation of weighted average number of
ordinary shares
Weighted average number of ordinary shares of
basic and diluted earnings per share (million
shares) 48 48
Earnings/(loss) per share (cents) 2 136 (201)
12. Headline earnings/(loss)
Profit / Tax Profit /
(loss) expense (loss)
before tax after tax
Year ended 31 December 2013
Profit per income statement (R million) 1 534 (502) 1 032
Loss on disposal of property, plant and
equipment (R million) 1 - 1
Headline profit (R million) 1 535 (502) 1 033
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline profit per share (cents) 2 138
Year ended 31 December 2012
Loss per income statement (R million) (110) 13 (97)
Profit on disposal of property, plant and
equipment (R million) (1) - (1)
Impairment of property, plant and equipment
(R million) 22 (6) 16
Headline loss (R million) (89) 7 (82)
Weighted average number of ordinary shares of
basic and diluted headline earnings per share
(million share) 48
Headline loss per share (cents) (171)
13. Deferred income tax
Recognised in
Balance Recognised other Balance
at 1 in profit or comprehensive at 31
January loss income December
2013
Property, plant and
equipment (756) 198 - (558)
Available-for-sale
financial assets (171) (3) (38) (212)
Derivative financial
instruments 237 - (237) -
Close down and
restoration obligation 266 (76) - 190
Retirement benefits
obligation 76 5 - 81
Other items 19 10 - 29
Net deferred tax
(liabilities)/assets (329) 134 (275) (470)
Set off of deferred income tax (488)
Deferred income tax liabilities (770)
Deferred income tax assets 300
Deferred income tax assets 18
Net deferred tax (liabilities)/assets (470)
Recognised in
Balance Recognised other Balance
at 1 in profit or comprehensive at 31
January loss income December
2012
Property, plant and
equipment (758) 2 - (756)
Available-for-sale
financial assets (125) (32) (14) (171)
Derivative financial
instruments 482 - (245) 237
Close down and
restoration obligation 186 80 - 266
Retirement benefits
obligation 69 2 5 76
Other items (7) 26 - 19
Net deferred tax
(liabilities)/assets (153) 78 (254) (329)
Consist set off of
deferred tax (329)
Deferred tax liabilities (927)
Deferred tax assets 598
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
14. Dividends paid
The following dividends were declared and paid:
Previous year final dividend:
Nil cents per qualifying ordinary share
- 100
- 100
15. Share based payments
BBBEE share based expense (equity-settled)
On 15 July 2013 Palabora Mining Company Limited, as part of the BBBEE
Transaction, granted an option to Palabora BBE Investment Company Proprietary
Limited (BEECO) to acquire 290 000 ordinary shares in Palabora Copper Proprietary
Limited (PC) at the par value of R0.01 per share.
Key terms and conditions relating to share option plan:
The award to BEECO has been accounted for as an in-substance option as BEECO
will only share in the upside and not the downside of their equity interest in PC until
the date the financing provided by PMC to PC for the acquisition of the business has
been repaid in full. On this date, which is expected to be 30 September 2021, the
option will be exercised. The grant of the option is classified as an equity settled
share based payment with the dividend portion classified as cash settled.
The in-substance option carries no vesting conditions and the fair value of the option
of R187 million has been expensed on the grant date, 15 July 2013 (see note 7).
Upon the date that the loan is repaid, the option will effectively be exercised and the
PMC group will have to account for the change in its ownership interest in PC at that
point in time.
Measurement of fair values:
The fair value of the share option programme has been measured based on
discounted cash flows, which involved various sensitivities. The inputs used in the
measurement of the fair values at grant date of the equity settled share based
payment plan were as follows:
Reviewed
For the year
ended
31 December
2013
Option premium (R'000) 3
Business value (R'm) 5 273
Expected dividend yield (%) 0.57
Vesting period Nil
Fair value of dividend payments (R'm) 30
Expected vesting date 30 September 2021
Risk-free interest rate (%) 8.0
In calculating the fair value of the option granted, the expected future enterprise
value of PC at the redemption date, as well as the expected loan balance at the
redemption date was estimated. The present value of the trickle dividend was also
taken into account and determined in accordance with the cash flow waterfall. The
difference between the future enterprise value of PC and the loan balance represent
the expected future equity value of PC.
16. Operating segments
Management has determined the operating segments based on the reports reviewed
by the strategic steering committee that are used to make strategic decisions. The
committee considers the business from a product perspective. The products are
divided in the following segments:
- Copper – produces and markets refined copper;
- Joint–product: Magnetite – markets processed current arising and built–up
stockpiles of magnetite, a joint–product from the copper mining process;
- By–products – includes anode slimes, sulphuric acid and nickel sulphate; and
- Industrial minerals – produces and markets vermiculite.
The measure of segment assets and liabilities has not been disclosed as these
amounts are not provided to management. Management reviews the assets and
liabilities as one component in the internal management reports and not in separate
reporting segments.
Reportable segments are as follows:
Joint-
product: By- Industrial
Copper Magnetite products minerals Total
R'm R'm R'm R'm R'm
Year ended 31 December 2013
External customers revenue
Sales from products 3 955 7 862 222 467 12 506
Hedge loss realised (881) - - - (881)
Reportable segment revenue 3 074 7 862 222 467 11 625
Reportable segment operating
(loss)/profit before
depreciation (67) 2 683 118 (23) 2 711
Depreciation (539) (66) (11) (10) (626)
Reportable segment
operating (loss)/profit (606) 2 617 107 (33) 2 085
Year ended 31 December 2012
External customers revenue
Sales from products 4 308 4 890 138 405 9 741
Hedge loss realised (1 025) - - - (1 025)
Reportable segment revenue 3 283 4 890 138 405 8 716
Reportable segment operating
(loss)/profit before
depreciation (398) 1 442 36 (11) 1 069
Depreciation (422) (65) (8) (10) (505)
Reportable segment
operating (loss)/profit (820) 1 377 28 (21) 564
Reportable segment operating (loss) / profit before depreciation includes:
Joint-
product: By- Industrial
Copper Magnetite products minerals Total
R'm R'm R'm R'm R'm
Year ended 31 December 2013
Joint product cost allocation 181 (181) - - -
Overhead allocation costs (569) (142) (42) (42) (795)
Selling and logistics costs (1) (4 429) (1) (112) (4 543)
Year ended 31 December 2012
Joint product cost allocation 159 (159) - - -
Overhead allocation costs (534) (128) (41) (39) (742)
Selling and logistics costs (10) (2 877) (1) (130) (3 018)
Reconciliation of reportable segment operating profit to profit / (loss) after tax:
Reviewed Audited
For the year For the year
ended ended
31 December 31 December
2013 2012
R'm R'm
Reportable segment operating profit 2 085 564
Unallocated amounts:
Exploration, development and growth costs (845) (684)
Other (9) 50
Unallocated depreciation and amortisation (117) (81)
BBBEE share based expense (151) -
Minimum dividend liability expense (37) -
Impairment of property, plant and equipment - (22)
Net finance income 608 63
Profit/(loss) from operations before tax 1 534 (110)
Income tax expense (502) 13
Profit/(loss) after tax 1 032 (97)
17. Commitments
Commitments for acquisition of sustaining capital 36 94
Commitments for magnetite growth projects 27 23
Commitments for Lift II growth projects 53 -
116 117
Capital expenditure that was approved by the
Board of Directors, but not contracted for:
Acquisition of sustaining capital 72 193
Magnetite growth projects 113 45
Lift II growth projects 707 -
892 238
18. Contingent liabilities
Legal matters
Various legal matters, including labour cases before the CCMA, are in progress. The
potential exposure is approximately R2 million (2012: R1 million).
Land claims
Presently four land claims have been filed regarding the government owned property
that Palabora uses for its mining operations. The four tribes have joined together and
are represented by one legal advisor. Clarifications of the claims and Palabora's
defences are being pursued through legal channels. The legal exposure is uncertain.
19. Ore reserves
The total probable ore reserves remaining as at 31 December 2013 were 11.9 million
tonnes (2012: 35.46 million tonnes) at 0.52% (2012: 0.54%) copper content.
20. Events after reporting date
The acquisition of shares by the Chinese Consortium and the Industrial Development
Corporation ("the Consortium") in Palabora Mining Company Limited has resulted in
the Consortium, through Rio Tinto South Africa Limited, making a mandatory offer in
August 2013 to acquire all Palabora shares not already owned by itself either directly
or indirectly, as required by section 123 of the Companies Act and Regulation 86 of
the Takeover Regulations.
An application to delist on the JSE was lodged on 10 February 2014. To date, 0.8%
of the shareholders had not accepted the offer. As such the process to mandatorily
acquire the shares remains in progress. A notice was issued to the remaining
outstanding shareholders on 7 February 2014 in terms of section 124(1)(a) of the Act
to inform them that the Offer has been accepted by Holders holding in excess of 90%
of the Offer Shares and that Rio Tinto South Africa Limited desires to compulsorily
acquire all the remaining Offer Shares. The shareholders have 30 business days to
object to the JSE. The date for delisting is expected by 15 April 2014.
Date: 04/03/2014 07:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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