African Rainbow Minerals (ARM), the JSE listed diversified mining company, which is chaired by billionaire, Patrice Motsepe, declared a record dividend and reduced its debt in the year to June as profits surged on the back of the strong base metals prices.
ARM, which is focused on mining iron ore, platinum and coal in South Africa, said yesterday (Thursday) that the dividend for the period under review had climbed 189% to 650 cents a share from 225 cents a share a year earlier.
“This is the highest dividend to date and is ARM's eleventh consecutive annual dividend,”the company said in a statement. Headline earnings a share, a measure of profitability, were 1 684 cents compared to 494 cents in the previous corresponding financial year.
This as headline earnings from its ferrous division, which includes its stake in Assmang, the iron ore and manganese ore asset in the Northern Cape, increased by 157% to
R3. 7billion as iron ore, manganese ore and manganese alloy prices recovered.
The company said the ferrous division was boosted by the 93% higher average US dollar export price for manganese ore coupled with the 45% increase in the average export iron ore price recorded in the year under review.
Debt was reduced to R1.2bn at the end of June from R4.2bn in the year to June 2016. Percy Takunda, an analyst at Momentum SP Reid, said the financial results were expected. This was because ARM's peers including Exxaro, Assore and Kumba Iron Ore had also reported strong financial results recently after being bolstered by higher bulk metals prices.
Takunda also said that ARM's share price had factored in the potential for record dividend.
"At the end of June, ARM's share price was R84 a share, today it is trading at R112.39 a share. That means the share price is 33.8% higher since the end of June. The market has been pricing its expectation of a good set of results," Takunda said.
ARM said among other the highlights was the turnaround in the coal division, which recorded headline earnings of R82 million in the 2017 financial year from a headline loss of R297 million a year earlier. The company attributed the improvement to the Participating Coal Business, in the Witbank coalfields, Mpumalanga which contributed R181 million to the headline earnings.
ARM also said there was an improvement in its platinum division with platinum headline earnings improving by R360 million, with the Nkomati Mine in Mpumalanga reporting R91 million in headline earnings from R244 million headline loss in 2016. Two Rivers Mine headline earnings were up 2 percent to R325 million while Modikwa Mine reported a reduced headline loss of R66m from R84m in 2016.
However, the copper division recorded a headline loss of R203 million. Last month ARM and Brazil’s mining giant, Vale, announced the disposal of their 80 percent interest in the Lubambe Copper Mine in Zambia. Seleho Tsatsi, an investment researcher at Anchor Captial, said commodity prices had continued to be strong across the board this year.
"This is true for both the bulks and the base metals. That is reflected in these results for ARM. Iron ore remains the key driver for the business. ARM and the majority of peers in the diversified mining sector) are trading at free cash flow yields of above 15% some well in excess of that. Perhaps one could interpret that as the market not believing that iron ore prices are sustainable at current levels," Tsatsi said. "We believe iron ore prices will revert towards $60 a ton over time. Nevertheless, at current commodity prices, ARM and the diversified mining sector in general remain cheap,"he said.
- BUSINESS REPORT