African Rainbow Minerals’ (ARM) shares took a nose dive yesterday despite a 40% increase in its interim headline earnings boosted by thermal coal prices.
The shares dropped by 4.15% at 3.30pm and traded at R2.76. They have increased by 6.95% in the past six months.
In its interim results for the six months ended December 31, 2022, the group reported that headline earnings per share was R26.38 in the reported period, from R18.87 per share the prior year.
It declared an interim dividend of R14 per share, an increase from R12 a year earlier.
Anchor Capital investment analyst Seleho Tsatsi said while ARM reported strong earnings growth, unfortunately there was unit cost pressure.
"That is a theme that we’re seeing across the mining sector. There was generally double-digit unit cost pressure across ARM’s businesses. If we consider that commodity price growth in 2023 is set to be much more muted than it was in 2021 and 2022, then unit cost control becomes even more important.
“Iron ore volumes have been revised down by 8% due to Transnet issues. The dividend declared works out to a dividend pay-out ratio of just over 50%. That is largely in line with larger diversified miners listed on the JSE," he said.
According to the diversified miner, which has gold, platinum group metal (PGM), iron ore, coal and manganese assets, its coal division’s headline earnings rose by 300%, driven by higher thermal coal prices.
But the group said iron ore, manganese ore and thermal coal volumes were negatively impacted by logistics challenges.
ARM Ferrous headline earnings were 4% higher at R2.52 billion as a 54% increase in headline earnings for the manganese division was largely offset by a 12% decline in headline earnings for the iron ore division.
"Key factors contributing to lower headline earnings in the iron ore division included lower average realised US dollar prices for iron ore, in line with the decline in iron ore index prices, and a 15% decrease in export iron ore sales volumes, coupled with a 33% decline in local iron ore sales volume," it said.
ARM Platinum headline earnings were 7% higher at R1.3bn. Two Rivers Mine delivered a 27% increase in headline earnings to R920m, while Modikwa Mine headline earnings increased by 4% to R615m as both operations benefited from the weaker rand/US dollar exchange rate and comparatively lower negative mark-to-market adjustments, it said.
ARM said Bokoni Mine, which is included for the first time in the ARM interim results, reported a headline loss of R150m. The mine remains on care and maintenance while the definitive feasibility study progresses.
ARM Coal headline earnings were at R1.40bn from R351 million the prior year, up a whopping 300%, driven mainly by increased export thermal coal prices. Thermal coal sales volumes were under pressure in the review period owing to inland logistics challenges.
Looking ahead, the group said macroeconomic events had dominated commodity markets for most of 2022, resulting in increased volatility in commodity prices.
"Key among these has been concerns about a global recession, multi-decade-high inflation, rising interest rates, surging energy and electricity prices, and supply chain disruptions arising from the Covid-19 pandemic.
"In addition, major economies have been grappling with other concerns including the Russian-Ukraine war, energy security in Europe, and the rapid spread of Covid-19 in China, among others,“ it said.
The group said a number of challenges were expected to persist in 2023, resulting in continuing volatility in global commodity prices.
"Key factors that are expected to support several commodities in the short term include Chinese policymakers introducing measures to arrest a housing slump in November 2022, China relaxing its zero-Covid policy recently, and early indications that global inflation is peaking," it said.
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