JOHANNESBURG - Assore said yesterday that the harsh manganese market coupled with lower iron ore volumes had hurt its earnings during the six months ended December 2019. Headline earnings fell by 28 percent to R2.1billion at the end of December 2019, compared with R2.9bn a year earlier, Assore said.
The group, which is exposed to underlying commodity prices for steel-making ingredients and fluctuations in exchange rates, said headline earnings from Assmang declined by 14 percent to R3.7bn from R4.3bn a year earlier.
Assore jointly operates Assmang with African Rainbow Minerals, which is chaired by billionaire Patrice Motsepe.
Headline earnings from the group’s operations outside of Assmang fell by 68 percent. “The change in the mix of earnings was driven by firm iron ore prices and notably lower prices for manganese ores and manganese alloys,” said the company.
Supply disruptions in Brazil and Australia, combined with limited supply expansion across the iron ore industry, saw prices rise in the period to $95 (R1486) a ton compared to $69 a ton a year earlier. However, this did not translate to higher iron ore sales for Assore due to logistics issues.
“Despite the high demand for iron ore, sales volumes decreased by 11percent compared to the previous period. This was due to logistical and operational constraints, predominantly at Saldanha Bay port,” said Assore.
Both ferrochrome and chrome ore attracted lower prices due to over-supply, said the group.
Assore said working capital had increased by R1.4bn, due to the timing of cash payments to Assmang, resulting in the net cash position falling by 10percent to R8.1bn from R9bn earlier.
“The board declared an interim dividend of R7 a share from R10 a share previously, which will be paid to shareholders on Monday, March 16, 2020,” said the company.
Seleho Tsatsi, an investment analyst at Johannesburg-based Anchor Capital, said the decline in the dividend payout was a mirror of the 28percent fall in the company's headline earnings.
“The half-year results are in line with its previous guidance issued last month. However, the operational challenge was a big swing factor for the company,” said Seleho, adding that weak chrome and manganese prices had hurt the company.
“The market was expecting Assore to receive the boost from iron ore prices and the weaker rand. Unfortunately, iron ore sales volumes disappointed. The company was unable to capitalise on strong iron ore prices to the same degree as, say, Kumba Iron Ore,” said Tsatsi.
"Kumba, South Africa’s biggest iron ore producer, posted a 69percent surge in net profit to R21.3bn compared to 2018,” said Tsatsi.
Assore painted a bleak picture of the outlook in the short to medium term.
“The extent of the impact on global commodity markets of the recent outbreak of the coronavirus in China and its spread around the world is not known at this stage. When considered together with unresolved trade issues in several regions of the world, the outlook has become more negative,” said the group.
Assore shares closed 4.84percent higher at R182 on the JSE yesterday.