JSE-listed ARM, chaired by billionaire Patrice Motsepe, said on Friday that it had recognised a R1.16bn impairment before tax and R892million after tax at Nkomati, which it co-owns with Norilsk, the giant Russian mining company.
ARM attributed the impairment loss to a decline in head grade, resulting in a decreased metal output. It also attributed the loss to the inability to generate sufficient cash for operational requirements and a higher increase in production costs.
“We are in discussions with our partner on the future of the mine,” the company said.
Nkomati Mine recorded a headline loss of R186m, mainly as the spot nickel prices sank in the period under review. Spot nickel prices fell to $10595 (R150632) in December, from $14940 on July 1, 2018, the company said.
ARM said that it had completed its review given Nkomati’s operational challenges, cash support that could be required from the partners and the relatively limited (eight year) life of the open pit mine. Nickel production at Nkomati declined by 2percent to 6624 tons as a result of low-grade stockpile material being milled.
Despite problems at Nkomati, the company posted strong financials. It reported a 13percent increase in headline earnings to R2.201bn or R11.49 a share compared with R1.945bn or R10.23 a share in the previous comparative period. A 400cent a share dividend was declared from 250c a share in the previous period.
“The increase in headline earnings was driven mainly by improved headline earnings at Modikwa Mine, the iron ore division and the manganese ore operations, which were partly offset by a headline loss at Nkomati Mine,” the company said.
ARM said Modikwa had reported R173m headline earnings up from R36m in the previous comparative period on production improvements, the higher rand basket price and an improved purchase of concentrate agreement.
The iron ore division also delivered a 41percent increase in headline earnings as average realised dollar prices for export iron ore increased by 15percent driven by a combination of higher fines market prices, increased lump premiums and a higher lump to fines ratio in iron ore sales volumes.
ARM said since December it had received a dividend of R1.5bn from Assmang, its iron ore asset which it operates jointly with Assore.
Assmang was boosted by the 12 percent higher average dollar prices for export iron ore at $69 a ton.
The ARM share price closed 1.93percent higher at R171 on the JSE on Friday.