Mine equipment impairments drag down ARM’s basic earnings as profits erode

A drill rig in action at Modikwa platinum mine. The mine took a R376 million impairment. Photo: Supplied

A drill rig in action at Modikwa platinum mine. The mine took a R376 million impairment. Photo: Supplied

Published Mar 11, 2024


The interim basic earnings per share of African Rainbow Minerals (ARM) were knocked by a R1 billion impairment to African Rainbow Minerals’ Two Rivers mine, an additional R376 million impairment at Modikwa and another R288m deterioration in property, plant and equipment at their Beeshoek mine.

ARM as a result deferred development of the Bokoni mine.

Basic earnings due to impairments in ARM for the half-year period to December 2023 decreased by 72% to R1.2 billion and included attributable impairments from some of its mines, the company said on Friday.

The impairments to property, plant and equipment at Two Rivers, Modikwa and Beeshoek mines were in addition to a post tax impairment of R5m at the Cato Ridge Works.

Profitability in the company as measured under headline earnings also fell 43% to about R3bn, or R15.07 per share.

Despite this, ARM has declared an interim dividend of R6 per share compared to R14 per share in the same period a year earlier.

However, the company said it had “maintained a robust financial position,” with net cash of almost R8bn, comparably lower than the previous contrasting period’s same measure of R9.8bn.

Despite advancing feasibility studies at the Bokoni open pit platinum mine in Polokwane, the company has now deferred the bankable feasibility study of the project “due to depressed commodity prices” and an “uncertain” outlook.

“The immediate priority will be to conserve cash while ramping up production on a phased basis, from the installed capacity of 60 000 tonnes per month by leveraging and enhancing existing infrastructure,” said ARM.

The Bokoni mine posted a headline loss of R341m for the interim period under review. This has been attributed to the mine ramping up to its first PGM ounce production, which was achieved in November 2023.

Apart from higher iron ore sales for the period under review, with the previous contrasting period affected by a strike action at Transnet, unit production costs for ARM remained under pressure due to lower production volumes and above-inflation increases in electricity and maintenance costs at its manganese and platinum group metals (PGM) operations.

“The decline in the average US dollar 6E PGM basket price and the lower thermal coal prices were partially offset by a weaker average rand/US dollar exchange rate and higher average realised export iron ore prices,” the company said.

Headline earnings for ARM’s ferrous division were, nonetheless, 12% higher at R2.8bn although the 67% increase in headline earnings for the iron ore division was partially offset by a 95% decline in headline earnings for the manganese division.

Higher average US dollar prices for iron ore, a 6% increase in export iron ore sales volumes compared to first-half 2023, coupled with a 23% increase in local iron ore sales volumes were noted as the key factors contributing to the higher headline earnings of the iron ore division.

During the period under review, ARM and Norilsk Nickel Africa (NNAf) concluded a purchase and sale agreement for the acquisition by ARM of NNAf’s 50% participation interest for a cash consideration of R1m. This will result in ARM taking over NNAf’s share of the obligations and liabilities relating to the Nkomati Mine’s assets.

This saw the company closing the half year with a net cash position of nearly R8bn, which, however, is lower by R1.8bn when compared to the previous year’s position in the same period.

Cash generated from operations also decreased by R4.8bn to R449m, including an outflow in working capital of R786m and R641m inflow due to an outflow of trade payables.

During the period under review, ARM paid R2.3bn in dividends to its shareholders while net cash outflows from investing activities was R3bn mainly due to expansionary capital expenditure at Two Rivers Mine and Bokoni Mine.

Additionally, borrowings of R49m were repaid during the period, resulting in gross debt of R193m as at the end of the period.

“ARM’s exposure to PGMs, a segment currently grappling with depressed prices, has weighed heavily on its overall performance. However, the strength of the iron ore division, pillowed by higher realised prices and increased sales volumes, has provided a crucial counterbalance,” said one analyst.

ARM’s share price rose 3.31% to close at R189.25 on Friday.