Release Date: September 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- African Rainbow Minerals Ltd (AFBOF, Financial) maintained a robust financial position with ZAR7.4 billion in the bank.
- The company achieved significant safety milestones, including a 19% decrease in lost time injury frequency rate and 12 million fatality-free shifts at Black Rock Mine.
- ARM Ferrous operations saw a 19% increase in headline earnings in the iron ore division, driven by higher realized iron ore prices and a weaker rand.
- The company is investing in future growth opportunities, including a chrome recovery plant and strategic investments in copper through Surge Copper.
- African Rainbow Minerals Ltd (AFBOF) remains committed to climate change initiatives, achieving a 5% decrease in carbon emissions and exploring solar energy feasibility studies.
Negative Points
- Headline earnings decreased by 43% to ZAR5.1 billion, reflecting a challenging global market environment.
- Manganese ore production was down 15% due to operational challenges, and manganese alloy production decreased by 10% due to soft market demand.
- The PGM basket price dropped by approximately 33% year-on-year, significantly impacting earnings.
- The company faced increased costs, including a 20% rise in unit cash costs for manganese and higher logistics and freight expenses.
- ARM Coal's dividends decreased by 29% to ZAR422 million, and dividends from Two Rivers were down 100% compared to the previous year.
Q & A Highlights
Highlights of African Rainbow Minerals Ltd (AFBOF) Earnings Call
Q: Can you provide more insight into the chrome recovery plant? What motivated this decision, and what are the expected outcomes?
A: (Velile Phillip Tobias, CEO) The chrome recovery plant is expected to produce around 40,000 tonnes per annum of chrome at a cost of ZAR670 per tonne, with a sale price of about ZAR3,600 per tonne, yielding 80% margins. The rationale is to capitalize on the high chrome prices and to enhance overall revenue by diluting operating costs.
Q: Why was the Two Rivers Merensky project placed on care and maintenance, and not Bokoni? What are the anticipated profitability and cash flows for Bokoni?
A: (Thando Mkatshana, Executive Director) The Merensky project was placed on care and maintenance due to the high ramp-up costs and current low PGM prices. Bokoni continues to operate because it mines UG2, which has higher contained ounces and better profitability potential. The Merensky project will be reconsidered when PGM prices reach around ZAR850,000 per kilogram.
Q: Given the challenges with Harmony's dividend yield, would it be more beneficial to monetize the stake and invest in assets you can control?
A: (Patrice Motsepe, Executive Chairman) We continuously evaluate what's in the best interest of our shareholders. While Harmony provides diversification and future copper exposure, we are considering all options, including using Harmony equity as security for loans to fund other investments.
Q: What are the key factors contributing to the high increase in the cost of sales?
A: (Andre Joubert, CEO - ARM Ferrous) The total cost of sales increased by ZAR1 billion, primarily due to a ZAR400 million increase in distribution costs, including logistics and freight, and additional costs for on-mine shunting at our manganese mine.
Q: Can you provide an update on the Surge Copper project and its timeline from resource to reserve stage?
A: (Michael Schmidt, Executive - Platinum Operations) The Surge Copper project is currently in the pre-economic assessment stage. It will take at least another 18 months to move to the feasibility stage, with full production expected by 2030 if successful.
Q: What is the current status of the Machadodorp Works and the energy-efficient smelting technology?
A: (Andre Joubert, CEO - ARM Ferrous) The energy-efficient smelting technology has shown positive results in the demonstration plant. We have completed a definitive feasibility study and are reviewing the outcomes to make investment decisions. Care and maintenance costs at Machadodorp will continue until an investment decision is made.
Q: What is the outlook for manganese prices and the impact of Chinese port stocks?
A: (Andre Joubert, CEO - ARM Ferrous) Manganese prices are expected to stabilize, with high-grade manganese ore maintaining a CIF price around $5.30 per manganese unit. Chinese port stocks have increased marginally but remain stable at about 1.9 months of consumption.
Q: How do you plan to address the logistics constraints, particularly with Transnet?
A: (Andre Joubert, CEO - ARM Ferrous) We are engaging with Transnet's new leadership to improve performance. Collaborative efforts have already reduced repair times significantly, and we are exploring strategic sourcing and centralized procurement to mitigate logistics constraints.
Q: What measures are being taken to improve the unit costs at Two Rivers?
A: (Thando Mkatshana, Executive Director) We have negotiated through the dike at UG2, which will normalize costs. The additional costs from Merensky development will be reduced, and we expect to see cost improvements as we maximize UG2 production and benefit from additional revenue from chrome.
Q: How confident are you in the current management team's ability to navigate these challenging times?
A: (Patrice Motsepe, Executive Chairman) We are very confident in our management team's capabilities. They have a strong track record and are well-equipped to handle the current challenges and capitalize on future opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
