African Rainbow Minerals (ARM) reported a slip in interim profit because of a hefty impairment against its struggling Nkomati Nickel mine, which needs a cash injection, as shareholders were again kept waiting for a definitive dividend policy.
The diversified empowerment mining company kept its investors and analysts in the dark about a clear dividend policy and ratio, with executive chair and billionaire Patrice Motsepe dodging the question of when such a policy would be unveiled despite saying it was a topic of board discussion.
ARM reported a post-tax profit of R1.496bn for the six months to end-December against a profit of R1.89bn a year earlier. Included in the numbers is an impairment of R1.166bn against the unprofitable Nkomati mine.
Nkomati is shared by ARM and Russian nickel and palladium miner Norilsk Nickel, which has, for years, wanted to sell its stake in the operation. It tried unsuccessfully to conclude a deal with Botswana’s state-owned BCL.
Nkomati reported a headline loss of R186m in the period because of lower nickel and chrome sales.
“ARM has completed its review, given the mine’s operational challenges, cash support that could be required from the partners, and the relatively limited [eight-year] life of the open pit mine,” it said.
The partners were looking at ways to “optimise” the mine and they had accelerated waste stripping during a nickel price spike in November and December, said ARM CEO Mike Schmidt, predicting a better second half of the year for the mine.
Given ARM’s history of disposing unprofitable assets, such as its Lubambe copper mine, which it sold at the end of 2017, the future of Nkomati in the company is not certain. Nkomati’s nickel production fell 2% to 6,624 tons because of the low-grade stockpiled material the operation treated during the interim period.
ARM declared an interim dividend of 400c per share compared to a 250c interim payment a year earlier.
Touching on the question of dividend policies and ratios, Motsepe told an analyst presentation on Friday the board was far “advanced in finalising what our payout ratio or formula will be” but he declined to say when it would be conveyed to shareholders.
“Once you’ve nailed your colours to the mast you’ve got to keep them there, so a little conservatism in that formula will be useful going forward. We don’t want to make commitments we can’t keep,” he said, adding it was “extremely irresponsible” for companies to tap into borrowings to pay dividends.
“We'll never find ourselves in that position.”
The company had net cash of R1.17bn by the end of December, a swing from a net debt position of R1.1bn a year earlier. ARM had R3.297bn of cash on its balance sheet at the end of the reporting period and was paid a R1.5bn dividend from Assmang, an unlisted joint venture company it shares with JSE-listed Assore.
At the end of the 2018 financial year in June, ARM had cash of R3.291bn.
Elsewhere in ARM, the stand-out performances were from iron ore, manganese mines in Assmang, and the Modikwa platinum mine.
Out of headline earnings of R2.2bn for the period, which were 13% higher than a year earlier, the biggest contributions came from iron ore and manganese, which generated R2.13bn of headline earnings, a 21% improvement. The increase came from higher prices.
Modikwa’s headline earnings more than quadrupled to R173m. However, the ARM platinum division, which includes Nkomati and the Two Rivers mine, reported a 26% fall in headline earnings to R167m, with the nickel business’s R186m loss weighing heavily on the performance of the two platinum mines.
The coal unit reported a 59% fall in headline earnings to R65m.
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