Declining commodity prices made for a challenging year for African Rainbow Minerals (ARM), which reported a slump in revenue and earnings.
The diversified miner said on Friday that declining prices of platinum group metals (PGM) and thermal coal weighed on its performance in the year ended June. The company reported headline earnings of R5.08bn and R25.91 per share, reflecting a 43% decrease from the 2023 financial year.
Revenue for the year was down 20% to R12.9bn.
A final dividend of 900c per share was declared compared with 1,200c a year ago.
ARM said the decline in the average dollar PGM basket price and lower thermal coal prices were partially offset by a weaker average rand-dollar exchange rate and higher average realised export iron ore prices.
The group said lower production volumes, above-inflation increases in electricity costs and higher waste-stripping expenses at its iron ore operations also contributed to the lower earnings as unit costs remained under pressure.
“Infrastructure challenges, rail and port performance, power reliability and water security remain significant risks for ARM,” it said in a statement. “These issues are likely to continue impacting our export volumes and unit cost of production.
“We are actively working with government bodies and other stakeholders to develop sustainable solutions that will benefit ARM, the mining industry, communities and the broader country.”
Iron ore
Headline earnings fell across all ARM’s divisions, excluding iron ore. The higher headline earnings in the iron ore division were driven by an increase in average dollar prices for the metal, slightly higher sales volumes and the weaker rand/dollar exchange rate, partially offset by higher mining costs and higher railage expenses.
“Chinese steel demand has weakened, leading to declining margins and lower production expectations, though this is partially offset by increased exports.
“Global crude steel production is expected to remain stable over the medium term, with a gradual decline in Chinese production offset by increased global demand.”
ARM Platinum saw the worst earnings slump among the divisions, with headline earnings down 162% from the previous year. This was due to reduced earnings at the group’s Two Rivers Mine and headline losses at the Modikwa and Bokoni mines.
The company’s coal division saw headline earnings reduced to R391m from R1.53bn, primarily driven by a reduction in the realised coal price, with demand expected to continue falling in the medium term. “Thermal coal demand globally is expected to decrease, largely driven by increasing renewable energy generation and lower natural gas prices, placing downward pressure on thermal coal prices over the medium to long term.”
In line with the reduced earnings, ARM also reported a series of impairments on several of its mines, including Two Rivers Mine by R1.09bn, the Modikwa mine by R376m, the Beeshoek Mine by R422m and Cato Ridge Works by R29m.
A net cash position of R7.2bn indicates a robust financial position for ARM, but also reflects a decrease of R2.58bn compared with the 2023 year. The decline was largely driven by an R887m increase in borrowings, while cash generated from operations decreased by R6.32bn.
“The current challenges posed by the downturn in the PGM market, along with lower iron ore and thermal coal prices, necessitate a focus on preserving cash,” said ARM. “Management is committed to responsible capital allocation and will consider postponing capital expenditure where feasible.”
PGM outlook
It said: “The outlook for PGMs presents a mixed scenario of challenges and opportunities. Platinum is expected to record a significant supply shortfall due to reduced shipments and restructuring initiatives. Despite this, automotive demand for platinum is anticipated to remain strong, despite a slight decline.
“Palladium demand from the automotive sector is projected to decrease, primarily driven by the rise of electric vehicles and increased use of platinum in petrol autocatalysts. Rhodium is forecast to be in slight deficit, with automotive demand also expected to decline.
“Overall, the PGM market will be influenced by economic and geopolitical uncertainties. However, easing interest rates and tightening market fundamentals could support prices in the medium to long term.”
The group’s share price ended down 2.9% at R157.29 on the JSE on Friday.
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