African Rainbow Minerals (ARM) reported lower first-half earnings due to decreased iron ore production volumes and higher operational losses at its Bokoni Platinum Mine.
The company’s headline earnings for the six months ended December declined by 49% to R1.52bn or R7.75 per share. The company said this was largely driven by lower iron ore prices and a stronger rand-dollar exchange rate.
Additionally, the company faced challenges to its operational performance, including reduced iron ore production volumes and higher operational losses in its platinum group metals (PGMs) segment, according to the statement on Friday.
Despite the decline in earnings, ARM maintained a solid financial position, with net cash of R6.07bn. The company declared an interim dividend of 450c per share, down from 600c in the previous period.
Operationally, ARM’s iron ore production volumes were lower due to reduced offtake from ArcelorMittal SA. The company’s PGM production volumes rose marginally, driven by an increase in ounces at Bokoni Platinum Mines.
However, mining development costs were higher due to the mine being in ramp-up phase, leading to higher operational losses, the company said.
Bokoni Platinum Mines’ headline loss widened to R620m from R341m in the previous period, mainly due to lower-than-guided PGM ounce production and increased mechanised development costs during the ramp-up phase.
Bokoni Platinum, located in Limpopo, has faced significant operational challenges, including depressed PGM prices and inefficiencies. These challenges have led ARM to scale back mechanised development and restructure the operation to mitigate financial losses.
The mine, previously owned by Anglo American Platinum and Atlatsa Resources, was acquired by ARM in September 2022 with the aim of revitalising operations by focusing on the high-grade upper group two (UG2) reef. However, the sharp decline in palladium and rhodium prices, down 40% and 62% respectively in the past year, has severely affected profitability.
ARM also reported that production was affected by a fatality in June and challenging geological conditions, which required additional underground support.
The company said the construction of a 100MW solar power facility at ARM Platinum was progressing on schedule, with the first power delivery expected in August.
Additionally, the company completed a definitive feasibility study for renewable energy at ARM Ferrous in December and was reviewing various funding models and energy mix options.
However, ARM said the water supply deficit from the Vaal Central Water Board continued to pose a risk to operations at the Khumani Mine.
In response to the prolonged weakness in PGM prices, ARM has significantly reduced high-cost mechanised development efforts since December.
The company is shifting its focus from lower-grade mechanised development to higher-grade conventional mining methods, which are expected to increase the quality of ore fed into the UG2 concentrator plant and boost PGM production.
This shift aims to reduce unit costs and minimise operational losses at Bokoni. The company will reassess its mechanised development plans once PGM prices show a sustained recovery.
ARM is cautiously optimistic about SA’s medium to long-term growth prospects amid improved performance from Eskom and Transnet.
Iron ore prices are expected to fall over the next year due to supply growth and a softening Chinese demand outlook, while short-term weakness in PGM prices persists despite seemingly supportive fundamentals, it said.
Near-term increases in refined PGM exports from SA have exceeded market expectations, while Chinese imports remain subdued.
In Western markets, automotive demand remains weak, with European sales under pressure and the US market experiencing high inventory levels, leading to short-term production cuts.
However, the medium to long-term outlook for platinum, palladium and rhodium remains positive, it said. Emerging applications in hydrogen technology and advanced industrial processes could provide significant long-term demand growth, it concluded.
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