Softening commodity prices hit ARM hard

AFRICAN Rainbow Minerals (ARM) has forecast a bleak financial performance in the year to June, as losses at Harmony Gold, in which it holds a 14.6 percent stake, contribute to a 55 percent earnings slide.

ARM is a JSE-listed diversified mining company with a portfolio that ranges from assets in iron and manganese ore, to platinum group metals and coal.

The company also cited softening commodity prices for a drop in headline earnings in a trading update on Friday. It anticipated basic earnings for the year to June to decline by at least 55 percent to R1.8 billion compared with R3.289bn in the same period last year. Basic earnings a share were likely to be 55 percent or 837c lower than the same period last year.

“ARM’s basic earnings are currently expected to be negatively impacted by an unrealised mark-to-market loss on the Harmony investment due to a decline in the Harmony share price below the level reported as at December 31, of R21.61 per share, below which further mark-to-market adjustments through the income statement would be required,” the company said.

The impairment of an operating furnace at Machadodorp Works, a manganese ore smelter in Mpumalanga, had also contributed to the losses, the company said.

ARM’s headline earnings in the year to June are anticipated to be at least 45 percent less to R1.8bn compared with R4.1bn in the same period in the previous financial year.

“The decrease in headline earnings is largely due to the decline in US dollar commodity prices compared to those achieved in the previous comparable period, especially for iron ore. The lower dollar prices were partially offset by a weaker rand/dollar exchange rate,” the company said.

In the nine months to March, Harmony’s net loss stood at R1.38bn compared with R47 million loss in the same period last year.

Harmony has also entered a Section 189A consultation process with stakeholders on restructuring the loss-making Doornkop mine.