ARM prepares to close loss-making Nkomati Mine

AFRICAN Rainbow Minerals (ARM) is preparing to close its loss-making nickel Nkomati Mine in Mpumalanga.

The company announced the mine closure on Friday as it reported a 9 percent boost in headline earnings to R5.2 billion, or R27.18 a share, in the year to the end of June.

The group said Nkomati, Africa’s biggest nickel-producing mine, had posted a headline loss of R315 million.

JSE-listed ARM, chaired by billionaire Patrice Motsepe, said ballooning input costs had impacted Nkomati, coupled with a R130m negative markto-market adjustment as the nickel price reduced to $12 675 (R191 937) a ton at June 30.

“An agreement was reached by the joint venture partners to scale down production at the loss-making Nkomati mine and place the mine on care and maintenance from September 2020 in preparation for closure,” the company said on Friday.

It impaired R1.1bn on the Nkomati assets on a decline in head grade, which resulted in decreased metal output and led the inability to generate sufficient cash.

ARM also said its headline earnings from its platinum business had plummeted by 73 percent, despite its rivals recording bumper profits from the stronger platinum group metals (PGM) price environment.

The company said its Two Rivers Mine continued to be impacted by lower head grades, and initiatives to improve the PGM volumes at the mine were being considered, including installation of additional milling capacity.

“An addition of 40 000 tons per month of milling capacity to the Two Rivers Mine plant would result in an increase of PGM production volumes to approximately 380 000 6E PGMs per annum,” said the company.

Two Rivers Mine was able to deliver a 5 percent increase in headline earnings after benefiting from the higher prices.

Despite challenges in platinum, ARM said headline earnings from its ferrous division had jumped by 41 percent to R4.96bn from R3.52bn in 2018 as the iron ore division delivered a 103 percent increase.

“Iron ore prices were high in the financial year under review with the index price for 62 percent Fe iron ore fines CIF North China increasing from $64.45 a ton in July 2018 to close at $116.35 a ton at the end of June 2019,” said the company.

The average realised US dollar prices for export iron ore were 34 percent higher to $87 a ton from $65 a ton in 2018, following the Vale tailings dam incident in Brazil at the end of January.

Headline earnings in the manganese division were 15 percent down mainly due to reduced profitability at the manganese alloy operations owing to lower manganese alloy prices and high input costs.

Seleho Tsatsi, an investment analyst at Johannesburg-based Anchor Capital, said ARM had a tough set of results from the platinum division.

“The company’s platinum division was disappointing, given how strong PGM prices have been over the period,” said Tsatsi.

ARM shares rose 3.11 percent to close at R165.71 on the JSE on Friday.