African Rainbow Minerals Limited · JSE:ARI
African Rainbow Minerals — FY2011 Earnings Presentation
54 slides from African Rainbow Minerals's earnings presentation, September 2011
Slide 1: Provisional results for the year ended 30 June 2011
Provisional results for the year ended 30 June 2011 1
Slide 2: Confident about the future of our business
CONFIDENT ABOUT THE FUTURE OF OUR BUSINESS 2
Slide 3: Executive Chairman quote on management and growth strategy
“The ARM management team continues to deliver outstanding results. We are confident about the long term future of the minerals we mine, despite current volatility and are continuing with our aggressive growth strategy.” Patrice Motsepe ARM Executive Chairman 3
Slide 4: Disclaimer
Disclaimer Certain statements in this report constitute forward looking statements that are neither reported financial results nor other historical information. They include but are not limited to statements that are predictions of or indicate future earnings, savings, synergies, events, trends, pla
Slide 5: Group structure
African Rainbow Minerals G rou p Ss ruc Uu re FaxtM African Rainbow Minerals (100%) (100%) (10% (51%) (100%) (oo) (15%) La Poem Coal Copper Exploration Cn Co a Coa -.. 50% Modikwat 50% Khumani 20% Xstrata Coal | 50% Konkola North! 55% Two Rivers” 50% Beeshoek South Africa 50% Lusaka & iron Ore Kabwe
Slide 6: Overview and strategy
Overview and strategy Patrice Motsepe, Executive Chairman The Nchwaning Manganese Mine 6
Slide 7: Salient features
Salient features Headline earnings increased by 94% to R3.3 billion (F2010: R1.7 billion). The headline earnings per share were 1 559 cents compared to 807 cents in F2010. Dividend increases substantially by 125% to 450 cents per share (F2010: 200 cents per share). Cash generated by operations incre
Slide 8: Salient features
Salient features Robust balance sheet with net cash (excluding partner loans) of R2 594 million. Attributable headline earnings from iron ore increased 224% to R2.3 billion. Increase in production volumes in the ARM Ferrous Division as well as at the Nkomati Nickel and Goedgevonden Coal operations.
Slide 9: Earnings profile
Earnings profile Headline earnings (R million) 4 500 4 013 4 000 3 500 3 319 3 000 2 500 2 317 2 000 1 714 1 500 1 207 1 000 462 500 339 0 F2005 F2006 F2007 F2008 F2009 F2010 F2011 9
Slide 10: ARM declares a 5th consecutive dividend
ARM declares a 5th consecutive dividend Headline earnings per share and dividends per share (cents per share) 2 500 2 000 1 906 1 559 1 500 1 094 1 000 807 580 500 400 450 166 225 150 175 200 0 F2005 F2006 F2007 F2008 F2009 F2010 F2011 Headline earnings per share Dividends per share 10
Slide 11: Robust financial position maintained
Robust financial position maintained Net cash/ (net debt) excluding partner loans (R million) Net cash 2 594 2 500 1 811 1 575 1 500 500 174 ( 500) ( 932) (1 500) (1 307) Net debt (1 855) (2 500) F2005 F2006 F2007 F2008 F2009 F2010 F2011 11
Slide 12: Significant increase in iron ore revenue contribution
Significant increase in iron ore revenue contribution F2010 Revenue F2011 Revenue Nickel Nickel 11% 10% Iron Ore 23% Iron Ore 35% Platinum 29% Platinum 22% Manganese Coal 27% 3% Coal Chrome 2% Chrome 8% Manganese 8% 22% 12
Slide 13: EBITDA margins
EBITDA margins The ARM EBITDA margin increased substantially to 43% (F2010: 35%) 51.0% Iron Ore 68.4% 53.8% Coal 43.0% 39.5% Manganese 39.8% 35.2% Platinum 33.0% 35.4% Nickel 23.5% -6.1% Chrome -7.4% -30% -10% 10% 30% 50% 70% F2010 F2011 13
Slide 14: Strategy
strategy Entrepreneurial Owner operator Profit focused Partner of choice management World-class management team 14
Slide 15: Strong focus on cost control
Strong focus on cost control ARM target for operations on the respective global cost curve by 2012 (ARM estimate, benchmarked at steady-state/normalised production volumes) 15
Slide 16: Update on growth projects
Update on growth projects The Khumani Iron Ore Expansion Project which will increase production from 10 to 16mtpa continues ahead of schedule and well within budget. Nkomati Nickel Mine expansion commissioned, plant recoveries lower than anticipated due to oxidised ore. The Goedgevonden Coal Mine at
Slide 17: Aggressive growth in iron ore continues
Aggressive growth in iron ore continues Iron ore sales volumes (on 100% basis – million tonnes) 18 16.0 16 15.1 14 2 X 2010 12.4 growth strategy 12 9.8 10.0 10 8 5.8 6 4 2 0 F2005a F2010a F2011a F2012e F2013e F2014e The “a” included in the x-axis refers to actual and the “e” to estimated 17
Slide 18: Aggressive growth in nickel continues
Aggressive growth in nickel continues Nickel produced volumes (on 100% basis – thousand tonnes) 25 20.5 20 17.0 2 X 2010 15.3 15 growth strategy 9.7 10.1 10 5.3 5 0 F2005a F2010a F2011a F2012e F2013e F2014e The “a” included in the x-axis refers to actual and the “e” to estimated 18
Slide 19: Aggressive growth in coal
Aggressive growth in coal Goedgevonden thermal coal sales volumes (on 100% basis - million tonnes) 8 7.0 7.0 7.0 7 6 5.4 5 2 X 2010 growth strategy 4 3 2.9 2 1 0.86 0 F2006a F2010a F2011a F2012e F2013e F2014e Domestic thermal coal Export thermal coal The “a” included in the x-axis refers to actual a
Slide 20: Aggressive growth in copper
Aggressive growth in copper Konkola North copper sales volumes (on 100% basis – thousand tonnes) 60 50 48.3 48.9 45.6 40.6 40 30 20 17.5 10 0 F2013e F2014e F2015e F2016e F2017e The “e” included in the x-axis refers to estimated 20
Slide 21: Significant investment in growth
Significant investment in growth ARM’s Capital Expenditure F2005 – F2011 F2012 – F2014 R16.9 bn R10.1 bn F2005 – F2014 Growth projects + Investment in R27.0 bn completed growth Partners’ Capital Expenditure F2005 – F2011 F2012 – F2014 F2005 – F2014 R13.8 bn + R9.1 bn R22.9 bn Projected total investm
Slide 22: Safety and sustainable development
Safety and sustainable development Modikwa Platinum Mine achieved 8 000 000 fatality-free shifts and was awarded the Department of Mineral Resources (DMR) Safety Achievement Flag for Platinum Mines. Two Rivers Platinum Mine completed 2 000 000 fatality-free shifts. Khumani Iron Ore Mine and Black Ro
Slide 23: Safety and sustainable development
Safety and sustainable development R64 million community road built by Modikwa Platinum Mine completed successfully. Significant improvement in sustainable development reporting. ARM 2010 Sustainable Report ranked 13th (out of 392) progressing from 42nd place two years ago. 23
Slide 24: Organisational changes
Organisational changes Jan Steenkamp, in addition to ARM Ferrous, takes responsibility for ARM Exploration. Kalumines, Lusaka and Kabwe Copper Projects moved from ARM Exploration to ARM Copper Division. Mr. Michael (Mike) Schmidt appointed CEO designate from 1 September 2011. 24
Slide 25: Outlook
Outlook ARM’s diverse portfolio of commodities is well positioned to deliver into strong commodity markets. Despite short term volatility ARM expects commodity prices to continue to be supported by demand from China, India and other emerging markets. ARM is confident about the future and plans to sp
Slide 26: Operational review
Operational review André Wilkens, Chief Executive Officer 26
Slide 27: Safety
Safety Lost Time Injury Frequency Rate (LTIFR) measured per 200 000 man hours worked 2.5 2.0 1.5 1.0 0.5 0.0 Nov Mar Nov Mar Nov Mar Nov Mar Nov Mar Jul-06 Sep May Jul-07 Sep May Jul-08 Sep May Jul-09 Sep May Jul-10 Sep May Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 3 month moving average 12 month moving av
Slide 28: Operations' safety record
Operations’ safety record Operations as at 30 June Total Fatality Free Date of Last Fatality 2011 Shifts Worked Modikwa Platinum Mine 8 031 723 April 2006 Two Rivers Platinum Mine 2 437 357 July 2007 Beeshoek Iron Ore Mine 1 857 443 March 2003 Nkomati Nickel Mine 1 736 437 September 2008 Khumani Iro
Slide 29: Headline earnings by division
Headline earnings by division Contribution to headline earnings 12 months ended 30 June Commodity group Reviewed Audited R million 2011 2010 % change Platinum Group Metals 350 315 11 Nkomati Nickel and Chrome 110 206 (47) Ferrous Metals 2 897 1 364 112 Coal (103) (17) >(200) Exploration (173) (143)
Slide 30: Significant increase in production volumes
Significant increase in production volumes* F2011 vs. F2010 production volumes percentage change 140% 120% 100% 80% 60% 40% 20% 0% -20% Chrome PGM Iron ore Nickel Manganese Chrome alloys Chrome ore Manganese ore Saleable coal ore/concentrate alloys (GGV only) (Nkomati) * Production volumes on 100% b
Slide 31: Improvement in commodity prices
Improvement in commodity prices F2011 vs. F2010 average realised commodity price percentage change 140% 120% 100% 80% 60% 40% 20% 0% -20% R/$ Rhodium Platinum Export Nickel Copper FeMn Gold Manganese Chrome Palladium Iron ore exchange ($/oz) ($/oz) thermal ($/lb) ($/lb) ($/t) ($/oz) ore (Nkomati ($/
Slide 32: Increase in commodity prices continues
Increase in commodity prices continues Spot prices ( as at 16 August 2011) vs. F2011 average realised prices percentage change 60% 50% 40% 30% 20% 10% 0% -10% -20% -30% Rhodium Manganese Nickel Rand/Dollar Copper Platinum FeMn Palladium Iron ore Gold Export coal ($/oz) ore ($/lb) exchange ($/lb) ($/
Slide 33: Profit variance analysis year-on-year
Profit variance analysis year-on-year Profit from operations before exceptional items (R million) 9 000 8 000 5 042 ( 1 248) 352 (1 481) 7 000 6 000 ( 221) (328) 286 5 322 5 000 4 000 3 000 2 920 2 000 1 000 0 F2010 Commodity Exchange Volume Cash cost Non cash Mark-to- Corporate F2011 dollar prices
Slide 34: Stronger cash from operations
Stronger cash from operations Net cash inflow/ (outflow) from operating activities (R million attributable) Iron Ore 993 2,998 * Manganese 439 510 Chrome (110) (95) Coal 23 174 Platinum 760 988 Nickel 365 405 Exploration (137) (136) ( 500) 0 500 1 000 1 500 2 000 2 500 3 000 3 500 F2010 F2011 * Mang
Slide 35: Unit cost changes and EBITDA margins
Unit cost changes and EBITDA margins % unit cost change F2011 Commodity Group Unit cost metric F2011 vs. F2010 EBITDA (decrease)/increase margin (%) Manganese ore R/tonne (2.5) 47.4 Charge chrome R/tonne (1.4) (6.8) Nickel R/tonne 12.0 23.5 Platinum R/PGM ounce 12.3 33.0 Manganese alloys R/tonne 12.
Slide 36: On mine cash costs
On mine cash costs ARM Ferrous ARM Platinum ARM Coal Capitalisation of costs was terminated Accelerated ramp-up of the Khumani as GGV reached steady state. Nkomati Mine unit cash costs increase Project together with production due to lower than expected recoveries PCB costs were impacted by losses d
Slide 37: The Khumani Iron Ore Expansion
The Khumani Iron Ore Expansion Total project cost R6.7 billion approved - project is currently well within budget Capital expenditure to date R5.0 billion at 30 June 2011 Full production 2013 financial year - project is currently nine months ahead of schedule Steady state 14 mtpa export iron ore; 2
Slide 38: The Nkomati Nickel Expansion Project
The Nkomati Nickel Expansion Project Capital expenditure to date R3.5 billion of budgeted R3.7 billion Stage 250ktpm plant successfully commissioned plant recoveries lower than anticipated due to oxidised ore Full production 2014 financial year Steady state 20 500t nickel Position on cost curve 45th
Slide 39: Nkomati Nickel Mine ramp up challenges
Nkomati Nickel Mine ramp up challenges Both concentrator plants at nameplate tonnage capacity. Pit 3 commenced in February 2011 – highly variable oxidised ore. MMZ head grade down from 0.40% to 0.31% nickel. 39
Slide 40: Nkomati Nickel Mine ramp up challenges
Nkomati Nickel Mine ramp up challenges Plant recoveries 8% lower than the planned 68%. Recoveries are planned at 70% at steady state. Assay accreditation and off-take concentrate delays. Underground ore, pit 1 and pit 2 have achieved the planned recoveries. Ramp-up to full production deferred by one
Slide 41: Nkomati Nickel Expansion Project
Nkomati Nickel Expansion Project Commodities produced, per annum, at steady state: 20 500 tonnes Nickel 110 000 ounces Platinum Group Metals 10 000 tonnes Copper 1 000 tonnes Cobalt 500 000 tonnes Chrome concentrate 41
Slide 42: Goedgevonden Coal Mine is at full production
Goedgevonden Coal Mine is at full production Capital expenditure to date R3.5 billion of the planned R3.6 billion Full production Achieved in 2011 financial year Steady state volumes 3.2mt export; 3.8 local - thermal coal Position on cost curve 25th percentile Significant stock pile as at 30 June 20
Slide 43: The Konkola North Copper Project
The Konkola North Copper Project Total project cost $391 million (in July 2010 terms) of which 82% has already been contracted for. Plant commissioning December 2012 Full production 45 000 tonnes copper per annum – full production expected in 2015 financial year Position on cost curve C1 cash cost U
Slide 44: Growth projects continue
Growth projects continue Attributable capital expenditure by division (R million)* 5 000 4 500 4 300 4 000 3 500 3 333 3 404 3 400 3 000 2 738 2 400 2 500 2 000 1 500 1 000 500 0 F2009a F2010a F2011a F2012e F2013e F2014e ARM Copper ARM Coal ARM Ferrous ARM Platinum *The forecasted capital expenditur
Slide 45: Conversion of ferrochrome furnaces
Conversion of ferrochrome furnaces No. 5 Furnace successfully converted from a ferrochrome furnace to ferromanganese. Conversion of two additional furnaces to be completed by end 2012 financial year. Ferromanganese 2011 2014 Production (in tonnes) 291 000 450 000 Ferrochrome 2011 2014 Production (in
Slide 46: A robust growth pipeline
FaxtM African Rainbow Minerals A robust growth pipeline Exploration to Project development Steady state Declining feasibilty and ramp up (>15 years life-of-mine) operations Beeshoek Iron Ore Thermal coal mines Manganese and chrome smelters Manganese ore mines Two Rivers Platinum Mine Modikwa Platinu
Slide 47: Further growth
Further growth Potential Future Projects • Iron ore expansion beyond 16mtpa • Manganese ore expansion to 6mtpa • Smelter expansions • Doubling of Modikwa Platinum Mine • Two Rivers Merensky Project • Kalplats Platinum project • Konkola North Area A • Kalumines Copper Project • Exploration with Rovum
Slide 48: Rovuma Resources
Rovuma Resources ARM signed an agreement with Rovuma Resources (a Mozambican exploration company) to explore for manganese ore, nickel, PGM’s and base metals in Mozambique. In terms of the agreement ARM will fund ongoing exploration at an estimated cost of US$7 million per annum. ARM will have exclu
Slide 49: Robust financial position
Robust financial position EBITDA excluding exceptional items Cash on statement of financial position R million R million 8 000 4 000 3 668 7 229 3 513 7 000 6 434 3 500 3 039 6 000 3 000 2 660 5 000 4 484 2 500 4 000 3 907 2 000 2 887 1 500 3 000 1 063 2 014 1 000 2 000 1 552 500 288 439 1 000 0 0 F
Slide 50: Sufficient capacity to fund growth
Sufficient capacity to fund growth Net cash/ (Net debt) calculation Per statement of financial position June 2011 June 2010 Cash and cash equivalents 3 668 3 039 Long-term interest bearing borrowings (2 337) Short-term interest bearing borrowings (732) Total interest bearing borrowings (3 069) (3 06
Slide 51: Summarised income statement
Summarised income statement year ended 30 June R million 2011 2010 % change Sales 14 893 11 022 35 Profit from operations (before exceptional items) 5 322 2 920 82 Income from investments 216 209 3 Finance costs (216) (192) (13) (Loss)/income from associate (135) (51) (165) Exceptional items (11) 97
Slide 52: Summarised cash flow
Summarised cash flow year ended 30 June R million 2011 2010 % change Cash generated from operations 5 898 3 430 72 Net finance income/(costs) 64 41 56 Dividends received 33 33 - Dividends paid (426) (371) (15) Tax paid (1 240) (612) (103) 4 329 2 521 72 Capital expenditure (2 948) (2 500) Investment
Slide 53: Summarised statement of financial position
Summarised statement of financial position year ended 30 June R million 2011 2010 Non-current assets 23 291 20 290 Property, plant, equipment and other 16 162 13 807 Investments 7 129 6 483 Current assets 9 018 7 943 Other 5 350 4 904 Cash and equivalents 3 668 3 039 Total assets 32 309 28 233 Total
Slide 54: Questions
Questions Provisional results for the year ended 30 June 2011 54
African Rainbow Minerals — FY2011 Earnings Presentation on 6ix