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ASSORE LIMITED - Results for the half-year ended 31 December 2019

Release Date: 21/02/2020 07:05
Code(s): ASR     PDF:  
Wrap Text
Results for the half-year ended 31 December 2019

ASSORE LIMITED
Registration number: 1950/037394/06
Share code: ASR
ISIN: ZAE000146932
(Assore or group or company)
Results for the half-year ended 31 December 2019

- Dwarsrivier recognised for safety performance
- Interim dividend of R7,00 per share
- Net cash of R8,1 billion


CEO Charles Walters says: "Our interim results were negatively affected by weaker prices in the chrome and
manganese markets, and lower shipments of iron ore in the period under review. Higher iron ore prices and a
slightly weaker currency helped to cushion the effects of the weaker pricing environment experienced in
3 of our 4 commodities. We continue to focus on costs and operational efficiencies in order to maximise returns.
We have reiterated our commitment to safety with an improved overall LTIFR for Assore with Dwarsrivier bagging
the best improved safety performance and best safety performance award."


                                                Half-year       Half-year                         Year
                                                    ended           ended                        ended
                                              31 December     31 December               %      30 June
Financial highlights                                 2019            2018     (decrease)/         2019
R'million (unless otherwise stated)              Reviewed        Reviewed        increase      Audited
Revenue                                             3 468           3 948             (12)       8 140
Profit after taxation, before joint
venture and associates                                  252             813           (69)       1 451
Share of profit or loss from joint
venture and associates, after taxation              1   844         2   119           (13)       4   513
Profit for the year                                 2   096         2   932           (29)       5   964
Attributable earnings                               2   078         2   916           (29)       5   932
Headline earnings                                   2   108         2   917           (28)       6   382
Earnings per share (cents)                          2   014         2   827           (29)       5   751
Headline earnings per share (cents)                 2   043         2   828           (28)       6   187
Dividend per share in respect of
profit for the year (cents)                           700           1 000             (30)       2 400
Net asset value                                    30 384          27 782               9       29 802
Capital expenditure - Assmang (100% basis),
Dwarsrivier and other                               2 302           2 191               5        4 894

Safety
Assore operations
Dwarsrivier Chrome Mine Proprietary Limited (Dwarsrivier) reported a deterioration in its lost-time injury
frequency rate (LTIFR) to 0,22 for the six months to 31 December 2019 (the current period, or H1 FY20) from
0,18 for the six months to 31 December 2018 (the previous period, or H1 FY19). However, Dwarsrivier was
recognised for the best improved safety performance and best safety performance in its class at the South Africa
Chrome Industry Awards Dinner held on 5 September 2019. Performance improvements within Assore's other operations
resulted in an overall improvement in the combined LTIFR for Assore from 0,29 to 0,24 over the same period.

Assmang operations
The combined LTIFR of the Assmang Proprietary Limited (Assmang) operations, which is jointly controlled by
Assore and African Rainbow Minerals Limited (ARM), deteriorated to a level of 0,24 for the current period,
compared to 0,13 for the previous period.

The group remains committed to the pursuit of continued, sustainable improvement in our overall safety
performance.

Group financial performance
Headline earnings for H1 FY20 decreased by 28% to R2,1 billion, compared to R2,9 billion for the H1 FY19.
Assmang, in which Assore has a 50% interest, recorded headline earnings of R3,7 billion (H1 FY19: R4,3 billion),
a decrease of 14%, on a 100% basis. This contributed R1,85 billion towards the group's headline earnings. In
accordance with International Financial Reporting Standards (IFRS), Assmang is classified as a joint venture
and accordingly, its financial results are equity accounted. The rest of the group's operations reported
headline earnings that were 68% lower than the previous period, at R0,2 billion, of which Dwarsrivier contributed
a profit of R31 million (H1 FY19: profit R327 million), with commissions and interest earned making up most of
the balance. Attributable earnings amounted to R2,1 billion, 29% lower than H1 FY19.

The average SA rand/US dollar (USD) exchange rate for the current period was R14,69, 4% weaker than the
level that prevailed during H1 FY19. The index price for iron ore (62% iron content, fines grade, delivered in
China) was USD95 per ton (38% higher than H1 FY19), while the manganese ore price for both quoted grades (44% and
37% manganese content) as well as the chrome ore prices were lower compared to H1 FY19. Sales volumes of iron
ore were lower than in the previous corresponding period due mostly to the timing of shipments. However,
manganese ore sales volumes increased by 11% in line with the increased production volumes.

Production and sales volumes achieved by the group were as follows:
                                         Six months to       Six months to               %
                                           31 December         31 December       increase/
Metric tons '000                                  2019                2018       (decrease)

Production volumes (100%)
Iron ore                                         9 345               8 742               7
Manganese ore                                    2 034               1 737              17
Manganese alloys                                   239                 194              23
Chrome ore                                         769                 765               -
Sales volumes (100%)
Iron ore*                                        7 750               8 752             (11)
Manganese ore*                                   1 782               1 605              11
Manganese alloys*                                  171                 164               4
Chrome ore                                         735                 757              (3)
* Excluding intragroup sales

Working capital increased by R1,4 billion, due to the timing of cash payments to Assmang. As a result, the
group's net cash position decreased by 10% to R8,1 billion (June 2019: R9,0 billion). The board has declared
an interim dividend of 700 cents (H1 FY19: 1 000 cents) per share, which will be paid to shareholders on
Monday, 16 March 2020.

Market conditions
Demand for steel in China is estimated to have grown by 7,8% in the 2019 calendar year (CY19). However, for
the rest of the world, growth was limited. China produced 54% of the world's crude steel in CY19 with a
reported production increase of 8,3% over this period. The robust demand for crude steel, as well as continued
supply disruptions of iron ore, assisted in maintaining strong iron ore prices through this period. However,
the good demand for steel did not manage to hold prices of manganese ore during H1 FY20.

World stainless steel production, excluding Chinese production, declined in CY19 on the back of a weaker
world economic environment. However, Chinese production, which amounts to 56% of the world's total, recorded
year-on-year growth of 8,8%. These higher production levels resulted in increased demand for ferrochrome as
well as chrome ore, although both commodities attracted lower prices due to over-supply.

Assmang (iron ore and manganese)
Attributable earnings decreased by 14% over the previous period to R3,7 billion (100% basis,
H1 FY19: R4,3 billion). Iron ore delivered R2,8 billion (H1 FY19: R2,5 billion), an increase of 12% from
the previous period, while manganese ore and alloys contributed only R0,9 billion (H1 FY19: R1,9 billion)
to attributable earnings. The change in the mix of earnings was driven by firm iron ore prices and notably
lower prices for manganese ores and manganese alloys.

Capital expenditure in Assmang was at similar levels to the previous period, and amounted to R2,1 billion
for the period (H1 FY19: R1,98 billion). The Iron Ore division spent R0,9 billion relating mostly to waste
stripping and replacement capital. Expenditure in the Manganese division amounted to R1,2 billion, mostly
relating to the Black Rock Expansion Project (R335 million) and the Gloria Mine modernisation and optimisation
(R443 million).

At the end of H1 FY20, approximately 96% of the approved and revised capital expenditure of R6,966 billion
on the Black Rock Expansion Project was committed or spent and approximately 66% of the approved capital of
R2,7 billion for the Gloria Mine modernisation and optimisation project was committed or spent.

Iron ore
Higher crude steel production levels in China maintained the demand for iron ore. Imports of iron ore
into China increased marginally in CY19. Supply disruptions from Brazil and Australia, combined with limited
supply expansion across the industry saw prices rise in the period. The average index price for H1 FY20 was
USD95 per ton compared to the H1 FY19 level of USD69 per ton. The "lumpy" premium weakened to USD6 per ton
during H1 FY20 but recovered at the end of the period to USD15 per ton as steel mills margins improved and
restrictions on sintering plants in China supported demand for lumpy material.

Despite the high demand for iron ore, sales volumes decreased by 11% compared to H1 FY19. This was due to
logistical and operational constraints, predominantly at Saldanha Bay port. The high iron ore prices and weaker
SA rand/USD exchange rate helped increase the iron ore division's attributable profit for H1 FY20 by 12% over
the previous period.

Manganese ore and alloys
Manganese ore prices for H1 FY20 were weaker in comparison to H1 FY19, due to a combination of over-supply
and weakened demand. Demand in China softened while local supply and imports reached a peak. This resulted
in high port stock levels and lower ore prices for the current period.

The average index price for H1 FY20 for high-grade lumpy ore (44% manganese content) was USD4,82 per dry
metric ton unit (dmtu), delivered (CIF) in China (H1 FY19: USD7,02 per dmtu), while the average index price
for medium-grade lumpy ore (37% manganese content) was USD3,69 per dmtu, delivered (CIF) in China
(H1FY19: USD5,92 per dmtu).

Total sales volumes of manganese ore increased following the expansion at the Black Rock mines and were thus
11% higher than the previous period.

The increase in sales volumes and weak SA rand/USD exchange rate did not offset the effect of depressed
prices resulting in a 44% decrease in earnings from manganese ore.

The alloy market continued to experience over-supply and weak demand. Despite industry-wide production cuts
in H2 FY19, prices and profitability in the ferroalloy market weakened further in the current period. The
underlying weakness has been caused by the downturn experienced in the auto sector as well as the sluggish
manufacturing subsectors with all regions under significant margin squeeze.

Dwarsrivier (chrome ore)
The stainless steel, ferro chrome and chrome ore markets remained oversupplied during H1 FY20, resulting in
weaker price levels for chrome ore. Ferrochrome prices in China also continued to weaken throughout the
reporting period, exerting further pressure on chrome ore prices, which declined to USD130 per ton
(CFR, China, 42% concentrate) at the end of the period, compared to a level of above USD150 per ton at
the end of H1 FY19.

Chrome ore sales volumes were slightly lower (3%) compared to H1 FY19, due to lower sales concluded in order
to replenish mine stockpiles. The lower prices and sales volumes resulted in a 17% decrease in revenue for
H1 FY20 to R1,5 billion (H1 FY19: R1,8 billion) despite the weakening of the SA rand/USD exchange rate.

The cost management performance of the mine remains challenging, with unit costs increasing by 6% over
H1 FY19. Capital expenditure amounted to R246 million (H1 FY19: R214 million), mostly on-mine development
at its south shaft, plant upgrades to improve efficiency and flexibility and mining equipment replacements.

Due to the lower sales prices and the high operational costs the attributable profit for H1 FY20 decreased
by 91% to R31 million compared to the previous reporting period (H1 FY19: R327 million).

Outlook
World economic growth in 2019 was hampered by the US/China trade war and the growth forecasts for 2020 are
that GDP of the major economies will slow.

Growth in steel production is expected to slow in line with global growth. The extent of the impact on
global commodity markets of the recent outbreak of the coronavirus in China, and its spread around the world,
is not known at this stage. When considered together with unresolved trade issues in several regions of the world,
the outlook has become more negative with the balance of risks pointing to the downside.

On the other hand, a potential investment stimulus response from China would help to offset the current
weakness in the commodity markets. In addition, Chinese environmental policies are expected to continue to have
a positive impact on the demand for high-quality iron ore and manganese ore. This will support the demand for
the group's high quality products.

The potential increase in the supply of iron ore is likely to introduce some weakness in iron ore price
levels. On the other hand, an improvement in manganese ore prices is anticipated, with Chinese demand recovering
and improved demand expected from outside of China, after a relatively weak H1 FY20.

The surplus in supply of stainless steel, ferrochrome and chrome ore is predicted to persist for the
remainder of FY20. As a result, limited potential exists for major price improvements for these commodities which
will continue to suppress the financial performance in this segment.

The mining industry in South Africa continues to face a high level of regulatory uncertainty and increased
expectations from its various stakeholders. The results of the group remain significantly exposed to underlying
commodity prices for steel-making ingredients and fluctuations in exchange rates.

This outlook and any forward-looking statements have not been reviewed and reported on by the group's
external auditors.

Declaration of interim dividend
Shareholders are advised that on 20 February 2020, the board approved interim dividend number 126 (the dividend),
of 700 cents per share (gross) for the half-year ended 31 December 2019.

In terms of paragraph 11.17 of the Listings Requirements of JSE Limited, shareholders are advised of the following
with regard to the declaration:
1. the dividend has been declared from retained earnings
2. the local dividend tax (dividend tax) rate of 20% will apply
3. the net local dividend amount is 560 cents per share for shareholders liable to pay the dividend tax
4. the issued ordinary share capital of Assore is 139 607 000 shares, of which 36 462 070 (H1/19: 36 460 825)
   shares are accounted for as treasury shares in terms of IFRS and are therefore excluded from earnings per share
   calculations; and
5. Assore's income tax reference number is 9045/018/84/4.

The salient dates are as follows:
- Last day for trading to qualify and participate in the interim dividend;            Tuesday, 10 March 2020
- Trading "ex dividend" commences;                                                  Wednesday, 11 March 2020
- Record date;                                                                         Friday,   13 March 2020
- Dividend payment date; and                                                           Monday,   16 March 2020
- Dates (inclusive) between which share certificates may not be                  Wednesday, 11   March 2020 to
  dematerialised or rematerialised.                                                    Friday,   13 March 2020

On behalf of the board

Desmond Sacco                              Charles Walters
Chairman                                   Chief Executive Officer

Johannesburg
21 February 2020


Short-form announcement
This short-form announcement is the responsibility of the board of directors of Assore Limited and is a
summarised version of the group's full announcement and as such, it does not contain full or complete details
pertaining to its results. Any investment decisions by investors and/or shareholders should be made after taking
into consideration the full announcement, which has been released on the JSE Stock Exchange News Service (SENS)
at https://senspdf.jse.co.za/documents/2020/JSE/ISSE/ASR/AssoreHY20.pdf and on the group's website at
https://www.assore.com/interim-and-final-results/. The full announcement is available for inspection, at no
charge, at the registered office of Assore Limited, (15 Fricker Road, Illovo Boulevard, Johannesburg, 2196)
from 09:00 to 16:00 on business days. Copies of the full announcement can be requested from the registered
office by contacting the Company Secretary on +27 11 770 6800.

Directors
Executive directors: Desmond Sacco (Chairman), CE Walters (Chief Executive Officer),
PE Sacco (Deputy Chief Executive Officer and Marketing Director), RA Davies (Chief Financial Officer),
BH van Aswegen (Group Technical and Operations Director)

Non-executive directors: EM Southey* (Deputy Chairman and Lead Independent Director), DN Aitken*,
TN Mgoduso*, S Mhlarhi*, WF Urmson*
*Independent

Registered office
Assore House, 15 Fricker Road, IIlovo Boulevard, Johannesburg, 2196

Company Secretary
African Mining and Trust Company Limited

Transfer office
Singular Systems Proprietary Limited, 25 Scott Street, Waverley, 2090

Sponsor
The Standard Bank of South Africa Limited, 30 Baker Street, Rosebank, Johannesburg, 2196

www.assore.com

Date: 21-02-2020 07:05:00
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