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Thando Mkatshana Chief Executive: ARM Copper and ARM Coal
COALARM
* ARM Coal holds the following:
– Access to Glencore Operations South Africa’s interest and entitlement in the Richards Bay Coal Terminal (RBCT); and
– An export entitlement of 3.2 Mtpa in the Phase V expansion at the RBCT.
** Participating Coal Business (PCB) refers to the Impunzi and Tweefontein operations.
Glencore Operations South Africa
*
Participating Coal Business (PCB)**
Goedgevonden (GGV)
51%
20%
10%
70%
49%
49%
51%
100%Glencore Holdings
South Africa (Pty) Ltd
THERMAL COAL
Cyclone
Spirals
Coarse
Small
Fine
PRODUCTION PROCESS
PRODUCTSTOCKPILE
Opencast mining
Raw coal stockpile
Primary and secondary crushing
SIZINGCLEANING
Screens
DEWATERING
102 INTEGRATED ANNUAL REPORT 2016
SALIENT FEATURES
ATTRIBUTABLE HEADLINE LOSS
R297 million (F2015: R93 million)
ATTRIBUTABLE CASH INFLOW FROM OPERATING ACTIVITIES
R236 million (F2015: R372 million)
ATTRIBUTABLE CAPITAL EXPENDITURE
R185 million (F2015: R372 million)
GGV MINE SALEABLE PRODUCTION(100% basis) (Mt)
10
8
6
4
2
5.8
7 6.3
7
8.1
6
7.3
0
8.3
4
6.5
3
F2011 F2012 F2013 F2014 F2015 F2016
PCB SALEABLE PRODUCTION(100% basis) (Mt)
16
14
12
10
8
6
4
2
12.2
9
12.9
9
12.7
1
12.0
7 13.6
1
14.6
3
F2011 F2012 F2013 F2014 F2015 F2016
Paardekop
Trichardtsfontein
Boschmanspoort
ZonnenbloemWildfontein
Hendrina
Delmas
BalfourSecunda
Standerton
Bethal
Amersfoort
Volksrust
Ermelo
Carolina
Belfast
MiddelburgWitbank
Ogies
Matla
Tutuka
Kriel
Kendal
ArnotHendrina
Duvha
Komati
Majuba
Camden
Legend
Goedgevonden Mine PCB operations Undeveloped Resources
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SCORECARD
GOEDGEVONDEN (GGV) MINE
F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES
Progress the Bankable Feasibility Study
(BFS) to expand GGV Mine output.
This project has been put on hold until
global coal prices recover sustainably.
PARTICIPATING COAL BUSINESS (PCB)
F2016 OBJECTIVES F2016 PERFORMANCE F2017 OBJECTIVES
Complete the outstanding infrastructure
and monitor performance of the
Tweefontein Optimisation Project (TOP).
Project completed except for some minor
infrastructure items.
Monitor the export market conditions and
review the Addcar operation.
Export prices remained depressed
during the financial year and the
Addcar operation is still on care and
maintenance.
Continue to monitor export coal market
conditions to evaluate the feasibility of
starting up the Addcar operation.
Increase volumes railed in line with
Transnet Freight Rail (TFR) capacity
allocation and performance.
TFR’s ramp up to 81 million tonnes per
annum is slower than initially planned.
Low export thermal coal prices have
also had a negative impact on the
coal volumes being exported from
South Africa.
Monitor performance and continue
engaging with TFR.
OVERVIEW
OPERATIONAL OVERVIEW (ATTRIBUTABLE BASIS) F2016 F2015 % change
Operationaltarget F2017
GGV sales million tonnes 1.80 2.15 (16)
Export thermal coal sales million tonnes 1.02 1.34 (24)
Eskom thermal coal sales million tonnes 0.78 0.81 (4)
PCB sales million tonnes 3.43 2.73 26
– Export thermal coal sales million tonnes 2.98 2.17 37
– Eskom thermal coal sales million tonnes 0.28 0.35 (20)
– Local thermal coal sales million tonnes 0.17 0.21 (19)
ARM total sales million tonnes 5.23 4.88 7
– Export thermal coal sales million tonnes 4.00 3.51 14
– Eskom thermal coal sales million tonnes 1.06 1.16 (9)
– Other local thermal coal sales million tonnes 0.17 0.21 (19)
FINANCIAL OVERVIEW (ATTRIBUTABLE BASIS) F2016 F2015 % change
Cash operating profit R million 601 747 (20)
– GGV R million 204 418 (51)
– PCB R million 397 329 21
Headline earnings attributable to ARM R million (297) (93) >(200)
– GGV R million (87) 93 (194)
– PCB R million (210) (186) (13)
104 INTEGRATED ANNUAL REPORT 2016
ARM COAL continued
OPERATIONAL AND FINANCIAL REVIEWARM Coal’s attributable headline loss increased by R204 million
to R297 million mainly as a result of a decline in export coal
prices, higher interest paid and an increase in the amortisation
charge.
The export coal market remained in oversupply in the last
12 months resulting in US Dollar export coal prices declining
by 25%. This decline was more pronounced in the second
half of the financial year with average realised prices declining
to US$38.44/t (1H F2016: US$43.54/t) for GGV Mine and US$38.64/t
(1H F2016: US$44.68/t) for PCB. Lower quality export coal sold
by both the GGV and PCB mines also contributed to the decline
in US Dollar realised prices as this coal was sold at a discount.
The 27% weakening of the Rand versus the US Dollar was not
enough to offset the decline in US Dollar prices resulting in
Rand export coal prices declining by 5% in F2016.
ARM Coal export coal sales volumes were 17% higher mainly
driven by increased volumes from the PCB operations as the
Tweefontein Optimisation Project (TOP) ramped up. GGV export
sales volumes were 24% lower and were negatively affected by
a 22% decrease in saleable production volumes. The lower
volumes were mainly as a result of mining in a lower grade area
and equipment availability.
Unit cost control measures were implemented at both the
GGV and PCB operations; however, GGV Mine’s on-mine unit
production costs per saleable tonne increased above inflation
as a result of the decline in saleable production volumes. The
PCB operations achieved an 18% reduction in on-mine unit
production costs per saleable tonne.
GGV MINE
GGV Mine’s saleable production decreased by 22% compared
to F2015. In the first half of F2016, the mine’s operational
performance was negatively impacted by production entering
localised geological mineralisation discontinuity and pinching
mining area (the Pre-Karoo area) together with a ten-day wage
related strike. Production was further hampered by a delay in the
issuance of the amended Environment Management Program
(EMP) by the Department of Mineral Resources (DMR) which
postponed mining in the lower strip ratio pit by four months. During
this period, mining was concentrated in higher strip ratio pits.
In addition, the planned annual dragline maintenance over-ran
by seven days during which time the Hitachi EX5500 overburden
stripping shovel was also down for three weeks due to a major
crack on the digging stick. Availability of the larger spare parts
for this machine is limited as this is the only machine in the
country.
The impact of the delays in the new pit start-up and downtime
in the overburden stripping machines impacted coal exposure
which in turn resulted in lower run-of-mine, a reduction in
saleable production and lower sales volumes, particularly export
sales volumes.
On-mine costs per saleable tonne were 27% higher at R239/t
as a result of the lower production volumes.
Attributable cash operating profit of R204 million was 51%
lower than F2015 mainly as a result of a 24% decline in export
sales volumes, combined with a 5% reduction in Rand prices.
The lower prices and sales volumes were partly offset by the
weaker Rand and higher Eskom sales prices.
The lower cash operating profit, increased finance costs of
R183 million and higher amortisation charge of R128 million
resulted in GGV recording an attributable headline loss of
R87 million compared to headline earnings of R93 million for
F2015.
GGV REVENUE SPLIT(100% basis) F2015 comparative figures in brackets
Export 76% (82%)
Eskom 24% (18%)
PARTICIPATING COAL BUSINESSThe mines comprising the PCB business reflected a 7% increase
in saleable production for the year aided by the commissioning
of the Tweefontein Optimisation Project (TOP). The attributable
cash operating profit increased by 21% to R397 million mainly as
a result of higher export sales volumes.
Export revenue was R1.02 billion higher than F2015 due to higher
sales volumes (R514 million) and the weaker Rand (R502 million)
but a 24% decline in US Dollar export prices impacted profits
negatively by R582 million. Despite the increase in production
volumes, total on-mine costs decreased by R111 million which,
together with the increase in production, resulted in on-mine unit
costs decreasing by 18% to R273 per tonne.
A 38% increase in export sales volumes resulted in a decrease in
stock values of R208 million and an increase of R184 million in
distribution costs. The amortisation charge increased by 17%
due to the commissioning of the TOP Project.
PCB recorded an attributable headline loss of R210 million
(F2015: R186 million).
PCB REVENUE SPLIT(100% basis) F2015 comparative figures in brackets
Export 93% (90%)
Inland 4% (5%) Eskom 3% (5%)
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CAPITAL EXPENDITUREThe North Pit box which was completed during F2016 as well as
some major equipment lifecycle replacements and refurbishments
comprised the bulk of the capital expenditure at GGV Mine.
At the PCB operations the bulk of the capital expenditure related
to TOP which has been commissioned and is now 99% complete.
PROJECTS
TOP
TOP comprises of opencast operations which include the mining
of some pillars in the old underground operations and the
construction of the new and more efficient Coal Handling and
Processing Plant (CHPP).
As at 30 June 2016, 99% of the total project costs had been
committed and spent. The project is in full production ramp-up
with only some minor infrastructure items to be completed. A
saving of R681 million was realised with the final project cost
totalling R7.6 billion.
LOGISTICSTFR’s total volumes railed for their 2016 financial year (ended
31 March) was 72.33 million tonnes which was in line with
their 2015 performance but well below their stated capacity of
81 million tonnes. The ramp up to 81 million tonnes per annum
has been slower than planned and was impacted by locomotive
crew availability, power outages, derailments and to a lesser
extent the availability of coal by some of the major coal exporters.
Despite TFR’s underperformance, total tonnes railed by ARM
Coal operations increased by 25% year-on-year.
For the period January to June 2016, TFR railed at a projected
annualised rate of 68 million tonnes per annum with this rate
expected to improve to above 70 million tonnes per annum for
the second half of the 2016 calendar year following the annual
rail maintenance which was completed in July 2016.
EXPORT THERMAL COAL SALES VOLUMES (100% basis) (Mt)
F2012a F2019eF2013a F2015a F2017e
16
14
12
10
8
6
4
2
PCB GGV
F2014a F2016a F2018e
LOCAL COAL SALES VOLUMES (100% basis) (Mt)
F2012a F2019eF2013a F2015a F2017e
9
8
7
6
5
4
3
2
1
PCB GGV
F2014a F2016a F2018e
106 INTEGRATED ANNUAL REPORT 2016
ARM COAL continued
MARKET REVIEW
EXPORT COAL MARKET
The continued oversupply of export thermal coal has seen
export prices decline further during F2016. The majority of
South African coal export is still to India which demands lower
coal qualities. The lower coal qualities being supplied are
impacting negatively on realised prices as lower qualities are
sold at a discount. Despite the reduction in coal consumption
in developed countries, the growth in the demand for coal as
an energy source is still expected to grow in the medium to
long term albeit at a lower rate than was experienced during
the past ten years. Most of the growth is expected to come
from Asia and Africa.
Indications are that more than 10% of global seaborne thermal
coal supply is currently cash negative. It is expected that some
of these loss making producers will exit the seaborne market.
DOMESTIC COAL MARKET
Coal-fired power stations still produce the bulk of electricity in
South Africa; however, there is a clear decline in the quantities
of coal being purchased and burnt by Eskom. A decline in the
demand for electricity as a result of the economic downturn
has also had a negative impact on the amount of coal that is
being purchased by the utility hence, the 9% decrease in the
quantity of coal that was sold by ARM Coal in F2016. Several
major long term Eskom coal offtake agreements from the
other suppliers based on cost plus mark-up are coming to an
end as from 2018 and this may provide an opportunity for
ARM Coal to supply additional coal in the medium to long
term. Eskom has however not indicated how it will replace
this supply.
F2016 SPOT API4 THERMAL COAL PRICES – FOB RICHARDS BAY (US$/t)
Jul2015
Jun2016
70.00
65.00
60.00
55.00
50.00
45.00
40.00
Source: INet Bridge
GGV Mine dragline
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GOEDGEVONDEN (GGV) MINE
Management: Governed by a management committee, controlled by ARM Coal, with four ARM representatives and three Glencore
representatives. Operational management of the mine is contracted to Glencore.
Resources* – Measured and Indicated (100% basis) 568 million tonnes
Reserves – (Saleable) Proved and Probable (100% basis) 206 million tonnes
ARM’s economic interest 26.01%
Total labour 1 090 employees, including 203 contractors
* The Measured and Indicated Coal Resources are inclusive of those modified to produce Coal Reserves. Coal qualities are reported in the “Resources and Reserves” section of
the report.
(100% basis) F2016 F2015 % change
Total saleable production million tonnes 6.53 8.34 (22)
Total thermal coal sales million tonnes 6.90 8.26 (16)
Export thermal coal sales million tonnes 3.91 5.16 (24)
Eskom thermal coal sales million tonnes 2.99 3.10 (4)
Average price received
Export (FOB) US$/t 40.99 54.97 (25)
Eskom (FOR) R/t 235.95 208.36 13
On-mine saleable cost per tonne R/t 239.00 188.90 27
Cash operating profit R million 783 1 606 (51)
Operating margin % 26 41
Capital expenditure R million 870 1 011 (14)
ATTRIBUTABLE PROFIT ANALYSIS F2016 F2015 % change
Cash operating profit R million 204 418 (51)
Less: Interest paid R million (183) (150) (22)
Amortisation R million (128) (120) (7)
Fair value adjustments R million (15) (19) (21)
Profit before tax R million (122) 129 (195)
Tax R million 35 (36) 197
Headline (loss)/earnings attributable to ARM R million (87) 93 (194)
Coal washing plant at GGV Mine
108 INTEGRATED ANNUAL REPORT 2016
ARM COAL continued
PARTICIPATING COAL BUSINESS (PCB)
Management: Governed by a supervisory committee with five Glencore representatives and three ARM representatives. Operational
management of the PCB mines is contracted to Glencore.
ARM’s economic interest 20.2%
(100% basis) F2016 F2015 % change
Total saleable production million tonnes 14.63 13.61 7
Impunzi million tonnes 6.53 6.3 4
South Stock million tonnes 0.41 1.9 (78)
Tweefontein million tonnes 7.69 5.4 42
Total sales million tonnes 16.98 13.50 26
Export thermal coal sales million tonnes 14.76 10.73 38
Eskom thermal coal sales million tonnes 1.39 1.74 (20)
Other local thermal coal sales million tonnes 0.83 1.03 (19)
Average price received
Export (FOB) US$/t 41.66 55.12 (24)
Eskom (FOR) R/t 223.13 214.64 4
Domestic (FOR) R/t 384.24 361.99 6
On-mine saleable cost per tonne R/t 272.60 333.39 (18)
Cash operating profit R million 1 967 1 629 21
Operating margin % 21 22
Capital expenditure R million 1 062 2 759 (62)
ATTRIBUTABLE PROFIT ANALYSIS F2016 F2015 % change
Cash operating profit 397 329 21
Less: Interest paid (308) (263) (17)
Amortisation (321) (300) (7)
Fair value adjustments (59) (25) (136)
Profit before tax (291) (259) (12)
Tax 81 73 11
Headline loss attributable to ARM (210) (186) (13)
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