30th Sep 2014 11:02
LONDON (Alliance News) - African Minerals Ltd Tuesday said its operating loss widened in the first half of the year as revenue declined and operating costs rose, and it said the continuing losses were putting significant strain on its balance sheet.
However, it was positive about the outlook, pledging to continue increase production while driving down production costs, meaning it would be profitable even though iron ore prices are at a five year low. It also asked its shareholders and bondholders for support as it tries to sort out its financial position.
The company, which operates the Tonkolili iron ore mine in Sierra Leone, reported a pretax loss of USD7.2 million for the six months to June 30, compared with a USD24.5 million loss a year earlier, but that was mainly down to a larger gain on a non-controlling interest put option.
Its operating loss widened to USD85.1 million, from USD18.3 million, as revenue declined to USD399.2 million, from USD404.8 million, and operating costs rose by over USD90 million.
"We are pleased that the Tonkolili mine, plant, rail, port and marine project continues to perform well and in line with guidance. However, despite strong operating performance, the business has been slow to react to the fast moving challenging circumstances in the iron ore market. The financial gains of the first quarter have been largely depleted in the second quarter, with continuing operational level losses putting significant strain on the balance sheet," Executive Chairman Frank Timis said in a statement.
Still, management reviewed the project economics after the half ended and concluded that the project would be cash flow positive, even in the current depressed iron ore environment, by the end of the year.
African Minerals has cash of USD331.8 million on June 30, of which USD314.0 million was restricted, while net debt had fallen to USD458.8 million, from USD473.3 million at the end of December.
The impact of the sharp fall in global iron ore prices on the company's revenue was evident. It produced 9.8 million tonnes of direct shipping ore in the half, up from 6.2 million tonnes in the first half of 2013, and exports rose to 8.9 million tonnes, up from 5.5 million tonnes.
However, it paid an average freight rate of USD23 a tonne, up from USD18 a tonne, and its average FOB price received was USD49 a tonne on a dryweight basis, down from USD77 a tonne a year earlier.
It said its operations remained stable in the third quarter, despite the wet season in Sierra Leone and the outbreak of the Ebola virus. It said it shipped 4.4 million tonnes of exports in the quarter, meaning exports so far this year stand at 13.3 million tonnes.
It reiterated its 16 to 18 million tonne export guidance for the whole of 2014 and gave new guidance of between 21 and 23 million tonnes for 2015. It is hoping to exit that year at a run rate of 25 million tonnes a year.
African Minerals is working to bring down cash costs of production. Average C1 cash costs were USD39 a tonne in the first half, down from USD43 a tonne a year earlier, and it expects cash costs for 2014 as a whole to be between USD34 and USD36 a tonne. It expects the figure to fall to under USD30 a tonne in 2015, and is hoping to exit that year with a cash cost of USD25 a tonne.
"Traversing market and operational impacts will be a priority during the months ahead. With our new 1G plant already in production and de-sliming circuits now in the process of being commissioned, we expect to reap the benefits shortly from higher production rates, lower operating costs, and better revenue capture," Timis said.
The company has brought Alan Watling back as its chief executive. Watling retired in 2012, but came back in August when Bernard Pryor resigned. Watling has been focused on securing African Minerals' financial position.
"The return of Alan Watling as CEO is a breath of fresh air at a pivotal juncture and his deep understanding of the current economic and health situation and in particular the specific needs of the company gives myself and the board great confidence," Timis said.
The company has engaged Standard Chartered Bank and Jefferies to advise on its financial revamp. Standard Chartered is leading a debt refinancing mandate, while Jefferies is leading a capital markets and restructuring mandate.
"This will inevitably require the support of all of our stakeholders, including our debt and convertible bond holders, who we acknowledge have provided significant help in allowing us to develop the company to its current operating level. We will continue to update the market as we progress our plans in this regard," Timis said.
African Minerals shares were up 10.8% at 21.60 Tuesday, one of the biggest rises on the AIM All-Share index.
By Steve McGrath; [email protected]; @stevemcgrath1
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