IFL.L Regulatory News (IFL)

RNS Number : 3142T

International Ferro Metals Limited

27 September 2010

 

 

 

 

 

27 September 2010

 

International Ferro Metals Limited

("IFL" or the "Company")

 

Financial Results for the year to 30 June 2010

 

Highlights

Financial highlights

·; Sales volumes increased to 190,432t, up 87% on the previous year

·; Higher sales volumes and realised sales prices, but increased electricity costs and a stronger Rand resulted in

o Revenue up 83% to ZAR1,434 million compared to ZAR782 million for the year to 30 June 2009

o Loss before tax decreased to ZAR157 million for the year ended 30 June 2010, compared to a loss of ZAR456 million for the prior year and a loss of ZAR145 million in H1

·; Unit cost of production (in ZAR terms) down 8%

·; Ferrochrome benchmark price recovered from US$0.69/lb in Q2 2009 to US$136/lb in Q2 2010

·; Net cash balance of ZAR47 million as at 30 June 2010

 

Operational highlights

·; Production volumes increased by 82% to 200,440t for the year under review

·; Ore beneficiation and pelletising plant operated at high efficiency levels during the year

·; Feasibility study for expansion of production expected to be finalised by H1 2011

·; Commissioning of chrome re-treatment plant for UG2 ore supply agreement with Anglo Platinum expected July 2011

·; Electricity co-generation plant is on schedule and on budget for commissioning in October 2010

 

Post period highlights

·; Commenced selling low grade beneficiated lumpy ore from open pit to contribute to mining costs and release working capital

·; Continued reduction in costs being achieved

 

	FY 2010 H1	FY 2010 H2	FY 2010	FY 2009
FeCr production (tonnes)	94,715	105,725	200,440	110,364
FeCr sales (tonnes)	70,936	119,496	190,432	101,835
	ZAR'000	ZAR'000	ZAR'000	ZAR'000
Sales revenue	451,917	981,678	1,433,595	781,574
Cost of goods sold	(509,055)	(915,762)	(1,424,817)	(868,977)
Gross profit/(loss)	(57,138)	65,916	8,778	(87,403)
EBITDA	(102,258)	43,404	(58,854)	(395,968)
Net profit/(loss) after tax	(105,093)	19,287	(85,806)	(338,579)
EPS (cents per share)	(19)	4	(15)	(66)

 

David Kovarsky, Chief Executive Officer of IFL commented:

 

"During another difficult year for South African miners and for the ferrochrome industry, I am pleased to report that IFL's strategy of active response to the challenging environment resulted in the Company further reducing costs, diversifying its customer base and turning modestly profitable in the second half, in spite of the strong Rand and high electricity costs. Health and safety continues to be a priority and IFL improved its lost time injury rate during the year under review.

We continue to aim to be a low cost, high quality producer and the Board believes IFL is in a favourable position to benefit from a further increase in demand for ferrochrome when it occurs. As and when the market permits, the Company plans to be ready to expand production."

 

There will be a presentation to analysts of the full year results today, Monday 27 September 2010 at 9am (UK time) at 16 Lincoln's Inn Fields, London WC2A 3ED. The presentation slides and a recording of the presentation will be available on the Company's website, www.ifml.com.

 

For further information please visit www.ifml.com or contact:

 

International Ferro Metals Limited

David Kovarsky, Chief Executive Officer

Mob: +27 82 650 1192

 

Brunswick Group

Carole Cable / Fiona Micallef-Eynaud

Tel: +44 (0) 20 7404 5959

 

Numis Securities Limited

John Harrison / James Black

Tel: +44 (0) 20 7260 1000

 

About International Ferro Metals:

International Ferro Metals produces ferrochrome, the essential ingredient in stainless steel, from its integrated chromite mine and ferrochrome processing operations in South Africa. International Ferro Metals is listed on the London Stock Exchange under the symbol IFL.

 

Forward Looking Statements

This announcement contains certain forward looking statements which by their nature contain risk and uncertainty because they relate to future events and depend on circumstances that occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward looking statements.

 

CHAIRMAN'S REPORT

 

The aftermath of the global financial crisis ensured that the year under review would be another difficult period for the global stainless steel industry and its ferrochrome suppliers.

 

Notwithstanding the testing time, the Company reduced its pre-tax loss from ZAR456 million last year to ZAR157 million. It turned modestly profitable in the second half.

 

Strategy

In recognition of the uncertain outlook at the beginning of the year, the Company adopted a strategy of active response to what it expected to be challenging circumstances. The major thrust of this was to examine ways of reducing costs and put into effect an integrated programme aimed at pushing costs downwards, into the bottom end of the South African cost curve.

 

This strategy consisted of, and continues to be, achieving operational efficiencies, imposing a rigorous reduction of overheads and other fixed costs, and incurring capital expenditure with a cost saving component. The Company is fortunate to have the financial strength to support such a capital programme.

 

Our task was made more difficult by factors outside the South African industry's control. The Rand / US Dollar exchange rate went against producers with the Rand appreciating considerably during the year. Electricity unit prices surged 54%, carrying an inbuilt additional 25% per year increase for the next twenty-four months. In addition, general labour costs rose significantly.

 

The cost reduction strategy was divided into what could be accomplished in the short term, during the year under review, and what could be expected to be achieved going forward into the longer term.

 

Notwithstanding matters over which it had no control, the Company was able to reduce its ferrochrome unit production cost for the year in exchange adjusted terms. The decrease was 8% after the appreciation in the Rand is taken into account. Further downward pressure is being applied with considerable success as we move into the 2011 financial year.

 

After the production shutdown in reaction to the collapse in ferrochrome demand experienced at the end of 2008, both furnaces were restarted, the second one last August. The higher production volumes generated by the second furnace drove the fixed unit costs lower, since they were expressed over more tonnes. While there were maintenance issues that had to be addressed, resulting in less than name plate capacity utilisation, operational efficiency improved considerably over the previous year. The trend augurs well for the year ahead.

 

The cost of ore, which is one of the most expensive inputs, fell as the Company ramped up underground mining operations at Lesedi. Further reductions will follow as mining rates are increased. Overheads were attacked vigorously as the Company weeded out all but necessary expenditure. As part of this programme it established a purchasing system that significantly increased accountability, transparency and attention to cost cutting.

 

Sustainability

Construction of the co-generation plant, conceived as a Clean Development Mechanism project under the Kyoto Protocol, commenced during the year. It is scheduled for commissioning this October. The plant will redirect furnace off-gasses to produce about 11% of the Company's electricity needs. As it will significantly reduce the carbon footprint of the overall operation, the plant will qualify for carbon credits. An added benefit is that the plant will compensate, to an important extent, for electricity supply constraints which Eskom is expected to impose in the future. Also, its costs are considerably below what Eskom would charge for power.

 

Under the agreement with Rustenburg Platinum Mines, the Company will pay for and build a chrome retreatment plant to produce UG2 chrome concentrate for IFL from Rustenburg's UG2 concentrator tailings. The concentrate supply for the Company will be equal to almost 30% of its beneficiated ore requirements and will be at an amortised net cost well below normal mining cost.

 

As always, the Company continued to pay unswerving attention to the health and safety of its employees. Its impressive record, exemplified by international certification, was maintained and even improved upon.

 

Corporate Governance

During the year, Ian Watson, who had served as a director since the Company was listed, retired. In the same period, Jannie Muller, the Company's CFO, and John Ballard, Non-Executive Director, were appointed to the Board. On behalf of the Company I wish to express appreciation for the loyal and excellent service Ian provided, and also to welcome Jannie and John to the Board. Their many skills in the financial and governance areas will make a significant contribution to the Company's welfare.

 

Conclusion

While the rate of stainless steel production globally, and especially in China, has experienced a disconcerting volatility as a result of stumbling economic recovery in most countries, there is no doubt that the future will require the industry to be healthy and expanding. All economies require the material, particularly China, which has the largest need. Behind the march of stainless steel the ferrochrome producers can be expected to play their part. As its cost reduction strategy fully takes hold, IFL should be in a favourable position to benefit from the increased demand from its customers it believes will occur. As and when the ferrochrome market permits, the Company stands ready to move into a production expansion mode.

 

CHIEF EXECUTIVE'S REVIEW

 

Operations

Due to a collapse in the demand for ferrochrome in late 2008 as a result of the global financial crisis, both of IFL's furnaces were shut down in November 2008. The first furnace was restarted in April 2009 and the second in August 2009, following an upturn in the global demand for ferrochrome. Underground mining operations at Lesedi that were also curtailed in January 2009 recommenced during January 2010.

 

Until June 2010 all underground mine production was sourced from the MG1 decline while the MG2 shaft infrastructure was completed in June 2010. The total Lesedi resources, including measured, indicated and inferred resources, are estimated at 23.4 million tonnes and the plan is to mine a combined 20 million tonnes of ore from the MG1 and MG2 horizons over the next 30 years. The planned build up allows for the necessary mine development and provides the foundation for future stable ferrochrome production. Maximum ore production of 75,000 tonnes per month from the underground mine is expected to be achieved in 2014.

 

It is anticipated that the Lesedi open pit will be mined out by 30 June 2011, at which time the underground mining is planned to be producing at an average of 47,000 tonnes of ore per month over the twelve months that follow. At that time UG2 concentrate, mostly supplied under the agreement with Rustenburg Platinum mines, is expected to supplement ore produced from underground mining.

Due to the slow increase in ore production as a result of the mine shutdown and a focus on underground development, ore was bought in to supplement production tonnages. Higher grade ores were purchased to mix with the lower grade ore being mined in the open pit to optimise their use. The intensive programme of ore and concentrate purchases has been completed and it is expected that from May 2012, the only additional ore requirements will be approximately 5,000 tonnes per month of high grade ore to be blended with the UG2 concentrate to produce a final product with 50% chrome content. Since August 2010 IFL has commenced selling low grade beneficiated lumpy ore generated from the open pit which will contribute towards mining costs and release working capital.

 

Since the beginning of calendar 2010, IFL has been using a contractor to mine the underground mine. At the same time, IFL has set up an internal management infrastructure to manage the contract and to provide a high degree of control.

 

The recent spate of disputes relating to prospecting and mining rights in South Africa has not affected the Company to date. Nationwide strikes in June 2010 and September 2010, by Transnet and civil servants respectively, have had no material impact on the Company's performance.

 

Both the ore beneficiation plant and the pelletising plant operated at high efficiency levels during the year. In the last six months of the financial year, ferrochrome production was below maximum production capacity due to furnace roof leaks and ore input mix instability. In June 2010 furnace 1 was shut for 5 days to repair the roof and furnace 2 in August 2010 for 11 days for similar maintenance.

 

A feasibility study is being conducted on the expansion of ferrochrome production by the potential commissioning of up to 2 new furnaces. This is a reduction from the plans of 2008 which examined the feasibility of 3 new furnaces, to reflect changed market conditions. The study is expected to be finalised by the beginning of 2011. With the Medupi power station commissioning expected late in 2012, it is likely that expansion electricity supply will be granted by Eskom around that time. The feasibility study is examining a number of ferrochrome production technologies including DC furnaces (Direct Current), which in addition to increasing production would have the added benefit of lower unit operating costs through power, ore and reductant input efficiencies. The feasibility study is expected to be put to the Board by June 2011, at which time a decision on the expansion should be made.

 

Sky Chrome

The Company submitted its Sky Chrome mining rights application to the DMR in 2009. Since then we have responded to questions and revised aspects of the application to meet the DMR's approval. The mining licence is expected to be granted by the end of 2010.

 

Anglo Platinum for UG2 chrome concentrate supply agreement

In February 2010 the Company concluded and announced a UG2 ore supply agreement with Rustenburg Platinum Mines Limited ("RPM"), a subsidiary of Anglo Platinum Limited. Under the agreement IFL will fund the construction of a chrome re-treatment plant ("CRP") to extract chrome concentrate from RPM's UG2 concentrator tailings. The CRP will be owned, maintained and operated by RPM. The contract has a 10 year life commencing on the construction start date and entitles IFL to 15,000 tonnes of concentrate per month (almost 30% of IFL's beneficiated ore requirements) from the commissioning date, at no additional cost other than the cost of transporting the concentrate to its facilities at Buffelsfontein, which is about 50km from the CRP, and any government royalties that may be payable. Construction commenced on 1 September 2010 with commissioning expected in July 2011, and it is estimated that IFL will therefore receive concentrate for a period of about nine years. The construction cost of the CRP was estimated at ZAR150 million at the time the agreement was concluded, however after completion of the detailed engineering design the cost has been fixed at ZAR161 million on a lump sum turnkey contract basis. The additional cost of ZAR11 million does not materially affect the effective cost per tonne of concentrate which is significantly below the Company's own underground mining cost.

 

Black Economic Empowerment ("BEE") Transaction

In April 2009 the Company lodged its proposed BEE transaction with the former South African Department of Minerals and Energy, now the Department of Mineral Resources ("DMR"), as the final element of its previously submitted application to convert its old order mining rights to new order mining rights under the South African Minerals and Petroleum Resources Development Act. The Company is actively engaging the relevant stakeholders and the DMR to finalise the BEE transaction which is expected to be concluded in the near future.

 

Electricity Co-generation Plant

The electricity co-generation plant ("the Plant") was conceived in January 2007 as a Clean Development Mechanism project under the framework provided by the Kyoto Protocol. In 2008 the project was placed on hold due to the global financial crisis. In August 2009 IFL raised ZAR284 million (before expenses) through a share placement, principally to fund the co-generation plant, at an expected cost of ZAR255 million.

 

The Plant is expected to generate on average 13.7 MW, about 11% of IFL's overall electricity requirements and displace an estimated 144,000 tonnes of carbon dioxide equivalent per year, reducing IFL's environmental impact and electricity costs, in keeping with the Company's strategy of being a high quality, low cost producer. The possible annual Carbon Credit income is approximately EUR1.4 million per annum (at current prices) for ten years. Eskom electricity constraints are currently voluntary but legislation is expected before the end of 2010 which would enforce supply constraints. The Plant will compensate for this shortfall and mitigate the potential operational impact of the supply constraints. The construction of the Plant is within budget and on track to start commissioning in October 2010.

 

Health and safety

While the key financial performance indicators which management are focused on as the clearest signals of the Company's financial health are production, sales, costs and cash flow, two of our most important operational indicators are lost time incidents and fatality free man hours. Health and safety is of paramount importance to IFL; mining and production procedures are in line with regulatory requirements and industry best practice and are strictly enforced. The Company's commitment to health and safety was reflected in a number of areas and during the year IFL continued to improve its health and safety performance.

·; IFL improved its record of fatality free man hours by achieving, since establishment in 2005, a total of 14,431,457 fatality-free man-hours worked. This equates to 1,803,932 fatality free shifts.

·; The frequency of total recordable injuries reduced by 6% compared to the previous year and achieved a year-to-date lost time injury frequency rate of 0.95 per million hours worked, compared to the mining industry average of 6.9 per million hour worked. The primary reasons for the majority of lost time injuries related to material handlings and none of the injuries resulted in a permanent disability.

·; During July 2010 the Department of Mineral Resources ("DMR") consulted with the platinum and chrome industries regarding the impact of bord and pillar mining on mine safety and initially required changes to the size of the bord (mining face) and, to a lesser extent, pillars. It was however subsequently agreed with the DMR that the Company would deploy ground penetrating radar that would identify hanging wall conditions as mining is conducted and so enable remedial measures to be taken if required.

·; IFM sustained its certification status as meeting the requirements of OHSAS 18001:2007 and ISO 14001:2004. The Company upgraded the integrated management system to meet the requirements of ISO 9001:2008 and received certification to this effect from TUV Rhineland.

Ferrochrome market

The global financial crisis led to international stainless steel production falling from 28.3 million tonnes in 2007 to 25.4 million tonnes in 2009. High carbon ferrochrome consumption tracked this trend with 7.6 million tonnes produced in 2007 and 6.7 million tonnes in 2009. However since Q3 2009, both global stainless steel and ferrochrome production have bounced back and it is anticipated that 2010 global stainless steel production will reach a record 30.8 million tonnes. Similarly 2010 total ferrochrome production is expected to reach a record 8.3 million tonnes.

 

The European ferrochrome benchmark price recovered from US$0.69/lb in Q2 2009 to US$1.36 in Q2 2010, however due to the traditional seasonal weakness in the third quarter, the price dropped to US$1.30/lb in Q3 2010. The general price increase has led to a resumption of more normal margins for ferrochrome producers. South Africa supplies a major portion, some 40%, of the world's ferrochrome needs and often changes in production costs are reflected in the ferrochrome selling price. Over the past year the Company achieved an 8% reduction in Rand production costs although the strengthening of the Rand against the US Dollar increased production costs by 9% in Dollar terms.

 

One of the major cost inputs influenced by world prices is coke. The price of coke has benefited from the strong Rand, however international coke prices have been increasing since Q2 2010 as world demand has picked up. Additionally, the South African electricity price increased by 25% in April 2010, which, combined with the delayed 2009 increase which was only introduced in July 2009, resulted in a total average increase in electricity unit prices of 54%.

 

During the year the Company has increased its sales volumes and strengthened relationships in Western Europe and North America. Its position in China is excellent through the marketing efforts of its Chinese marketing agent JISCO. We continue to diversify the customer base.

 

Future objectives and outlook

The current economic climate has highlighted the need to ensure that the Company is profitable at low ferrochrome price levels. Our main operational priority remains to drive down costs and improve efficiencies. The Company's objective is to be below the median of South African production costs and management are strongly focused on reducing production costs at the mine and the plant, and to reduce general corporate overheads. As mining volumes are increased, the Company expects that ore costs will reduce which, combined with the flow of UG2 ore, will have a significant cost benefit. The first priority at the furnaces is to achieve high levels of stability and then to ensure that efficiencies are derived from power, ore and reductant consumption. Some of these improvements have already been implemented and general overheads have also been reduced.

 

New markets continue to be sought to diversify the customer and geographic base to ensure that IFL sell its total production at the highest possible prices. The Company has made tremendous inroads in reducing unit costs by 8% over the year and with its cost reduction programme, the start up of the co-generation plant and the UG2 agreement, the costs are expected to decline further. Moreover, if the furnace expansion plans are approved, this will allow the Company to reduce its average cost of production by utilising technologies that yield lower costs. Higher volumes will also amortise fixed costs over a larger production base.

 

The Company is cautious on the outlook for the market in the short term, but remains optimistic and confident about the long term demand for stainless steel and ferrochrome, driven by global macroeconomic trends.

 

FINANCIAL REVIEW

 

The Company's results have been prepared in accordance with International Financial Reporting Standards ("IFRS"). The financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 and Australian Accounting Standards. The financial report has also been prepared on a historical cost basis, except for certain financial instruments which have been measured at fair value. Changes to accounting policies have been made to align them with the latest changes in accounting standards and are outlined in the notes to the annual financial statements. The effects of these changes were not material.

The key financial performance indicators which management are focused on as the clearest signals of the Company's financial health and operational efficiency are production, sales, costs and cash flow, which are highlighted below.

Income statement

 

The Company reported a loss before tax of ZAR157 million for the year ended 30 June 2010, compared to a loss of ZAR456 million for the prior year.

 

The table below reflects the consolidated results for IFL for the year ended 30 June 2010. Both the functional currency and the presentation currency of the Company is South African Rand ("ZAR") unless otherwise stated.

 

Summary of Income Statement	FY 2010 H1	FY 2010 H2	FY 2010	FY 2009
FeCr production (tonnes)	94,715	105,725	200,440	110,364
FeCr sales (tonnes)	70,936	119,496	190,432	101,835
	ZAR'000	ZAR'000	ZAR'000	ZAR'000
Sales revenue	451,917	981,678	1,433,595	781,574
Cost of goods sold	(509,055)	(915,762)	(1,424,817)	(868,977)
Gross profit (loss)	(57,138)	65,916	8,778	(87,403)
EBITDA	(102,258)	43,404	(58,854)	(395,968)
PBT	(144,842)	(11,890)	(156,732)	(455,778)
Taxation	39,749	31,177	70,926	117,199
Net profit (loss) after tax	(105,093)	19,287	(85,806)	(338,579)
Net operating cash flow	(273,954)	5,502	(268,452)	(348,174)
EPS (cents per share)	(19)	4	(15)	(66)
Weighted average number of shares	544,925,948	549,442,047	549,442,047	504,757,375
DPS (pence)	0p	0p	0p	0p

 

Ferrochrome production increased by 82% from 110,364 tonnes in FY2009 to 200,440 tonnes in FY2010 as the Company restarted its second furnace in August of 2009. The low ferrochrome production volumes in FY2009 were due to the global financial crisis which resulted in IFL shutting down both furnaces in November 2008.

 

Sales revenue increased by ZAR652 million from ZAR782 million in FY2009 to ZAR1.4 billion in FY2010. This is attributable to an 87% increase in sales volumes from 101,835 tonnes in FY2009 to 190,432 tonnes in FY2010. Although there was a decrease in the average European benchmark price for ferrochrome from the prior financial year, realised sales prices increased by 9% overall. This was however offset by a much stronger Rand which on average appreciated by 16% against the Dollar over that same period. At 30 June 2010, sales of 27,541 tonnes have ongoing pricing exposure with pricing expected to be settled by the end of September 2010.

 

Earnings before interest, tax, depreciation and amortisation (EBITDA) improved significantly from a loss of ZAR396 million in FY2009 to a loss of ZAR59 million for FY2010. The second half of the year reflected an EBITDA profit of ZAR43 million compared to a loss of ZAR102 million for the first half.

 

Finance income decreased by ZAR21 million to ZAR14 million, because of the decrease in cash holdings. Finance cost increased from ZAR37 million to ZAR46 million due to the draw downs on the working capital facility.

 

The positive tax charge of ZAR71 million to the income statement is a deferred tax credit resulting from the Company's unclaimed calculated tax losses available for offset against future profits.

 

Headline earnings improved significantly from a loss of ZAR339 million (ZAR0.66 per share) in FY2009 to a loss of ZAR86 million (ZAR0.15 per share) for FY2010.

 

Costs

 

There has been an overall reduction in costs in Rand terms due to the continued drive to lower costs across the operations, in accordance with the Company's strategy of being a high quality, low cost producer.

 

Ferrochrome production cost for the year was 83.4¢/lb at an average exchange rate of ZAR7.54/US$ compared with 76.3¢/lb for the prior year at an average exchange rate of ZAR8.95/US$. The breakdown of the year's production cost is tabled below.

 

Table 1: breakdown of production cost (in US¢/lb)

Ore	24.8¢
Reductant	23.0¢
Electricity	15.3¢
Operating costs	5.6¢
Fixed costs	10.4¢
Depreciation	4.3¢
Total	83.4¢

 

In Rand terms, FY2010 production costs decreased by 8% (at ZAR8.95/US$ the current year's cost of 83.4¢/lb equates to 70.2¢/lb, an 8% reduction) as a result of:

 

·; Higher production volumes resulted in a lower fixed cost per unit allocation. Going forward this should improve further as capacity utilisation improves, which was only 75% in FY2010, and 42% in the prior year.

 

·; Lower cost of ore due to the ramping up of underground mining operations, improving the ratio between production and development tonnes and additional benefits of scale. The UG2 supply contract with Anglo Platinum which is expected to commence in July 2011 should significantly reduce the overall cost of ore.

 

·; Although coke prices on average decreased by 25% from the prior financial year, they have started to increase steadily since Q2 2010. IFL has recently begun to introduce cheaper reductants which should in future reduce the overall input cost.

 

·; Electricity unit prices on average increased by 54% from the prior financial year and further increases in the order of 25% per year for the next two years and above-inflation increases thereafter are expected. The co-generation plant is on track to generate electricity from October 2010 and should provide about 11% of IFL's overall electricity requirements, at significantly lower cost than Eskom. The co-generation plant should also supplement the 10% Eskom supply constraint which is expected to be legislated before the end of 2010.

 

Production costs for July and August 2010, when restated using the average FY2010 electricity and coke prices, and ZAR/USD exchange rate, declined by 4.5¢/lb in pro forma terms to 78.9¢/lb, further demonstrating the success to date in pursuing production efficiencies and cutting costs.

 

Administration and other expenses decreased from ZAR391 million in the comparative period to ZAR114 million, primarily due to a ZAR131 million reduction of non-absorbed fixed costs (because of resumption of production), a ZAR104 million decrease in the write-down of inventories to net realisable value, and a ZAR28 million reduction in staff cost and directors fees.

 

The share-based payment liability was adjusted to reflect the movement in the share price and the movement in the shares issued. The effect of this was a charge of ZAR6 million to the income statement.

 

Cash flow

 

Summary of Statement Of Cash flows	H1 2010	H2 2010	FY 2010	FY 2009
	ZAR'000	ZAR'000	ZAR'000	ZAR'000
Net cash flows from operating activities	(273,954)	5,502	(268,452)	(348,174)
Net cash flows from investing activities	(112,389)	(134,540)	(246,929)	(161,095)
Net cash flows from financing activities	452,063	135,934	587,997	(111,245)
Net increase / (decrease) in cash held	65,720	6,896	72,616	(620,514)
Cash at the beginning of the period	340,089	395,344	340,089	972,190
Effects of exchange rate changes on cash	(10,465)	(5,314)	(15,779)	(11,587)
Cash and cash equivalents at the end of the period	395,344	396,925	396,925	340,089

 

Operating activities utilised cash of ZAR268 million mainly to fund the increase in inventories. Investing activities utilised ZAR247 million which includes ZAR229 million for capital expenditure, of which underground mine development and the co-generation project were the most significant. Financing activities generated ZAR588 million from the share issue of ZAR274 million in August 2009, draws on the working capital facility of ZAR350 million and loan and interest repayments of ZAR36 million.

 

The Company's net cash position at 30 June 2010 was ZAR47 million (ZAR397 million cash on balance sheet less ZAR350 million drawn on the working capital facility). The decrease in net cash (after the share issue) from ZAR340 million at 30 June 2009 is attributable to the cash loss before tax of ZAR91 million, a net increase in working capital of ZAR223 million and capital expenditure of ZAR229 million.

 

Balance Sheet

 

Shareholders' equity increased by ZAR188 million (ZAR274 million shares issued less ZAR86 million after-tax loss) from ZAR2.3 billion to ZAR2.5 billion.

 

Property, Plant & Equipment increased by ZAR164 million, mainly attributable to the co-generation plant and underground mine development.

 

Working capital increased by ZAR232 million (including non-cash items), of which ZAR250 million is as a result of an increase in inventories (ZAR92 million for ferrochrome and ZAR158 million for raw materials, ore and consumables), an increase of ZAR149 million in receivables and an increase of ZAR167 million in payables.

 

The increase in the deferred tax asset of ZAR71 million is due to the increase in the calculated tax loss of ZAR190 million. The unredeemed capital expenditure balance is estimated at ZAR1.5 billion at 30 June 2010.

 

The Company's balance sheet is strong with a debt to equity ratio of only 16%.

 

Capex

 

Capital expenditure for the year was ZAR229 million which includes ZAR102 million for the co-generation project and ZAR86 million for underground mine development. An additional ZAR31 million cash guarantees were issued to the Department of Mineral Resources.

 

The budgeted capital expenditure for FY2011 is ZAR259 million which includes ZAR100 for the co-generation project, ZAR66 million for underground mining development and ZAR20 million for the upgrading of the metal recovery plant.

 

Additionally, the cost to construct the UG2 chrome re-treatment plant has been fixed at ZAR161 million of which ZAR140 million is expected to be incurred in FY2011.

 

Funding

 

In July 2009 the Company secured a ZAR500 million three year irrevocable working capital facility with the Bank of China. At 30 June 2010 ZAR350 million had been drawn on the facility.

 

On 3 August 2009 the Company raised GBP22.2 million (ZAR284 million) (before expenses) through a placing of 50.4 million ordinary shares with certain existing shareholders including Jiuquan Iron & Steel Group Company Ltd ("JISCO") and new institutional investors at 44 pence per share.

 

The Company is negotiating a term loan facility to fund the UG2 project and expects to conclude an agreement by the end of October 2010.

 

Dividends

 

The Board of Directors has resolved not to declare a dividend for this financial year.

 

 

		Consolidated
	Note	2010	2009
		ZAR'000	ZAR'000
Sales revenue	2	1,433,595	781,574
Cost of goods sold		(1,424,817)	(868,977)
Gross profit/(loss)		8,778	(87,403)
Other (expenses)/income
Other income	3	2,000	-
Administrative and other expenses	4	(88,934)	(130,825)
Foreign exchange (losses)		(15,340)	(11,587)
Write down of inventory to net realisable value		(22,212)	(125,775)
Unabsorbed fixed costs		(2,577)	(133,954)
Share based payment (expense)/income	7	(5,897)	35,565
Net (loss) before interest and tax		(124,182)	(453,979)
Finance income	8	13,506	34,781
Finance costs	8	(46,056)	(36,580)
Net (loss) before tax		(156,732)	(455,778)
Income taxation credit	9	70,926	117,199
Net (loss) after tax		(85,806)	(338,579)
Attributable to:
Non-controlling interest	27	(1,214)	(4,804)
Owners of the parent		(84,592)	(333,775)
		(85,806)	(338,579)

 

 

Earnings per share (cents per share)
- basic (loss) per share	10		(15.40)		(66.13)
- diluted (loss) per share	10		(15.40)		(66.13)

The above income statement should be read in conjunction with the notes to the financial statements.

 

 

		Consolidated
	Note	2010	2009
		ZAR'000	ZAR'000
(Loss) for the period		(85,806)	(338,579)
Other comprehensive income
Loss on fair value of investment		-	(7,557)
Total comprehensive income for the period, net of tax		(85,806)	(346,136)
Attributable to:
Non-controlling interests		(1,214)	(4,804)
Owners of the parent		(84,592)	(341,332)
		(85,806)	(346,136)

 

The above statement of comprehensive income should be read in conjunction with the notes to the financial statements.

 

	Contributed equity	Accumulated losses	Share Based payment reserve	Non-distributable reserve	Non-controlling Interest	Total Equity
	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000
At 1 July 2008	2,834,412	(78,036)	6,617	-	8,653	2,771,646
(Loss) for the period	-	(333,775)	-	-	(4,804)	(338,579)
Other comprehensive income	-	64	-	(7,621)	-	(7,557)
Total comprehensive income for the period	-	(333,711)	-	(7,621)	(4,804)	(346,136)
Equity Transactions:
Cancellation of shares/share buy-back	(20,032)	(1,418)	-	1,577	(2,032)	(21,905)
Dividends paid	-	(76,148)	-	-	-	(76,148)
Share based payment	-	-	1,655	-	-	1,655
At 30 June 2009	2,814,380	(489,313)	8,272	(6,044)	1,817	2,329,112
At 1 July 2009	2,814,380	(489,313)	8,272	(6,044)	1,817	2,329,112
(Loss) for the period	-	(84,592)	-	-	(1,214)	(85,806)
Total comprehensive income for the period	-	(84,592)	-	-	(1,214)	(85,806)
Equity Transactions:
Shares issued	286,755	-	-	-	-	286,755
Transaction costs on share issue	(12,895)	-	-	-	-	(12,895)
At 30 June 2010	3,088,240	(573,905)	8,272	(6,044)	603	2,517,166

 

The above statement of changes in equity should be read in conjunction with the notes to the financial statements.

 

		Consolidated
	Note	2010	2009
		ZAR'000	ZAR'000
ASSETS
Current assets
Cash and cash equivalents	12	396,926	340,089
Trade and other receivables	13	230,031	81,059
Prepayments	14	4,792	6,263
Inventories	15	446,241	195,820
Total current assets		1,077,990	623,231
Non-current assets
Deferred tax asset	9	138,094	66,653
Financial investments	16	13,946	8,550
Property, plant & equipment	17	1,962,028	1,798,151
Intangible assets	18	9,701	10,062
Other non-current assets	19	45,465	18,234
Total non-current assets		2,169,234	1,901,650
Total assets		3,247,224	2,524,881
EQUITY & LIABILITIES
Current liabilities
Trade and other payables	20	273,353	105,998
Provisions	21	25,444	12,411
Total current liabilities		298,797	118,409
Non-current liabilities
Provisions	21	21,554	13,307
Interest bearing loans and borrowings	22	409,707	64,053
Total non-current liabilities		431,261	77,360
Total liabilities		730,058	195,769
Net assets		2,517,166	2,329,112
Shareholder's equity
Contributed equity	23	3,088,240	2,814,380
Share based payment reserve	24	8,272	8,272
Accumulated losses	25	(573,905)	(489,313)
Non-distributable reserve	26	(6,044)	(6,044)
Parent entity interests		2,516,563	2,327,295
Non-controlling interests	27	603	1,817
Total shareholders' equity		2,517,166	2,329,112

 

The above statement of financial position should be read in conjunction with the notes to the financial statements.

 

 

		Consolidated
	Note	2010	2009
		ZAR'000	ZAR'000
Cash flows from operating activities
Receipts from customers		1,283,722	1,146,317
Payments and advances to suppliers and employees (inclusive of goods and services tax)		(1,505,489)	(1,462,141)
Phantom options exercised and paid		(2,250)	-
Tax paid net of VAT adjustments		(707)	(1,982)
Interest paid		(43,728)	(30,368)
Net cash flows used in operating activities		(268,452)	(348,174)
Cash flows from investing activities
Payments for property, plant & equipment		(229,346)	(183,881)
Payments for intangible assets		-	(10,837)
Interest received		13,506	34,781
Restricted cash deposits		(31,089)	(1,158)
Net cash flows used in investing activities		(246,929)	(161,095)
Cash flows from financing activities
Proceeds from issues of shares		286,755	-
Payment for share buyback		-	(22,282)
Proceeds from borrowings		340,435	-
Payment of share issue costs		(12,895)	-
Repayment of borrowings		(26,298)	(12,815)
Equity dividends paid		-	(76,148)
Net cash flows from/(used in) financing activities		587,997	(111,245)
Net increase /(decrease) in cash held		72,616	(620,514)
Cash at the beginning of the financial year		340,089	972,190
Effects of exchange rate changes on cash		(15,779)	(11,587)
Cash and cash equivalents at the end of the year	12	396,926	340,089

 

 

	Consolidated
	2010	2009
	ZAR'000	ZAR'000
Loss from ordinary activities before income tax	(156,732)	(455,778)
Adjustments to reconcile profit before tax to net cash flow:
Non-Cash Items:	123,615	61,495
Amortisation of retention fee	2,249	2,249
Amortisation of intangible asset	361	-
Amortisation of debt establishment costs	4,646	-
Tribal participation loan	4,929	-
Decommissioning asset expense	6,420	(7,363)
Depreciation	65,328	58,787
Foreign exchange loss	15,340	11,587
Interest received/accrued	(11,178)	(34,781)
Inventory net realisable write down	22,212	125,775
Cost of product adjustments	(1,520)	-
Fair value adjustments	(481)	-
Share based payment movements	5,897	(37,393)
Write back of loans	-	(3,386)
Increase/(decrease) in provisions	9,412	(53,980)
Working Capital Adjustments:	(232,378)	48,091
(Increase)/decrease in receivables	(149,874)	381,860
(Increase)/decrease in inventories	(265,468)	(211,843)
(Increase)/decrease in prepayments	(778)	4,870
Increase/(decrease) in payables and accruals	183,742	(126,796)
Taxation paid	(707)	(1,982)
Phantom options paid	(2,250)	-
Net cash flow from operating activities	(268,452)	(348,174)

 

 

1. SEGMENT INFORMATION

 

Identification of reportable segments.

The group has determined operating segments based on the information provided to the Board of Directors (Chief Operating Decision Maker).

 

The group operates predominately in one business segment, being the mining and processing of chromite in South Africa and sale of ferrochrome. There are no material differences between the financial information presented to the Chief Operating Decision Maker and the financial information presented in this report.

 

Sales revenue by geographic location

Revenue obtained from external customers is attributed to individual countries based on the location of the customer.

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
China	269,353		471,702
Europe	784,710		138,810
South Africa	113,108		36,950
South Korea	49,822		94,656
Taiwan	35,018		18,568
United States of America	181,584		20,888
Total External Revenue	1,433,595		781,574

 

Major customers

The group received 74% of its external revenue from its China and European customers (2009: 78% from China and European customers). During 2010 the group received 67% (2009:20%) of its external revenue from CMC Cometals and 25% (2009:75%) from Jisco.

 

There are no additional customers which account for more than 10% of the group's external revenues.

 

 

2. SALES REVENUE

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Sales Revenue
- Ferrochrome sales	1,385,528		756,684
- Fair value adjustments (a)	34,831		-
- Other sales (b)	13,236		24,890
	1,433,595		781,574

 

(a) Fair value adjustments represent re-valuations performed on ferrochrome sales contracts for which the price is linked to future fluctuations in the published ferrochrome price until the day of consumption by the end customer.

(b) Other sales relate to chrome ore and silicon carbide sales.

 

3. OTHER INCOME

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Other income (a)	2,000		-
	2,000		-

 

(a) Other income relates to an exclusivity agreement for the construction of a Platinum Group Metals recovery plant.

 

4. ADMINISTRATIVE AND OTHER EXPENSES

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Accounting fees	175		1,990
Auditors remuneration	2,187		4,064
Consulting fees	16,690		8,811
Depreciation not in cost of goods sold	848		782
Research and development cost	1,830		-
Impairment of property, plant and equipment	-		13,493
Legal fees	1,513		7,424
Remuneration of Key Management Personnel	22,057		43,949
Staff costs	17,802		21,896
Fair value adjustments on financial assets held for sale	(481)		-
Other administrative expenses	26,313		28,416
	88,934		130,825

 

 

5.  REMUNERATION OF KEY MANAGEMENT PERSONNEL

 

 

(a) Remuneration of Key Management Personnel

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Basic salary and fees	17,975		20,225
Incentive payments	295		-
Other fees *	2,928		3,301
Superannuation **	22		598
Termination payments	837		19,743
Non-monetary benefits	-		82
	22,057		43,949
Equity settled option expense	-		1,618
Phantom option expense	2,106		3,921
Phantom options cancelled	-		(23,851)
Total remuneration	24,163		25,637

 

* Other fees represent costs for any additional work undertaken for the Company and retention fees paid.

** Superannuation represents payments made in respect of a defined contribution pension scheme.

 

(b) Option holdings of key management personnel (consolidated)

30 June 2010

 

No share options were issued during the year ended 30 June 2010.

 

30 June 2009

 

Mr Kovarsky was issued one million share options on 1 February 2008. These options were cancelled on 30 December 2008. No other share options were granted during the year.

 

 

6. STAFF COSTS (EXCLUDING REMUNERATION OF KEY MANAGEMENT PERSONNEL)

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Basic salary and fees	148,135		99,504
Superannuation *	115		90
Termination costs	6,133		18,065
Other costs	14		27
	154,397		117,686
Less amounts included in inventories/cost of goods sold	(136,595)		(95,790)
	17,802		21,896

 

* Superannuation represents payments made in respect of a defined contribution pension scheme.

 

 

7. SHARE BASED PAYMENT (EXPENSE)/INCOME

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Equity settled option (expense)	-		(1,618)
Phantom option (expense)/income	(5,897)		37,183
	(5,897)		35,565

 

Refer to note 28 for further details of the option plan.

 

 

8. FINANCING INCOME AND COSTS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Interest income	13,506		34,781
Interest expense, comprising:	(46,056)		(36,580)
Finance cost	(5,653)		(6,212)
- Amortisation of debt establishment costs	(4,646)		-
- Unwinding of discount on rehabilitation provision	(1,007)		(6,212)
Interest charges	(40,403)		(30,368)
- Interest on debt financing	(18,326)		(20,219)
- Interest on sales financing	(14,052)		-
- Interest on finance leases	(8,019)		(9,888)
- Interest paid - other	(6)		(261)
Net finance (costs)	(32,550)		(1,799)

 

 

9. INCOME TAX

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Income tax expense
Current Income tax charge:	515		56
Adjustment in respect of income tax of previous year	(16,817)		22,448
Deferred income tax relating to origination and reversal of temporary differences	(54,624)		(139,703)
Income tax (credit) recorded in income statement	(70,926)		(117,199)
Loss from ordinary activities before income tax expense	(156,732)		(455,778)
At parent entity statutory tax rate of 30%:	(47,020)		(136,734)
Overseas tax rate differential	1,978		10,276
Income not taxable	(26,087)		(25,909)
Expenses not deductible for tax purposes	2,817		8,529
Deferred tax assets not recognised	14,203		4,191
Adjustment in respect of current income tax of previous year	(16,817)		22,448
Aggregate income tax (credit)	(70,926)		(117,199)
Deferred income tax liability
Property plant and equipment, including unredeemed capital expenditure	70,785		104,362
Debtors and prepayments	1,338		(304)
Other payables	1,007		1,488
Total deferred tax liability	73,130		105,546
Deferred income tax asset
Provisions	(3,557)		(2,751)
Finance lease payments	(18,682)		(25,119)
Share option charges	(942)		(687)
Income received in advance	-		(158)
Inventory	-		(12,644)
Loss available for offset against future income	(182,529)		(127,832)
Rehabilitation provisions, claimable in future	(5,514)		(3,008)
Total deferred tax (asset)	(211,224)		(172,199)
Net deferred tax (asset)	(138,094)		(66,653)

Calculated taxation losses

 

The Group has recognised a net deferred tax asset of ZAR138 million as it is probable this will be fully utilised in future, as the Group expects to generate future taxable profits.

 

Unredeemed mining capital expenditure

 

Unredeemed mining capital expenditure available for offset against future mining taxable income

1,522,521

1,266,056

 

 

10. EARNINGS PER SHARE

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Basic loss per share (cents per share)	(15.40)		(66.13)
Diluted loss per share (cents per share)	(15.40)		(66.13)
Earnings used in calculating basic earnings per share (ZAR'000)	(84,592)		(333,775)
Earnings used in calculating diluted earnings per share (ZAR '000)	(84,592)		(333,775)
Weighted average number of ordinary shares on issue in calculation of basic and diluted earnings per share	549,442,047		504,757,375

 

 

11. DIVIDENDS PAID AND PROPOSED

 

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Dividends declared and paid during the year on ordinary shares:
Final unfranked dividend for the financial year ended 30 June 2008: 1 pence, paid 3 November 2008	-		76,148

 

The Board of Directors resolved not to declare a dividend for the year ended 30 June 2010.

 

12. CASH AND CASH EQUIVALENTS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Cash at bank and on hand	138,726		36,186
Short-term deposits	258,200		303,903
	396,926		340,089

 

 

13. RECEIVABLES

 

Trade and other receivables

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Trade debtors (a)	203,874		62,678
Less: Advance debtor payments	-		(566)
Less: Effect of discount	-		(997)
Outstanding tax refunds (b)	25,334		18,319
Other debtors	823		1,625
	230,031		81,059

 

(a) Trade debtors relate to the sale of ferrochrome and chrome ore. Payment terms are thirty days from date of final invoice.

 

(b) Tax refunds relate to the relevant Goods and Services Tax and Value Added Tax refunds owing in Australia and South Africa.

 

The carrying value of trade and other receivables is assumed to approximate the fair value due to the short term nature of the trade and other receivables.

 

 

14. PREPAYMENTS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Prepaid retention fee	3,562		5,811
Prepaid shipping costs	-		452
Prepaid stewardship costs	300		-
Prepaid other	930		-
	4,792		6,263

 

 

15. INVENTORIES

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Consumable stores at net realisable value (2009: net realisable value)	21,043		17,019
Ore stock at net realisable value (2009: net realisable value)	143,955		112,800
Raw materials at net realisable value (2009: at net realisable value)	146,644		23,113
Finished goods at net realisable value (2009: at net realisable value)	134,599		42,888
	446,241		195,820

 

 

16. FINANCIAL ASSETS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Investment in rehabilitation trust (a)	13,946		8,550
	13,946		8,550

 

(a) The investment constitutes deposits at financial institutions in favour of a rehabilitation trust. These funds can only be applied to relevant rehabilitation expenditure.

 

17. PROPERTY, PLANT & EQUIPMENT

 

Consolidated	Cost	Accumulated depreciation	Net book value
2010	ZAR'000	ZAR'000	ZAR'000
Mineral rights and reserves (a)	157,287	(5,463)	151,824
Land and buildings	34,263	(2,785)	31,478
Decommissioning asset	3,249	(211)	3,038
Plant & equipment	1,334,775	(147,714)	1,187,061
Leased plant & equipment	92,535	(10,664)	81,871
Mine development	237,460	(19,826)	217,634
Computer equipment	8,351	(4,880)	3,471
Leased computer equipment	1,651	(1,651)	-
Furniture & fittings	4,782	(3,058)	1,724
Exploration costs	15,785	-	15,785
Capital work in progress (b)	259,443	-	259,443
Vehicles	9,383	(4,213)	5,170
Leased vehicles	7,347	(3,818)	3,529
Total	2,166,311	(204,283)	1,962,028

 

 

Consolidated	Carrying value at beginning of year	Impair-ments(c)	Adjustments (d)	Additions	Depreciation	Carrying value at end of year
2010	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000
Mineral rights and reserves (a)	149,121	-	-	-	2,703	151,824
Land and buildings	31,530	-	749	-	(801)	31,478
Decommissioning asset	1,620	-	1,524	-	(106)	3,038
Plant & equipment	1,196,598	-	41,602	-	(51,139)	1,187,061
Leased plant & equipment)	83,000	-	-	3,980	(5,109)	81,871
Mine development	150,205	-	74,254	-	(6,825)	217,634
Computer equipment	4,159	-	1,155	-	(1,843)	3,471
Leased computer equipment	652	-	-	-	(652)	-
Furniture & fittings	1,528	-	1,004	-	(808)	1,724
Exploration costs	15,802	-	(17)	-		15,785
Capital work in progress (b)	152,403	-	(121,007)	228,047	-	259,443
Vehicles	6,097	-	736	-	(1,663)	5,170
Leased vehicles	5,436	-		-	(1,907)	3,529
Total	1,798,151	-	-	232,027	(68,150)	1,962,028

 

 

Consolidated	Cost	Accumulated depreciation	Net book value
2009	ZAR'000	ZAR'000	ZAR'000
Mineral rights and reserves (a)	157,287	(8,166)	149,121
Land and buildings	33,198	(1,668)	31,530
Decommissioning asset	2,040	(420)	1,620
Plant & equipment	1,293,173	(96,575)	1,196,598
Leased plant & equipment	88,555	(5,555)	83,000
Mine development	163,206	(13,001)	150,205
Computer equipment	7,212	(3,053)	4,159
Leased computer equipment	1,651	(999)	652
Furniture & fittings	3,778	(2,250)	1,528
Exploration costs	15,802	-	15,802
Capital work in progress (b)	152,403	-	152,403
Vehicles	8,648	(2,551)	6,097
Leased vehicles	7,347	(1,911)	5,436
Total	1,934,300	(136,149)	1,798,151

 

 

Consolidated	Carrying value at beginning of year	Impair- ments (c)	Adjustments(d)	Additions	Depreciation	Carrying value at end of year
2009	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000	ZAR'000
Mineral rights and reserves (a)	151,492	-	63	-	(2,434)	149,121
Land and buildings	28,794	-	3,490	-	(754)	31,530
Decommissioning asset	5,631	-	(3,813)	-	(198)	1,620
Plant & equipment	1,177,789	(10,182)	69,308	-	(40,317)	1,196,598
Leased plant & equipment	85,256	-	67	-	(2,323)	83,000
Mine development	132,870	-	22,802	618	(6,085)	150,205
Computer equipment	2,262	-	-	3,368	(1,471)	4,159
Leased computer equipment	1,176	(23)	-	-	(501)	652
Furniture & fittings	1,643	-		856	(971)	1,528
Exploration costs	12,856	-	-	2,946	-	15,802
Capital work in progress (b)	60,522	(3,288)	(91,917)	187,086	-	152,403
Vehicles	4,638	-	511	2,500	(1,552)	6,097
Leased vehicles	7,352	-	(511)	-	(1,405)	5,436
Total	1,672,281	(13,493)	-	197,374	(58,011)	1,798,151

 

(a) Mineral rights and reserves of ZAR61million relating to the Sky Chrome deposit is held in Purity Metals Holdings Limited ("Purity"), a wholly owned subsidiary of the Group. IFM acquired the shares in Purity for US$9 million on 16 December 2005. For accounting purposes Purity is treated as a subsidiary of the Company. Purity owns 80% of the Sky Chrome project, a ferrochrome resource located adjacent to the Buffelsfontein plant. The purchase price has been allocated to the value of the Sky Chrome Mineral Resource. There has been no impact on the income statement subsequent to acquisition. The positive adjustment in depreciation in the current year resulted from a change in the Mineral Resource and Reserve Statement.

 

On 30 April 2009, Sky Chrome submitted an application to the Department of Minerals and Resources ("DMR") for a new order mining license. Sky Chrome's prospecting right expired in July 2009. The new order mining license is expected to be approved between 6 and 9 months and no mining is allowed in the meantime. Management believe that the new order mining license will be approved.

 

(b) Capital work in progress relates to capital costs incurred for the expansion of the Group's associated infrastructure.

 

(c) Impairments relate to plant & equipment written off as part of the plant upgrade programme.

 

(d) The adjustment to plant & equipment relate to reallocation of capital work in progress to the various assets.

 

Property, mineral rights, plant and equipment of IFMSA have been pledged as security for the working capital facility provided by Bank of China. (Refer to note 25 for further details).

 

18. INTANGIBLE ASSETS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Licence:
Cost - opening balance	10,837		-
Addition	-		10,837
Cost - closing balance	10,837		10,837
Amortisation:
Amortisation - opening balance	(775)		-
Charge for the year	(361)		(775)
Amortisation - closing balance	(1,136)		(775)
Net book value	9,701		10,062

 

(a) Intangible assets consist of licence fees for the use of patented technology.

 

 

19. OTHER NON-CURRENT ASSETS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Restricted cash (a)	44,306		17,100
Deposits	1,159		1,134
	45,465		18,234

 

(a) Restricted cash represents cash set aside for bank guarantees provided by Standard Bank to the Department of Minerals and Resources for environmental rehabilitation.

 

 

20. TRADE AND OTHER PAYABLES

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Sundry creditors and accruals	68,200		45,433
Trade creditors	196,505		35,577
Short term portion of finance lease liability (a)	8,349		24,988
Other creditors and accruals (b)	299		-
	273,353		105,998

 

(a) Refer to note 31.

(b) Other creditors and accruals represent advance debtor payments.

 

Due to the short term nature of these payables, their carrying value is assumed to approximate their fair value.

 

 

21. PROVISIONS

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Current provisions
Employee entitlements (a)	19,748		9,608
Share based payment liability (b)	6,338		3,154
Taxation	(642)		(351)
	25,444		12,411
Employee entitlements
Opening balance	9,608		63,589
Provision recognised during the year	13,577		9,545
Provision utilised during the year	(3,437)		(63,526)
Closing balance	19,748		9,608
Phantom options
Opening balance	3,154		35,688
Cash settled share based payment expense	5,774		3,154
Cancellation of phantom options	-		(34,662)
Effect of foreign exchange	(340)		(1,026)
Phantom options exercised and paid during the year	(2,250)		-
Closing balance	6,338		3,154
Income tax
Opening balance	(351)		1,575
Provision recognised during the year	515		56
Income tax paid during the year	(806)		(1,982)
Closing balance	(642)		(351)

 

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Non-current provisions
Decommissioning and restoration (b)	19,692			10,741
Share based payment liability (c)	1,862			2,566
	21,554			13,307
Decommissioning and restoration
Opening balance	10,741			18,104
Additional provision recognised during the year:
-Recorded in property, plant and equipment	1,524			(3,797)
-Unwinding of discount	1,007			6,212
-Adjustment in provision assumptions	6,420			(9,778)
Closing balance	19,692			10,741
Phantom options
Opening balance	2,566			9,080
Cash settled share based payment expense	123			2,566
Cancellation of phantom options	-			(8,241)
Reallocation from payables	(728)			-
Effect of foreign exchange	(99)			(839)
Closing balance	1,862			2,566

 

(a) The provision for employee entitlements represents accrued annual leave liabilities and other employee provisions. It is expected that these costs will be paid in the next financial year.

 

(b) The provision for decommissioning and restoration represents management's estimate of the restoration and exit costs associated with the integrated mining and ferrochrome smelting facility at Buffelsfontein and Sky Chrome. It is expected that these costs will be incurred at the end of the operations/mine life. Due to the long-term nature of the liability the greatest uncertainty in estimating the provision is the costs that will be ultimately incurred. The provision has been calculated using a pre-tax discount rate of 8%.

 

(c) The Phantom Share Option scheme options are treated as "cash settled" share based payments in accordance with the accounting policy.

 

22. INTEREST BEARING LOANS AND BORROWINGS

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Long term portion of finance lease liability (a)	58,374			64,722
Bank debt (b)	350,000			-
Debt Establishment costs and accrued interest (b)	(3,596)			(5,313)
Other loans (c)	4,929			4,644
	409,707			64,053

 

(a) Finance leases

The weighted average effective interest rate on finance leases is 11.93%.

 

(b) Working capital facility

On 29 June 2009 the company entered into a working capital facility agreement with the Bank of China for an amount of R500 million. The initial drawdown currency split will be 60% in USD and 40% in ZAR. The facility interest is charged at USD:LIBOR plus 1.5% on the USD portion of the loan while the ZAR portion of the loan is charged at the South African Prime rate plus 1.9%. The term of the facility is 36 months. The parent company, IFML, guarantees the facility on behalf of IFMSA. The entire balance sheet of IFMSA is pledged as collateral for the loan facility. Bank of China has the option to cancel the loan facility and call upon any balance outstanding in the event of a material deterioration in the financial position of IFMSA.

 

(c) Other loans

The loan constitutes the 20% tribal participation of funding provided to Sky Chrome by IFM. The loan is interest free and payable before earning distributions are made.

 

Undrawn loan facilities at 30 June 2010, excluding debtors discounting facilities, amounted to ZAR150 million (2009: ZAR500 million).

 

Fair value

The carrying values of each class of interest bearing loans and borrowings approximates their fair value.

 

 

23. CONTRIBUTED EQUITY

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Movement in ordinary shares on issue
Opening balance	2,814,380			2,834,412
Issue of Ordinary Shares (a)	286,755			-
Share placement costs	(12,895)			-
Share buy-back (b)	-			(19,853)
Transaction costs (b)	-			(179)
Closing balance	3,088,240			2,814,380
	Shares			Shares
Opening balance	503,643,680			507,562,680
Issue of Ordinary Shares	50,364,367			-
Share buy-back (a)	-			(3,919,000)
Closing balance	554,008,047			503,643,680

 

The details of Ordinary Shares issued during the year ended 30 June 2010 are as follows:

 

Period	Description of share issue	Number of shares issued	Share price	Proceeds (local currency)	Proceeds (ZAR'000)
30 June 2010	Placement of shares	50,364,367	£0.44	£22,160,321	286,755
30 June 2009 - No Ordinary Shares were issued during the year.

 

(a) On 3 August 2009 IFM announced that it had raised £22.2 million (ZAR286 million) (before expenses) through the placing by Numis Securities Limited of 50,364,367 new ordinary shares with certain existing shareholders including Jiuquan Iron & Steel Group Company Limited and new institutional investors at 44 pence per share. The proceeds are being used principally to fund the investment in the Clean Development Mechanism compliant electricity co-generation plant.

 

(b) On 30 September 2008, the Company announced an on-market share buy-back programme. IFM purchased 3,919,000 Ordinary Shares through this programme, at a weighted average price of £0.32 per share, all of which had voting rights and were duly cancelled. The transaction costs related to commissions paid on the Ordinary Shares re-purchased. There is no current on- market buy-back programme.

 

Ordinary Shares

 

Ordinary Shares have the right to receive dividends as declared and, in the event of the winding up of the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

 

Ordinary Shares entitle their holder to one vote, either in person or by proxy, at a meeting of the Company.

 

Options

 

The following table sets out the Options over ordinary shares granted and exercised during each year:

 

			As at 30 June
		2010		2009
		Number		Number
Opening balance	-				1,000,000
Options granted	-				-
Options exercised	-				-
Options cancelled	-				(1,000,000)
Closing balance	-				-

 

In addition, JISCO has certain non-dilution rights under the Subscription Agreement, which apply if an Option is exercised, to require JISCO to be offered and issued Ordinary Shares at the same exercise price at which such Options are exercised to enable JISCO to maintain its guaranteed holding of 26.1% of the issued Ordinary Shares of the Company. These non-dilution rights are accounted for as a derivative liability. Since JISCO's shareholding is above 26.1%, under the Subscription Agreement, IFM is not obliged to offer JISCO shares in terms of the anti-dilution clause, unless the issue would dilute JISCO's ownership below 26.1%.

 

Capital Management

 

When managing capital, management's objective is to ensure the Group continues as a going concern as well as to maintain optimal returns to shareholders and benefits for other stakeholders. Management also aims to maintain a capital structure that ensures the lowest cost of capital available to the Group.

 

Capital is defined as total shareholders' equity which represented ZAR2.5 billion at 30 June 2010

(2009: ZAR2.3 billion).

 

The Board of Directors and Management regularly reviews the company's capital structure using a detailed cash flow model. They assess the adequacy of the capital structure against the major variables impacting the Group's profitability.

 

As the market is constantly changing, management may change the amount of dividends to be paid to shareholders, return capital to shareholders or issue new shares to reduce debt. Should a strategic acquisition be assessed, management may issue further shares on the market.

 

The company has complied with all externally imposed capital requirements.

 

 

24. SHARE BASED PAYMENT RESERVE

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Opening balance	8,272			6,617
Share based payment expense	-			1,618
Effect of foreign exchange	-			37
Closing balance at the end of the year	8,272			8,272

 

 

25. ACCUMULATED LOSSES

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Opening balance at the start of the year	(489,313)			(78,036)
Dividend payments	-			(76,148)
Loss on fair value of investment	-			64
Cancellation of shares	-			(1,418)
After tax (loss)/profit attributable to the equity holders of the parent during the year	(84,592)			(333,775)
Closing balance at the end of the year	(573,905)			(489,313)

 

 

26. NON-DISTRIBUTABLE RESERVE

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Opening balance	(6,044)			-
Acquisition of non-controlling interest	-			(6,044)
Closing balance of the end of the year	(6,044)			(6,044)

 

The non-distributable reserve relates to the transaction that took place to reduce the non-controlling interest shareholding.

 

 

27. NON-CONTROLLING INTEREST

 

			Consolidated
		2010		2009
		ZAR'000		ZAR'000
Opening balance at the start of the year	1,817			8,653
Reduction in share holding	-			(2,032)
(Loss) attributable to the non-controlling interest during the year	(1,214)			(4,804)
Closing balance at the end of the year	603			1,817

 

 

28. SHARE BASED PAYMENTS

 

Cash Settled Options

 

The fair value of the outstanding phantom options is estimated as at the financial reporting date using a Binomial model taking into account the terms and conditions upon which the options were granted.

 

	2010	2009
Expected volatility (a) (%)	75.86%	77.25%
Risk-free interest rate range (%)	0.52%- 2.21%	0.57% - 3.28%
Option exercise price (GBP)	£0.16 - £ 0.57	£0.16
Expected dividend yield range	0% - 14.8%	0% - 6.05%
Option cap	£1.00	£1.00
Exercise multiple	4	4

 

(a) The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome. Share price volatility is re-assessed at each reporting period based on historical share prices. The current volatility is based on actual volatility since the listing of the company in September 2005.

 

Equity Settled Options

 

As at 30 June 2008, 1,000,000 options were on issue to Mr Kovarsky to subscribe for shares in IFM within a three-year period up until 31 December 2010. These options were cancelled by the Board on 30 December 2008. As a result of the accelerated amortisation of the fair value of the options, ZAR1.62 million was recorded in the income statement during financial year ended 2009.

 

Phantom Share Option Plan

 

During the year 897,027 options were exercised and 2,056,000 options were issued with various exercise prices. At 30 June 2010 the total number of options outstanding was 10,925,541 with an amortised liability value of ZAR8.2 million.

The estimated fair value of each phantom option tranche at reporting date is:

 

Exercise price	No of options	Fair value at reporting date Tranche 1	Fair value at reporting date Tranche 2	Fair value at reporting date Tranche 3
£0.16	8,941,541	£0.11	£0.11	£0.11
£0.31	416,000	£0.06	£0.06	£0.06
£0.34	832,000	£0.05	£0.05	£0.05
£0.40	604,000	£0.05	£0.05	£0.04
£0.41	72,000	£0.05	£0.05	£0.05
£0.57	60,000	£0.03	£0.03	£0.03
	10,925,541

 

The total numbers of phantom options issued during the relevant periods are as follows:

 

Phantom options	Number of Options	Weighted average exercise price
Opening balance at 1 July 2008	8,076,735	£0.76
Granted during the period	10,200,568	£0.15
Forfeited/cancelled during the year	(8,347,735)	£0.76
Exercised during the period	-	-
Expired during the period	-	-
Closing balance at 30 June 2009	9,929,568	£0.15
Opening balance at 1 July 2009	9,929,568	£0.15
Granted during the period	2,056,000	£0.35
Forfeited/cancelled during the year	(163,000)	£0.16
Exercised during the period	(897,027)	£0.38
Expired during the period	-	-
Closing balance at 30 June 2010	10,925,541	£0.18

 

The weighted average share price for the year ending 30 June 2010 as £0.42.

The weighted average remaining contractual life of the above outstanding options is 3.71 years.

 

Equity share options	Number of Options	Weighted average exercise price
Opening balance at 1 July 2008	1,000,000	£0.88
Granted during the period	-	-
Forfeited/cancelled during the year	(1,000,000)	£0.88
Exercised during the period	-	-
Expired during the period	-	-
Closing balance at 30 June 2009	-	-

 

No equity share options were issued during the year ended 30 June 2010.

 

29. PARENT ENTITY INFORMATION

 

		2010	2009
Information relating to International Ferro Metals Limited:		ZAR'000	ZAR'000
Current assets	242,814		322,157
Total assets	2,525,640		2,336,813
Current liabilities	4,048		6,347
Total liabilities	8,474		7,701
Issued capital	3,088,240		2,814,380
Accumulated losses	(579,346)		(493,540)
Share based payment reserve	8,272		8,272
Total shareholders' equity	2,517,166		2,329,112
Loss of the parent entity	(85,806)		(210,975)
Total comprehensive income of the parent entity	(85,806)		(210,975)
Details of any guarantees entered into by the parent entity in relation to the debts of its subsidiaries (a)	500,000		500,000
Details of other financial assets(b)	2,273,692		2,005,235

 

(a) On 29 June 2009 the company entered into a working capital facility agreement with the Bank of China for an amount of ZAR500 million of which ZAR350 million was drawn down as at 30 June 2010. The facility interest is charged at USD:LIBOR plus 1.5% on the USD portion of the loan while the ZAR portion of the loan is charged at the South African Prime rate plus 1.9%. The term of the facility is 36 months. The parent company, IFML, guarantees the facility on behalf of IFMSA. The entire balance sheet of IFMSA is pledged as collateral for the loan facility.

 

(b) The following table represents details of other financial assets:

	2010		2009
Information relating to International Ferro Metals Limited:	ZAR'000		ZAR'000
Investment in subsidiaries at cost		1,967,601		1,578,601
Provision for diminution (c)		(389,566)		(269,023)
Net investment in subsidiaries		1,578,035		1,309,578
Receivable from Jefferson Investments Limited (d)		695,657		695,657
		2,273,692		2,005,235

(c) This provision has arisen as a result of losses incurred by subsidiary companies during the current financial year.

(d) IFML purchased a preference share from Jefferson Capital, a member of a UK financial institution, for ZAR695 million. Simultaneously, IFMSA issued a debenture to Morgan Stanley for ZAR695 million. The debenture was secured against the preference shares. On 25 September 2008, the Board resolved to restructure IFMSA financing arrangements to extinguish IFML's exposure to Morgan Stanley counterparty risk as disclosed in the Annual Financial Statement for the year ended 30 June 2009. The coupon on both the preference shares and the debenture is 12.5% compounded semi-annually in arrears. The debenture term ends on 25 January 2016. The Group is entitled to set off the preference share and the debenture, as such, these items have been set off in the consolidated balance sheet.

(e) The parent entity has no contingent liabilities, nor does it have any contractual commitments for the acquisition of property, plant or equipment.

 

30. POST BALANCE SHEET EVENTS

 

Subsequent to 30 June 2010, the Company has increased its draw down of the Bank of China working capital facility to R450 million.

No material matters or circumstances have arisen since 30 June 2010 that have significantly affected or may significantly affect:

• the Company's operations in future financial years; or

• the result of those operations in future financial years; or

• the Company's state of affairs in future financial years.

 

31. COMMITMENTS AND CONTINGENCIES

 

Capital commitments

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Contracted for	89,593		89,181
Authorised but not contracted for	44,332		-
	133,925		89,181

 

§ Contractual obligations relate mainly to the Clean Development Mechanism compliant electricity co-generation plant project (ZAR62 million) and upgrading of the metal recovery plant (ZAR11 million).

§ Other large non-capital projects include the UG2 purchase of ZAR161 million.

 

Finance lease commitments

 

The minimum lease payments under finance lease arrangements are set out in the following table:

 

		Consolidated
	2010		2009
	ZAR'000		ZAR'000
Within 1 year	15,567		33,099
Between 1 and 5 years	37,910		44,616
Greater than 5 years	114,829		122,560
Total future lease payments	168,306		200,275
Less: future finance charges	(101,583)		(110,565)
Lease liability	66,723		89,710
Represented by:
Current lease liability	8,349		24,988
Non-current lease liability	58,374		64,722
Lease liability	66,723		89,710
The present values of lease payments under finance lease arrangements are set out in the following table:
Within 1 year	8,349		24,988
Between 1 and 5 years	5,454		10,306
Greater than 5 years	52,920		54,416
Lease liability	66,723		89,710

Contingent liabilities

 

There were no contingent liabilities outstanding at 30 June 2010.

 

 

32. RELATED PARTY TRANSACTIONS

 

Loans to Directors and Director-related entities

 

No loans have been granted to Directors and/or Director-related entities.

 

Refer to audited Remuneration Report for details of remuneration and arrangements with Key Management Personnel.

 

The Parent company received management fees from its subsidiary company International Ferro Metals SA (Pty) Limited. Related party transactions exist between the companies within the group.

 

Management fees due to the parent company totalled ZAR6.1 million.

 

Jiuquan Iron and Steel Group Company (JISCO) own 29.10% (2009: 28.89%) of the Parent company's shares. Sales made to JISCO totalled 47,886 tonnes and were made in terms of the off-take agreement which was entered into at arm's length. The value of sales made to JISCO during the year amounted to ZAR354 million.

 

Mr Kovarsky was formerly the CEO of Pyromet Technologies and Sublime Technologies. During the financial year ended 30 June 2010 the following sales and purchases were made to these companies through IFM:

 

Purchases from Sublime totalled 7,074 tonnes of silicon carbide with a value of ZAR40.4 million. There were no amounts outstanding at year end.

 

Purchases made from Pyromet amounted to ZAR1.3 million for the year ended 30 June 2010. There were no amounts outstanding at year end.

 

 

33. INTEREST IN SUBSIDIARIES

 

The Company has the following direct/indirect material interests in subsidiaries:

 

Name		Country of Incorporation	Ownership interest		Investment
			2010	2009
International Ferro Metals SA (Pty) Limited	South Africa		99.375%	99.375%	ZAR338 million
Purity Metals Holdings Limited	British Virgin Islands		100%	100%	USD9 million
Sky Chrome Mining (Proprietary) Limited	South Africa		80%	80%	ZAR800
International Ferro Metals SA Holdings (Pty) Limited	South Africa		100%	100%	ZAR1.1 billion

 

34. AUDITORS REMUNERATION

 

	Consolidated
	2010	2009
Amounts received or due and receivable by Ernst & Young Australia for:
(i) an audit or review of the financial report of the entity and any other entity in the consolidated entity	860,319	2,002,533
(ii) other assurances	-	153,467
Total received by Ernst & Young Australia	860,319	2,156,000
Amounts received or due and receivable by Ernst & Young South Africa for:
(i) an audit or review of the financial report of any other entity in the consolidated entity	1,276,800	1,760,518
(ii) other assurance services	-	101,878
(iii) taxation services	49,956	45,320
Total received by Ernst & Young South Africa	1,367,756	1,907,716
Closing balance	2,187,075	4,063,716