PETMIN, South Africa’s largest anthracite exporter, will make a decision in its next financial year whether to double it production of the coal, and it hopes to make an acquisition before this December, said Bradley Doig, chief operating officer.
Anthracite and silica miner Petmin turned in a strong set of results for the six months to end-December, showing gross profit rising 69% to R115m. It poured R170m into its operations and most of that went to the Somkhele anthracite mine.
Somkhele will produce half a million tonnes of saleable anthracite this financial year to end-June and the decision will be taken thereafter whether to expand output by installing a second plant for R100m to double capacity, Doig said.
“We’ll make that call towards 2010. We’ve done the design work and preparatory work but we can’t make a call until we’ve decided where the markets are going,” he said.
Petmin is negotiating with the South African port authorities to increase the capacity at a dedicated anthracite export facility at Richards Bay harbour from the current 600,000 tonnes/year to 1.4 million tonnes.
Once the second plant is built and the de-stoning plant is commissioned in coming months, adding 25% more production, Petmin will be close to that 1.4 million tonne target. It is also prepared to facilitate exports by other companies, Doig said.
Petmin has a degree of flexibility in switching between supplying domestic users of anthracite in the ferrochrome and ferromanganese businesses and offshore clients.
Ferrochrome producers in South Africa have slashed production capacity by some 90% because of the downturn in demand from stainless steel producers. Petmin is starting to some slow increases in demand for its products from this sector.
Xstrata, the largest supplier of ferrochrome, has cut capacity by 80%, but it still needs anthracite as a reductant at its remaining furnaces. “Those tonnes we aren’t moving locally, we are getting offers for from European power stations that are designed to use anthracite,” Doig said.
Petmin has agreed sales over three years of a million tonnes of anthracite.
It will sell 145 000 tonnes at $118 per tonne in the six months to 30 June 2009 and approximately 325 000 tonnes and 375 000 tonnes in the years ending 30 June 2010 and 2011 respectively at similar prices.
“We expect weakness in (sales) volumes will be partially offset by the commencement of previously negotiated contract export volumes of $118/tonne, a 107% premium to the current API4 thermal coal spot price of $57/tonne,” said Numis Securities, adding this would underpin earnings in those years.
Petmin's shares on the JSE traded down three percent and were untraded on AIM.
The current downturn in the metallurgical sector will negatively impact the offtake of anthracite and metallurgical grade silica, which is silica not used to make glass.
Silica and chert production in the interim period rose by a third to 815,235 tonnes and sales were up 43% to 902,513 tonnes.
Petmin expects to maintain output levels but sees slightly lower sales.
“Sales to the metallurgical markets are not expected to recover until the latter half of calendar 2009. The metallurgical sector is the least profitable market that SamQuarz sells to, and as a result, the impact of reduced sales to this sector on SamQuarz`s profit is not expected to be material.”
Petmin is selling its Springlake Colliery to Shanduka Coal for R150m and it has R160m it has in untapped debt. It has R75m in cash on its books at the end of the interim period.
Petmin is “not hellbent on consolidating the anthracite market,” he said. The company is looking at bulk commodities like industrial minerals and coal.
“The number one thing is to protect the balance sheet, but if there’s something really accretive to shareholders we’d look at it,” Doig told Miningmx. “We are looking at a couple of things.”
“We’d definitely consider abroad as well. We like Africa and understand it, but there are opportunities presenting themselves in other jurisdictions, which are quite exciting,” he said.
“We are evaluating some opportunities. We’d certainly like do something by December,” he said. “If we find the right thing, of the ones we’re looking at, and if we decide to pursue it, we’d love to add it to our portfolio by then.”
The other important investment Petmin has is in the Veremo pig iron prospect, in which it is the junior partner. Kermas is the majority partner with a 70% stake in the company that owns a similar stake in the underlying asset.
Petmin intends upping its exposure to the underlying asset by converting the repayment of R21.5m loan to the company into an increased stake in the company. Its exposure to the underlying asset will double to 34% in the transaction.
A 2012 production target at the project is a bit optimistic, Doig said.
Source: MiningMx.com
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