Assore chairman Desmond Sacco. Picture: SUNDAY TIMES
Assore chairman Desmond Sacco. Picture: SUNDAY TIMES

BASE metals miner Assore on Wednesday reported headline earnings per share of R34.23 for the year ended June, from R35.19 a year ago.

A final dividend of 350c per share was declared, making a total dividend of 600c, up from 550c in 2012.

"Despite difficult market conditions, we produced results that are consistent with last year, mainly due to record iron-ore sales volumes," chairman Desmond Sacco said.

Headline earnings decreased marginally by 4.7% to R3.5bn, mainly due to the decline in the headline earnings of Assmang, which fell 7.1% to R6.5bn.

Increased turnover at Assmang — which operates two iron ore mines in the Northern Cape as well as manganese mines — resulted in higher commissions earned by the group, partly limiting the extent of the decline in headline earnings.

While the earnings for the six months ended December 2012 amounted to R1.1bn, second-half headline earnings were R2.4bn.

Assore holds a 50% interest in Assmang.

Assmang’s headline earnings were negatively affected by lower dollar selling prices for iron ore, which were mostly offset by a weaker rand/dollar exchange rate and increased sales volumes achieved for iron and chrome ores.

Demand for the group’s products was supported mainly by China, where crude steel production was at record levels for the second half of the financial year.

Sales of iron ore increased in Assmang’s iron-ore division due to the availability of additional rail capacity from the Khumani iron-ore mine.

Assmang’s chrome division achieved record sales volumes of chrome ore, due to the suspension by Assmang of charge chrome production at Machadodorp because of the depressed global market conditions for ferrochrome and the increasing cost of electricity in South Africa.

Assmang was required to record an impairment charge of R312m against furnaces and associated equipment in its manganese and chrome divisions, which had become unprofitable to operate under current market conditions and cost structures.

Assmang’s turnover for the year under review increased 5.5% to R25bn.

On June 19, the company announced the conditional approval for the construction of a manganese alloy smelting facility in Sarawak state, Malaysia, to be known as Sakura Ferroalloys. It will be built by a joint venture consisting of Assmang, Sumitomo Corporation and China Steel.

Sakura is a greenfields project to be constructed in the Samalaju Industrial Park. It will initially consist of two 81MVA furnaces, complete with related infrastructure, equipment and services, to allow for the production of both high-carbon ferromanganese and silicon-manganese alloys.

Besides being the majority shareholder, Assmang will provide marketing and technical services to Sakura. The total project value is $328m and construction is due to start in early 2014.

Assmang’s current cash resources are adequate to meet its share of the project commitment.

Looking ahead, the group said the level of global crude steel production was expected to decline in the short term, which, together with more iron ore becoming available from new and established Australian producers, was expected to cause downward pressure on iron-ore prices.

Stocks of iron ore in China have stabilised at low levels, which should counteract any significant decline in selling prices.

New entrants from South Africa into the manganese ore market are creating downward pricing pressure on medium-grade manganese ore, which is also negatively affecting high-grade ore.

Additional downward pricing pressure is expected on manganese ores for the foreseeable future due to increased volumes becoming available from producers in Australia and Gabon.

Assore said the outlook for short- to medium-term global economic growth was uncertain, as there was a lack of clarity over the level and impact of state and regulatory intervention in major economic powers.

While sales volumes are not expected to change significantly, prices could be affected.

The group also noted that it remained exposed to fluctuations in exchange rates.