Publications
Partners
It was another rough week for the mining industry, with Glencore and Royal Bafokeng Platinum reporting record losses, and Kumba Iron Ore being held liable for a multibillion-rand tax claim.
Glencore, which employs 35 000 people in South Africa and has local coal and ferroalloy interests, reported a loss of $8.1 billion (R127 billion) – the group’s first loss since listing in November 2013. This, compared with a net profit of $2.4 billion in 2014.
The group’s loss was attributed to substantially weaker commodity prices, which were partially offset by cost efficiencies and favourable producer country currencies.
Glencore also took a charge of $5.8 billion related to impairments, restructuring costs and net losses.
Its adjusted earnings before interest and tax declined by 68% last year to $2.2 billion compared with 2014.
Glencore chief executive Ivan Glasenberg said: “Financial market sentiment weakened considerably during the course of 2015, amid concerns over slowing economic growth ... and, as a result, sector focus quickly switched from cash distribution to balance sheet concerns and cash preservation. This led to further industry-wide cost and capex reductions, project closures and curtailments, asset sales, dividend cuts and equity issuance.”
To cope with the tough times and improve its financial position, Glencore last year slashed its capital expenditure by 30% to almost $6 billion and sold $1.6 billion in assets.
As a result, the group’s net debt declined 15% to $26 billion, from a peak of $36 billion in 2014.
Glencore is looking to cut its net debt to as low as $17 billion by year-end.
Marc Elliott, a London-based analyst for Investec, said the results were “considerably weaker year on year, similar to its peers”.
“The results reflect continued cost reduction ... and we wait to see how the asset sales progress through quarter two,” he added.
Elliott added that Glencore made no mention of a dividend forecast. In September, Glencore said it would suspend its 2015 final dividend and its 2016 interim dividend.
During the course of 2016, Glencore is aiming to sell $4 billion to $5 billion worth of assets in a bid to achieve extra cost savings of $400 million over the next 12 months.
“We remain focused on preserving our investment grade credit rating,” Glencore said.
Like Glencore, Royal Bafokeng Platinum, which employs 7 000 people at its local platinum mines, also reported a record loss for 2015, which in this case was R3.8 billion because of the sharp fall in the platinum price. In 2014, the company generated a profit of nearly R600 million.
The decline in the platinum price forced Royal Bafokeng Platinum to preserve cash and firm up its financial position.
In a further blow for mining jobs, Lonmin this week said it had cut 5 108 jobs at its platinum mines. This is lower than the 6 000 jobs that the company had said were at risk.
Already suffering from the drastic drop in the international iron ore price, Kumba Iron Ore this week made a shock announcement that Sishen Iron Ore, its 73.9%-held subsidiary, had been hit with a R5.5 billion claim by the SA Revenue Service (Sars) for the tax years from 2006 to 2010.
The latest claim is far higher than the R1.8 billion quoted by Kumba in February.
This massive claim could prove to be an obstacle in the planned exit from Kumba by Anglo American, which holds a close on 70% stake in Kumba.
Kumba said it had fully cooperated with Sars during the course of the audit, but it disagreed with its findings.
The mining company said it would be lodging an objection to the assessment, together with an application to Sars commissioner Tom Moyane for a suspension of payment until the matter is resolved.
Reflecting the mood in the international mining sector, BHP Billiton chief executive Andrew Mackenzie said at a conference in the US this week: “We are in challenging times – in some senses, a new era. Economic uncertainty, extreme volatility and geopolitical instability, on top of already well-supplied markets, have hurt sentiment, weighed on commodity prices and driven the shares of our sector to decade lows.”
Turning to November’s Samarco iron ore disaster in Brazil that saw at least 17 people killed after a tailings dam burst, Mackenzie said BHP Billiton had recorded an exceptional charge of $1.2 billion before tax and recognised a number of contingent liabilities.
Some positive news this week came from Anglo, which announced that rough diamond sales during the second cycle of the year continued to show an increase to $610 million, compared with the $545 million value of the first sales cycle of 2016.
