SIKI MGABADELI: African Rainbow Minerals reported that its first-half headline earnings fell by more than 50% due to lower prices of its commodities such as iron ore and platinum. Headline earnings per share fell 56% to 473c/share, that’s from 1 084b in the previous year. Profits from the ferrous unit, which includes iron ore, manganese and chrome, comprised 81% of total earnings and dropped 61%. Mike Schmidt is CEO and joins us now. Mike, thanks so much for making the time for us today.

 

MIKE SCHMIDT: Siki, thank you. As you said, those are the figures and the implications have really been the negative impact, primarily from the decline in US dollar commodity prices. And as ARM is invested into mining into the long term, we understand that within the longer period commodity prices are very cyclical. 

    But our strategy is developed to focus on the long term while we do allow short- and medium-term interventions to address these cycle issues. And ARM is responding proactively in the current challenge of the mining industry. There are a number of interventions. 

    I just probably need to say that in general costs are well controlled throughout the operation, and that’s been very key in terms of our strategy to get ourselves below the 50th percentile on the global cost curve, manage our costs and be very prudent with our capital expenditure. 

     So in this environment, our focus is certainly in line with that, being driving on improving productivity, reducing costs and optimising cash flow because cash flow is very key in an environment like this.

 

SIKI MGABADELI: And, as you say Mike, you know it’s very cyclical and right now you’re dealing with some hectic tailwinds. We’ve just very recently had iron-ore prices hitting a record low, below $60/ton. What’s your outlook for that price, given the concerns around Chinese growth, for example, and oversupply concerns?

 

MIKE SCHMIDT: Siki, if I may, can I answer this in a different manner – and I’m going to get to the iron ore price and outlook in a minute. I think the global economy which utilises our commodities does grow at different rates. Whilst the Chinese continue to grow in absolute terms, on the larger base, on a percentage base, it is slowing, but the US has shown quite a lot of resilience and strength. And we see growth in most parts of Europe and there’s an expectation that the Japanese will recover. So on that when a person then takes the iron-ore position into context, it’s really an issue of supply here. There’s an oversupply coming from the top four out of Australia and Brazil, and these operations are pushing huge volumes at very low prices. And obviously based on that oversupply, prices are being pushed down. So how does that affect ARM – I think that’s more how do you react to it? 

    Our iron-ore division – we have two operating mines and 16 million tons on an annualised basis, 14 million export and two million on the local market. We are well positioned on the global cost curve. Currently we sit on the 35th percentile of the global cost curve. Our product demands a premium because the price being quoted which you would have seen is really the 62% plats price. We offer product of 65, so you get a product premium in terms of the quality, and certainly we have a lump premium because we have a high lump-to-fine ratio. So our cost position – we still have good margins at these. 

    I think your question on the backdrop of that is what is the outlook for iron ore. I think there’s going to be an oversupply at very low cost entering the market for a long time. A long time? Well, how long is a piece of string? But I think certainly within the five-year window, which doesn’t bode well for many iron-ore producers and certainly we’re not going to see the huge margins that we’ve seen in the past. …

 

SIKI MGABADELI: Ok, we’ll leave it there. Thanks Mike. Mike Schmidt is CEO of African Rainbow Minerals.