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Thu 5 Jul 2012
Close: 3 315c 
Day's move: 0c (0.00%)
Volume: 0
Trades: 0
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Revenue for the interim period increased to R3 billion (2010: R2.7 billion). Earnings before interest, taxation, depreciation and amortisation ("EBITDA") rose to R641.1 million (2010: R577.8 million), but earnings before interest and taxation ("EBIT") fell to R308.6 million (2010: R441.1 million), while total comprehensive income attributable to equity holders of the parent decreased to R223.8 million (2010: R274.6 million). Furthermore, headline earnings per share lowered to 76.04cps (2010: 139.22cps).
Dividend
A special dividend of 30cps was declared subsequent to the 30 June 2011 financial year and was paid to shareholders on Monday, 31 October 2011. No further dividend has been declared by the board in respect of the reporting period ended 31 December 2011.
Outlook
Thermal coal prices have recently softened to approximately USD105/t out of RBCT on the back of ongoing European recession although likely inventory re-stocking is expected to be supportive for near term API 4 pricing. With Lunar New Year approaching at the end of January 2012, buying interest is expected to be somewhat muted although medium to long-term pricing will continue to depend on economic growth developments in critical locations notably, India, China, Korea as well as the European Union. Coal production forecasts have widely been revised in Australia and Indonesia which will have the impact of reducing any current oversupply. Heavy rain currently being experienced in Colombia will further alleviate market over supply and is likely to be price supportive. Generally inventory levels at ports has been declining suggesting the re- stocking may have commenced, supportive for near term pricing. The API 4 USD coal curve remains in medium to long-term contango indicating that projected seaborne thermal coal import demand remains likely to exceed seaborne thermal coal supply.
TFR's rail performance to RBCT continues to demonstrate sustainable improvement with TFR having railed an annualised =70mt over the last five months of the calendar 2011 year. This together with the recent announcement that TFR will further divert general freight from the RBCT line by upgrading a 146km line section through Swaziland, is positive for the further improvement of coal delivery tempo's on the RBCT line. These initiatives bode well from an export coal industry perspective and are expected to narrow the gap between RBCT railings and nameplate exportable capacity of 91mtpa out of RBCT.
Locally, Eskom's return-to-service programme, in addition to its capital growth projects, continues to bode well for domestic coal suppliers, especially empowered miners who are located close to Eskom power stations and have coal of the requisite qualities. The country's current power generating capacity of 40 000MW is planned to increase to 80 000 MW by 2025, and this fact alone is expected to maintain an increasing demand for coal from local suppliers. While there has been growing attention on the development of renewable energy sources in South Africa, with Eskom itself aiming to reduce its reliance on coal to 70% of the total energy mix by 2025, we believe that coal-fired energy generation will continue to remain the fulcrum of South Africa's energy needs for the foreseeable future. This is supported by the World Bank's recognition that coal-fired power stations are the only power source large enough to meet the country's growing energy needs. Optimum therefore expect the domestic coal market to remain strong with robust demand.
After a challenging and disappointing first half, production and unit cost performance at Optimum Collieries is expected to improve in H2, FY2012 now that the various industrial actions have been resolved, the Kwagga North section is being mined with three large draglines and that coal is being conveyed across the new overland infrastructure. Strategically, Optimum Collieries is coming to the end of a R2 billion-life-of-mine recapitalisation program which has seen the successful development of the Boschmanspoort underground section, a 15ML/day water treatment plant and the commencement of the Kwagga North section. Boschmanspoort is now fully operational and is delivering production at expected run rates, whilst Kwagga North continues to ramp up as additional opencast equipment is relocated into the reserve to exploit lower strip ratio areas. As a result of the production challenges experienced in H1, FY2012 we have revised downwards our guidance for export saleable production guidance from Optimum Collieries to 4.6mt - 4,8mt for the 12 months to June 2012. Furthermore, the fixed price contract for 1.02mt of Optimum Collieries export production during calendar 2011 is now completed and the operation once again has full exposure to the risks and rewards associated with market movements in the API4 USD coal price. Koornfontein Mines is expected to continue to deliver production targets and our production guidance remains 1.7mt of exportable product for the 12 months to June 2012.
Potential change in control
Shareholders are referred to the joint cautionary announcement released on 16 November 2011 ("joint cautionary announcement"), in terms of which shareholders of Optimum Coal ("Optimum") were advised that a consortium ("consortium") comprising Piruto B.V. ("Glencore"), a wholly-owned subsidiary of Glencore International AG, and Lexshell 849 Investments (Pty) Ltd, a company wholly-owned by Mr Cyril Ramaphosa ("Lexshell"), had submitted a letter to the board of directors of Optimum ("board") reconfirming its interest to acquire, directly and indirectly, the entire issued ordinary share capital of Optimum other than the shares of certain shareholders that are restricted from selling ("proposed transaction"). The consortium has advised that, in aggregate, including both the BEE and the non BEE shareholder transactions entered into, that it has directly and indirectly acquired, or has entered into conditional agreements to acquire, a total effective interest of 67.77% in the issued share capital of Optimum. Various acquisition agreements remain conditional on the approval of the Competition Authorities.
If the Competition Authorities approve of the various transactions with certain shareholders, it will result in the consortium acquiring more than 35% of the issued share capital of Optimum. The consortium has confirmed to Optimum that it will make a mandatory offer ("mandatory offer") to the remaining shareholders of Optimum to acquire their shares in Optimum at not less than R38 per Optimum share. The consortium believes that it will preferable for the consortium to proceed with the mandatory offer as opposed to the general offer, because the mandatory offer will be unconditional and capable of immediate implementation once accepted by an Optimum shareholder.
The consortium has indicated that it is not able to anticipate when the approval of the Competition Authorities will be obtained, but it does not expect that it will be before the first quarter of 2012. The consortium will, however, endeavour to be in a position to make the mandatory offer as soon as possible after receipt of such approval, and, in any event, within the time period set out in the Companies Act and the Takeover Regulations. As soon as the necessary approval is obtained and the various transactions are implemented, an announcement will be released to shareholders regarding the mandatory offer, which will include salient dates and times for the mandatory offer. A circular will thereafter be dispatched to Optimum shareholders advising them of the full terms of the mandatory offer, which circular will include the views of the board on the mandatory offer. In preparation for a potential change in control, the board has appointed a sub- committee comprising independent and un-conflicted board members as well as various advisors, to address matters relating to the proposed transaction. This sub-committee is chaired by Mr. Bobby Godsell.
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