Strong arm tactics
Chairman Patrice Motsepe did not beat abount the bush when presenting the interim results of African Rainbow Minerals yesterday.
Despite his group's exceptional interim results, the watchwords for the next 18 months or so will be caution and conservatism. We are still in the early stages of recession and there is little certainty about when demand for coal and metals will fully recover.
By the end of December, ARM was sitting on a cash balance of R3.66million and mines that are profitable even given the lower prices for crucial contributors such as iron and manganese ores and platinum.
With the exception of Modikwa Platinum (and that is being given attention) all of the group's mining and smelting operations are being planned to fall well into the lower half of the global cost curve by 2012.
The cautious approach had already been indicated by the prompt closures of ferrochrome smelters when demand from the world's stainless steel makers started to fall in October.
Virtue is being made of necessity, and maintenance schedules have been moved up so that smelters can be fully operational ahead of an eventual upturn.
In line with many other mining groups, ARM's capital programme has been scaled back - to a cumulative R9billion from R13billion by June 2011.
The result is management's confidence that ARM can meet its spending commitments and Motsepe's belief that: "ARM has particular fire power on its balance sheet to take up options that might present themselves."
Outside South Africa, the recently announced 50:50 joint venture with Brazilian mining group Vale to develop the Teal copper interests in Zambia and the Congo takes some of the burden off ARM.
And in South Africa, CEO André Wilkens said, only the Nkomati nickel mine development might need financing.
Still, the remainder of this year is unlikely to be plain sailing. Wilkens said that in recent weeks there had been signs of a recovery in Chinese demand for iron and manganese ores, but tempered that with the caution that this year's prices are likely to be sharply lower than those being achieved in the past 12 months.
Domestic and exports coal sales have fallen. But again, the Goedgevonden colliery is set to be commissioned before June this year along with the Richards Bay Coal Terminal expansion which affords ARM an export outlet.
And Eskom is paying premium prices for good quality coal.