[miningmx.com] -- ANTHRACITE and silica miner Petmin is pushing to have 460,000 tonnes of coal production tied up in offtake agreements by the end of the year as it cools its heels on acquisitions and moves carefully ahead on a pig iron project.
Petmin, which is listed on the JSE and AIM, posted annual results for the year to end-June 2009 on Tuesday, showing a 46% improvement in headline earnings per share to 22.3 cents. Revenue was up 18% at R667m, giving it a 52% increase in “sustainable profit before tax” of R173m.
Petmin had been trading under a cautionary note to shareholders, but management said this has been withdrawn. It had been looking to make an acquisition during the course of the year, but the proposed deal did not meet Petmin’s criteria, said Bradly Doig, the chief operating officer.
During the course of the past financial year, Petmin was also investigated by a large international company as a potential takeover target, but then the markets turned sour in September and that proposal fell away too, Doig told Miningmx.
Petmin is still looking for an acquisition in the bulk commodities sector, but there’s nothing to tell the market about at this point. The areas of interest are steam coal, manganese and ferrochrome.
Petmin has cash of R176m and undrawn debt facilities of a further R150m, putting it in a strong position to move quickly if it finds something that meets its criteria of generating cash within two years and having an internal return rate of 20% or more.
Plans to double anthracite production at its Somkhele project 80 km away from Richards Bay harbour are also on hold until the markets show signs of real recovery or a big offtake agreement is signed.
Somkhele, which has annual capacity of 700,000 tonnes of saleable coal, is currently operating at about half that, with 200,000 tonnes tied into a four-year offtake agreement with a Brazilian steelmaker at an average price of $119/tonne.
Petmin wants to tie up a total of 460,000 tonnes of its 700,000 tonnes of annual capacity in similar kinds of contracts before the end of the current calendar year.
The contracts for those tonnes will be sought in the domestic market to spread Petmin’s risk. Anthracite is used in the ferrochrome industry, which is slowly ramping up production after shutting down the majority of capacity to cope with the global economic meltdown.
“There’s a very good probability of us doing that,” said CEO Jan du Preez.
“There are no impediments to us ramping production up to 700,000 tonnes. We’ve opened up a huge amount of coal and we can mine at a 1:1 strip ratio for the next 24 months,” he said.
The amount of preparatory work done in July and August last year when Petmin was battling to meet demand before the markets crashed in September have now left it in a strong position, he said.
The lengthy disposal of the Springlake colliery to Shanduka meant Petmin received R85m for the assets, R79m less than it had first expected.
At the Veremo prospect, in-fill drilling will be completed and a competent person's report into the pig iron project released in December 2009. A pilot project will be set up during 2010 to test the viability of the project, Doig said.
Petmin has converted a loan in the Veremo project to lift its stake to 35% from 25%. All in all, Petmin has spent R71m in cash and shares to acquire the current holding in the project and is overseeing the exploration programme.
The majority shareholder in Veremo in Kermas, which is obliged to put up all the funding towards the construction and commissioning of a 700,000 tonnes/year of pig iron operation. Not only that, but it is contracted to begin paying an annual dividend of R65m a year for three years from 2012 whether the project is in production or not.
Doig reckoned the start of the project, which had been pencilled in for 2012, was now unlikely to start much before 2013 or 2014. He also reckoned the capital expenditure bill could be lower than the anticipated $300m.
Petmin is the primary source of silica for South African glass makers. The business has not seen an appreciable drop off in demand compared to other commodities and demand is seen as stable.
© 2009 Petmin Limited