RNS No 4122j
MINORCO S.A.
3rd September 1998
MINORCO ANNOUNCES INTERIM RESULTS
THE HALF YEAR IN BRIEF
- Significantly lower metals, methanol and fertiliser prices
resulted in a 26% fall in operating earnings to US$303 million.
- Net earnings fell by 38% to US$123 million.
- First copper produced from Collahuasi mine in July.
- Disposal of carbon black business in Brazil.
- Interim dividend maintained at 22 US cents per share.
Highlights for the six months to June 30, 1998
Unaudited 6 months to June 30
US$ millions except per share amounts 1998 1997
Sales 3,262 3,078
Operating earnings 303 407
Earnings before exceptional items,
tax and minority interests 271 409
Net earnings 123 199
Net earnings per share* (US$) 0.55 0.88
Dividends declared per share (US$) 0.22 0.22
* Both basic and diluted
Overview of Results
The prices of almost all of the commodities to which Minorco has a significant
price exposure, most importantly copper, ammonia fertilisers and methanol,
were very weak during the first half of 1998 following their collapse in the
latter part of 1997. All operations continued their drive to improve
productivity with the gold and base metals segments, in particular,
successfully achieving significant cost reductions. Minorco's agribusiness
subsidiary, Terra, was particularly affected by lower prices with a 45% fall
in its operating earnings. Overall, Minorco's operating earnings for the
first half of 1998 were 26% lower at US$303 million. Increased net financial
expense arising from the continuing funding of Minorco's mining projects and
the acquisitions made in the prior year further reduced earnings. As a
result, net earnings were 38% lower at US$123 million compared with the first
half of 1997.
The liberalisation of Brazil's economy has meant that the Copebras industrial
interests will require significant investment in new technology to compete
with foreign competitors. As a consequence, it has been decided to divest
Copebras' carbon black business and to joint venture its phosphate-based
industrial interests with a global partner. Subject to completion, which is
scheduled in the third quarter, Minorco will record in the second half of 1998
an exceptional gain of approximately US$140 million arising from the carbon
black sale.
The next quarter will see the achievement of commercial production at the
massive Collahuasi copper project in Chile and the Cerro Vanguardia gold
project in Argentina. Both these projects will be completed very close to
their original timetable and budget.
Gold: Minorco's gold operations earned US$23 million compared with US$19
million in the first half of 1997. Increased production and a significant
reduction in operating costs more than compensated for a 15% fall in the
average realised price of gold, which reduced revenues by US$19 million. Gold
traded in a relatively narrow range from US$278 to US$314 per ounce during the
six months. The average realised gold price of US$305 per ounce compared with
a prior period average of US$360 per ounce. Attributable gold production of
464,000 ounces was 70,000 ounces higher than in 1997, the largest increase
being at the Jerritt Canyon and Pikes Peak mines. At Jerritt Canyon, mining
was centred on the higher grade Burns Basin open pit and the Murray
underground mine. At Morro Velho, although production was unchanged at
107,000 ounces, significant benefits continue to be achieved from lowering
costs. During the six months, the Corrego do Sitio open pit mine was depleted
and the Raposos underground mine put on a care and maintenance basis. This
continues the strategy of concentrating production at the low cost Cuiaba
mine.
At Cerro Vanguardia, the mining and stockpiling of ore and removal of waste
continues ahead of programme. Commissioning of the crushing plant, stacker
blender system and raw water supply system has been completed and mechanical
and electrical installation of the process plant facilities is nearing
completion. First gold production is planned during September.
Discussions continue with third parties regarding the possible sale of our
gold assets. Minorco currently expects to reach a decision by the year end.
Base metals: Base metals contributed US$31 million to operating earnings
compared with US$73 million in the first half of 1997. Despite falling LME
stocks, the copper price remained depressed throughout the six months,
averaging 78 US cents per pound. The average realised price fell to 82 US
cents per pound compared with 115 US cents per pound in 1997 costing the base
metals segment US$60 million in operating earnings. Higher production and the
benefit of operating efficiencies at both Hudson Bay and Mantos Blancos partly
mitigated the effect of the lower price. Attributable copper production
increased by 10% to 92,000 tonnes. Zinc production of 47,000 tonnes was 12%
higher than in 1997 with the average realised price of 56 US cents per pound
being 4 US cents per pound lower than in the first half of 1997. Nickel
production in Brazil increased marginally to 4,700 tonnes but operations were
affected by a 27% fall in the nickel price to an average of US$2.47 per pound.
At the current depressed level of nickel prices, production from the smaller
Morro do Niquel mine is no longer economic and the decision has been taken to
close the operation.
At Collahuasi, construction and pre-stripping were virtually completed by the
end of June. Crushing of oxide ore and the agglomeration and stacking of
material for leaching started in April. The oxide plant was completed and the
first copper cathodes produced in July. The first two lines of the
concentrator plant to treat the sulphide ore should be completed and
concentrate production commence in the third quarter.
At the Loma de Niquel project in Venezuela, engineering and procurement are
now well advanced. Construction of the access road and dam construction at
the mine site started in the first half of the year, as did the installation
of the concrete foundations for the furnaces and other processing facilities.
At the Lisheen zinc and lead mine in Ireland, work commenced in January on
developing the decline which will provide access to the orebody. Good advance
rates in the early stages have been tempered by slower progress recently in
difficult ground conditions. Sinking the concrete-lined fresh air shaft is
proceeding well. The metallurgical treatment plant, infrastructure and
tailings management facility are progressing to schedule.
Industrial minerals: The industrial minerals segment increased operating
earnings by 11% to US$66 million. The major contributor was again the
European Industrial Minerals Division (IMD). The UK business benefited from
the continuing synergies of the Tilcon and subsequent acquisitions, from
further reductions to the cost base of the division and relatively firm prices
for most of its products. In Germany, demand for construction materials
continued to be very depressed within the Berlin / Dresden / Leipzig triangle
which Minorco's operations serve. Given the market conditions, results were
satisfactory due to a continuing emphasis on rationalisation and cost
reduction. Some improvement in profitability occurred in Spain, with
aggregates volumes and concrete prices somewhat improved.
IMD completed three acquisitions during the six months. Tilcon Scotland
expanded into south west Scotland with the acquisition of the Baird and
Stevenson sand and gravel, concrete and coated stone business. Tilcon South
materially strengthened its position in the North Wales / Manchester area with
the purchase of Bodfari quarries, a producer of sand, gravel, concrete, coated
stone and, most significantly, limestone. The purchase from Johnson Matthey
of UK Minerals, a minerals trading and processing business, further
strengthened the division. IMD has now completed 17 acquisitions, involving an
investment of more than US$100 million, since the Tilcon acquisition at the
end of 1995.
Cleveland Potash's earnings were lower than in the prior period reflecting
lower sales of potash and salt. Salt sales, in particular, were adversely
affected by the mild winter in the UK.
Copebras' earnings were well above the prior period. While prices for carbon
black were marginally lower than in the first six months of 1997, this was
more than offset by higher sales volumes, reflecting strong demand from the
domestic tyre sector and higher exports, and by lower costs at the operation.
By June, the co-generation plant, which was installed to reduce power costs,
was supplying all the energy consumed in the plant.
Paper and packaging: The paper and packaging segment contributed US$67
million compared with US$44 million in the first half of 1997. While the most
significant contributor to the increase was Swiecie, the largest pulp and
paper producer in Poland, purchased in the second half of last year, all
operations in the segment showed improvements over the prior period.
Swiecie's contribution was in line with management's expectations at the time
of its acquisition. Neusiedler turned in a strong performance for the first
six months, as did Frantschach Packaging and Aylesford. Pols' earnings were
also ahead of the prior year benefiting from higher pulp prices, but the
contribution from Aracruz declined mainly because of lower interest income.
The mill modernisation programme achieved nominal capacity in June and
priority will be given to cost optimisation. Pulp and paper markets are
increasingly coming under pressure due to the consequences of lower demand in
South East Asia.
Agribusiness: Minorco's agribusiness subsidiary, Terra, contributed US$116
million compared with US$211 million in the first half of 1997. Operating
earnings were adversely impacted by lower prices for both nitrogen fertilisers
and methanol. Drastically reduced demand from China combined with increased
capacity in the industry forced the price of nitrogen fertiliser lower with
the price of liquid solutions, of which Terra is a major producer, 26% lower
than in the comparable period last year. The methanol price averaged 37 US
cents per gallon compared with 58 US cents per gallon in the first half of
1997. This reduction resulted from a combination of lower overall demand,
MTBE plant shut-downs in the USA and higher world production. The price of
methanol has continued to weaken and currently languishes below 30 US cents
per gallon.
Earnings from investments
Earnings from investments increased marginally to US$50 million. Improved
earnings from Engelhard were offset by lower results from Aracruz and the
currently loss-making Colombian coal interests.
Engelhard's net earnings for the six months increased by 15% to US$94 million.
The Catalyst and Chemicals segment performed well, led by petroleum catalysts
and environmental technologies and the segment's results also benefited from
the first two months' contribution from the chemical catalyst business of
Mallinckrodt, which was purchased for US$210 million in May. Operating
earnings from the Engineered Materials and Industrial Commodities Management
segment jumped 78% aided by increased volumes and volatility in platinum group
metals and improved results from engineered materials.
Accounting change
In 1998, Minorco adopted the revised standard on accounting for deferred tax
issued by the International Accounting Standards Committee. The provision for
deferred tax is now calculated on a full liability basis, irrespective of when
the taxes become payable, rather than, as in the past, the partial liability
basis, which accrued taxes payable within the foreseeable future. The
comparative figures for the first six months of 1997 and the full year have
been restated to the same basis.
Liquidity and financial position
Net cash provided by operating activities fell by US$313 million to US$146
million. This was the result of lower earnings and a higher level of
receivables at Terra due to a delayed planting season. Capital expenditure
increased to US$461 million from US$386 million reflecting primarily Minorco's
ongoing commitment to Collahuasi and the start of construction at Lisheen and
Loma de Niquel. At June 30, 1998, cash and short term investments amounted to
US$1,935 million while loans and short term debt amounted to US$3,745 million
of which US$1,234 million is non-recourse to Minorco and relates principally
to Terra and the paper and packaging companies. The ratio of net debt to
total capital was 28% compared to 22% at the end of 1997.
Outlook
Since the beginning of the year, little progress appears to have been made in
the Japanese and other Asian economies to reverse their slide into recession.
The severe impact of this crisis on commodity prices has in turn further
weakened those countries such as Russia which are heavily dependent on exports
of raw materials. The requirement for appropriate economic policy responses
to this crisis is now even more critical than at the beginning of the year.
Clearly it is highly unlikely that the second half of the current year will
benefit from any significantly stronger price environment. While we will
continue to strive to improve operating efficiencies to counter the pressure
which low prices are putting on margins, it is anticipated that earnings
before exceptional items in the second half of the year will be lower than in
the first half, not least because of the normal seasonality of Terra's
earnings.
The interim dividend has been maintained at the prior year's level and while
it would be the intention to maintain dividends through a downturn in the
commodity cycle, this will need to be kept under review depending on
developments in the world economy.
Contacts:
Nick von Schirnding
VP Investor and Corporate Affairs
+27 11 638 3211
Carina Corbett
Corporate Affairs Manager
+44 171 404 2060
CONSOLIDATED STATEMENT OF EARNINGS
Unaudited
6 months ended Year ended
June 30 December 31
US$ millions Note 1998 1997 1997
Sales 3 3,261.8 3,078.4 5,662.0
Operating earnings 3 & 4 302.9 406.8 660.7
Net corporate costs 5 (82.3) (47.3) (133.4)
Share of earnings of
investments accounted
for by the equity method 50.5 49.4 88.6
Earnings before exceptional
items, taxation and minority
interests 271.1 408.9 615.9
Exceptional items - - 48.0
Earnings before taxation 271.1 408.9 663.9
Taxation (81.7) (121.4) (218.8)
Earnings after taxation 189.4 287.5 445.1
Earnings attributable to
minority interests in
subsidiary companies (66.4) (88.9) (182.5)
Net earnings 123.0 198.6 262.6
Net earnings before
exceptional items 6 123.0 198.6 318.9
Earnings per share (basic and diluted)(US$):
Net earnings 0.55 0.88 1.17
Net earnings before
exceptional items 0.55 0.88 1.42
Interim dividend
An interim dividend of 22 US cents per share has been declared in
respect of the year to December 31, 1998 payable on October 22,
1998 to shareholders registered in the books of Minorco at the
close of business on September 18, 1998 and to persons presenting
coupon no. 22 detached from bearer share certificates. Shareholders
resident in the United Kingdom who do not elect, by notifying
the United Kingdom transfer agents by October 1, 1998, to
receive their dividend in US dollars will receive their
dividend in sterling converted at the rate applicable on October
6, 1998 less appropriate taxes. Dividend warrants will be
posted from the transfer agents on October 21, 1998. The
dividend is payable subject to conditions which can be
inspected at the offices of the transfer agents.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
Unaudited
June 30 December 31
US$ millions 1998 1997 1997
Fixed assets:
Intangible assets 358.0 289.4 321.8
Deferred tax assets 63.9 52.7 40.5
Tangible assets 5,363.0 4,199.4 5,084.5
Financial assets 860.8 811.3 845.9
6,645.7 5,352.8 6,292.7
Current assets:
Stocks 787.0 799.3 815.3
Debtors 1,233.9 1,183.7 733.6
Short term investments 1,343.7 1,330.7 1,012.5
Cash and cash equivalents 591.4 538.2 874.9
3,956.0 3,851.9 3,436.3
Short term debt (734.5) (508.4) (372.9)
Current liabilities (1,239.4) (1,168.0) (995.9)
Net current assets 1,982.1 2,175.5 2,067.5
Capital employed 8,627.8 7,528.3 8,360.2
Long term liabilities (3,010.1) (2,447.3) (2,806.7)
Deferred tax liabilities (430.8) (313.9) (415.2)
Provisions for liabilities
and charges (457.4) (462.6) (466.3)
Minority interests in
subsidiary companies (1,198.2) (785.0) (1,173.4)
Shareholders' investment 3,531.3 3,519.5 3,498.6
Capital and reserves:
Subscribed capital 315.9 315.8 315.9
Reserves 1,524.5 1,524.1 1,524.5
Cumulative translation
adjustment (118.8) (86.4) (122.8)
Retained earnings 1,809.7 1,766.0 1,781.0
Shareholders' equity 3,531.3 3,519.5 3,498.6
CONSOLIDATED STATEMENT OF CASH FLOW
Unaudited
6 months ended Year ended
June 30 December 31
US$ millions 1998 1997 1997
Cash flow from operating
activities
Earnings before exceptional
items, taxation and minority
interests 271.1 408.9 615.9
Adjustments for non-cash movements 140.5 103.7 239.5
Adjustments for financial
income and expense 82.6 4.1 39.6
Operating cash flow before
re-investment in working capital 494.2 516.7 895.0
Changes in net current asset components:
Stocks 25.7 96.3 114.7
Debtors (505.2) (349.2) 71.3
Creditors 228.8 254.0 47.4
Cash generated from operations 243.5 517.8 1,128.4
Interest paid (116.6) (84.1) (191.5)
Dividends received 15.7 13.0 23.6
Other financial income 41.5 74.3 161.5
Taxes paid (31.1) (62.8) (62.2)
Restructuring and reclamation
payments (7.4) - (26.5)
Net cash provided by operating
activities 145.6 458.2 1,033.3
Cash flow from investing activities
Acquisition of subsidiaries and
joint ventures (123.9) (40.2) (536.3)
Acquisition of financial assets (6.6) (15.6) (94.7)
Capital expenditure on tangible
assets (461.2) (386.0) (985.5)
Proceeds from disposal of tangible
assets 8.7 9.9 25.3
Proceeds from disposal of financial
assets 28.8 7.9 15.1
Net cash used in investment
activities (554.2) (424.0) (1,576.1)
Cash flow from financing activities
Dividends paid to Minorco
shareholders (94.3) (94.3) (143.7)
Dividends paid to minority
shareholders (14.0) (36.6) (42.6)
Long term loans received 207.2 62.0 462.6
Short term loans received/(repaid) 357.5 (16.6) (138.6)
(Increase)/decrease in short term
investments (331.3) 37.3 355.6
Share capital issued by subsidiaries
to minority shareholders - 2.6 255.1
Share buy-back by Terra
Industries Inc. - (47.0) (22.4)
Insurance proceeds received by
Terra Industries Inc. - - 95.1
Net cash from/(used in) financing
activities 125.1 (92.6) 821.1
(Decrease)/increase in cash and
cash equivalents (283.5) (58.4) 278.3
Cash and cash equivalents at
beginning of period 874.9 596.6 596.6
Cash and cash equivalents at
end of period 591.4 538.2 874.9
Cash and cash equivalents 591.4 538.2 874.9
Short term investments 1,343.7 1,330.7 1,012.5
Liquid assets 1,935.1 1,868.9 1,887.4
Notes
1. Accounting Standards
The financial statements are prepared in accordance
with International Accounting Standards.
2. Restatement of prior periods
Effective January 1, 1998, Minorco has adopted the
revised International Accounting Standard (IAS) 12 - Income
Taxes. Under the revised IAS 12, deferred taxation must be
calculated on a full liability method. In prior periods
Minorco calculated its deferred taxation under the partial
liability method. The comparatives included in this release
have been restated to reflect revised IAS 12 as follows:
Retained earnings Reported Adjustment Restated
Balance as at December 31, 1996 1,748.1 (85.9) 1,662.2
Net earnings for the year 304.7 (42.1) 262.6
Dividends paid and transfer to
legal reserves (143.8) - (143.8)
Balance as at December 31, 1997 1,909.0 (128.0) 1,781.0
3. Sales and operating earnings
Sales Operating earnings
By business segment
6 months ended Year ended 6 months ended Year ended
June 30 December 31 June 30 December 31
1998 1997 1997 1998 1997 1997
Gold 123.6 130.6 279.8 22.6 19.3 42.8
Base metals 345.2 399.4 759.2 31.5 73.4 111.9
Industrial
minerals 508.6 500.3 1,040.3 65.6 59.3 131.9
Paper and
packaging 559.5 428.0 1,041.6 67.3 44.2 103.2
Agribusiness1 1,724.9 1,620.1 2,541.1 115.9 210.6 270.9
3,261.8 3,078.4 5,662.0 302.9 406.8 660.7
By geographical segment
Europe 1,108.9 818.8 1,848.8 122.9 94.1 205.2
North America 1,825.4 1,863.1 3,045.3 133.5 231.8 317.9
South America 327.5 396.5 767.9 46.5 80.9 137.6
3,261.8 3,078.4 5,662.0 302.9 406.8 660.7
1 Because of the seasonal nature of the agribusiness segment and
the effects of weather-related conditions in several of its
marketing areas, results of operations for the half year should
not be considered indicative of the results for a full year.
4. Operating earnings
6 months ended Year ended
June 30 December 31
1998 1997 1997
Sales 3,261.8 3,078.4 5,662.0
Cost of sales (2,666.0) (2,376.4) (4,371.9)
Gross operating earnings 595.8 702.0 1,290.1
Selling, administration
and other expenses (292.9) (295.2) (629.4)
302.9 406.8 660.7
5. Net corporate costs
6 months ended Year ended
June 30 December 31
1998 1997 1997
Interest and other
financial income 68.5 78.7 154.1
Foreign currency gains 0.1 - 0.8
Dividend income from
cost accounted investments 4.0 1.0 2.2
Interest expense (104.7) (84.3) (190.8)
Net financial expense (32.1) (4.6) (33.7)
Corporate costs (23.2) (21.8) (49.2)
Exploration (27.0) (20.9) (50.5)
(82.3) (47.3) (133.4)
6. Net earnings before exceptional items
6 months ended Year ended
June 30 December 31
1998 1997 1997
Net earnings 123.0 198.6 262.6
Adjustment for exceptional items:
Equity investments - - 46.4
Other gains - - (94.4)
Exceptional items - - (48.0)
Taxation - - 71.5
Minority interest - - 32.8
123.0 198.6 318.9
7. Reconciliation of Terra's operating earnings
6 months ended Year ended
June 30 December 31
1998 1997 1997
Terra's US GAAP
operating earnings 106.5 204.1 253.3
Elimination of goodwill
amortised through the
earnings statement 12.3 9.7 24.6
Other items (2.9) (3.2) (7.0)
115.9 210.6 270.9
PRODUCTION
For the six months ended June 30
Product Operation Production 1
Precious metals 1998 1997
Gold (troy ounces) Jerritt Canyon 122,600 88,500
Pikes Peak 111,300 101,900
Morro Velho 106,600 107,300
Serra Grande 70,100 63,800
Hudson Bay 53,300 32,000
463,900 393,500
Silver (troy ounces)
Hudson Bay 517,500 366,000
Mantos Blancos 681,800 661,000
1,199,300 1,027,000
Base metals
Copper (tonnes) Hudson Bay 2 24,400 19,300
Mantos Blancos 67,900 64,800
92,300 84,100
Zinc (tonnes) Hudson Bay 2 46,800 41,800
Nickel (tonnes) Codemin 3,500 3,300
Morro do Niquel 1,200 1,300
4,700 4,600
Niobium (tonnes) Catalao 1,200 1,200
1 Includes entire output of controlled entities and the Group's
proportion of joint ventures where applicable.
2 At Hudson Bay, 20,000 tonnes of copper (1997: 16,500 tonnes)
and 2,600 tonnes of zinc (1997: 5,900 tonnes) were processed in
addition to that sourced from its own production.
PRODUCTION
For the six months ended June 30
Product Operation Production 1
Industrial minerals 1998 1997
Crushed rock ('000 tonnes)
UK )
Germany ) 7,123 6,139
Spain )
Sand and gravel2 ('000 tonnes)
UK )
Germany ) 6,027 4,783
Spain )
Lime products ('000 tonnes)
UK 489 458
Coated stone ('000 tonnes)
UK 886 765
Ready-mixed concrete ('000m3)
UK ) 1,129 1,192
Spain )
Potash ('000 tonnes)Cleveland Potash 506 474
Salt ('000 tonnes) Cleveland Potash 139 323
Carbon black ('000 tonnes)
Copebras 79 75
Sodium tripolyphosphate ('000 tonnes)
Copebras 32 30
Phosphate fertilisers ('000 tonnes)
Copebras 274 279
Paper and packaging3
Paper ('000 tonnes) Frantschach ) 168 193
Neusiedler )
Sacks (millions) Frantschach 285 183
Newsprint ('000 tonnes)
Aylesford 93 85
Pulp (\'000 tonnes) Pols 70 63
Agribusiness
Ammonia ('000 tons) Terra 1,776 1,442
Liquid solutions ('000 tons)
Terra 1,865 1,715
Methanol (million gallons)
Terra 142 144
1 Includes entire output of controlled entities and the Group's
proportion of joint ventures where applicable.
2 Excludes production used in the manufacture of ready-mixed
concrete.
3 Held through 60%-owned subsidiary, Mondi Minorco Paper S.A.
END
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