ENP Newswire - 22 August 2014
Release date- 21082014 - Chief Executive Officer Jim Beyer said: 'Once again, Mount Gibson's ongoing focus on cost reduction and business optimisation has delivered outstanding operating and financial results in volatile conditions which saw prices decline sharply in the second half of the year.
'This was a great performance on every measure. Sales revenue rose 5% to a record $898 million, on the back of a 10% lift in sales volume, underlying net profit rose by 27% to $117.7 million, and net operating cash flow rose by 32% to $238 million. Our cash balance consequently increased by $144 million over the year to a record $520 million at the end of June.
'These results were also achieved whilst ramping up production at our Koolan Island operation, concluding operations at our Tallering Peak mine in the Mid West after ten years, and expanding our exploration and potential development footprint in the Mid West.
'With costs and production at Koolan Island tracking in line with our guidance, rising delivered ore grades, and a strong balance sheet, Mount Gibson is well positioned to deliver continued strong performance and is well prepared for future volatility in iron ore prices and market conditions. We also retain the capacity to invest in value accretive growth opportunities that may emerge.'
Mount Gibson Iron Limited (Mount Gibson) is pleased to announce an underlying net profit after tax of $117.7 million for the year ended 30 June 2014 on record sales revenue of $898.0 million and record ore sales of 9.7 million wet metric tonnes (wmt).
The underlying net profit, which excludes a $21.3 million non-cash charge related to technical accounting requirements for the Mineral Resources Rent Tax (MRRT), represents an increase of 27% over the underlying net profit reported in the previous corresponding year. Including the MRRT accounting adjustment, headline reported net profit after tax totalled $96.4 million.
Net operating cash flow after tax rose by a third to $238.0 million, lifting cash and term deposits by $143.8 million to a period-end record of $519.8 million, equivalent to $0.48 per share. This cash balance was achieved after meeting substantial cash outlays during the year on income tax payments ($55.8 million), dividends ($21.8 million), the purchase of the Shine Hematite Project ($12.0 million), Koolan Island infrastructure and plant upgrades ($24.7 million), the purchase of haul trucks and other key mobile equipment ($17.0 million), and increased exploration activities ($4.5 million).
Mount Gibson's strong operational and financial performance was achieved despite significant weather related interruptions to ore production at Koolan Island in the March 2014 quarter, and was achieved whilst also successfully winding down and concluding mining operations at Tallering Peak where Ore Reserves were depleted after ten years of continuous production.
The strong result was also achieved in an environment of challenging market conditions. After remaining stable over the first half of the year, prices declined sharply in the second half. The decline reflected significant new mine supply, particularly of lower grade ores which resulted in steepening discounts for material averaging less than 58% Fe.
Mount Gibson is targeting full year ore sales of 6.6 to 7.0 million tonnes in the 2015 financial year, reflecting the closure of Tallering Peak. Importantly, this decline will be partly offset by a significant increase in the Company's average delivered ore grade and quality going forward. Mount Gibson expects to achieve a blended average ore grade of ~61% Fe in the 2015 financial year, with Koolan Island sales averaging ~62% Fe and Extension Hill sales averaging 60% Fe in an increasingly volatile market for lower grade iron products.
This reflects the successful conclusion of low grade ore sales from Tallering Peak in the 2014 financial year, and the scheduled conclusion of Rizhao Special Product (RSP) sales from Koolan Island in October 2014.
As indicated previously, Mount Gibson has reviewed the development schedule for the Shine Hematite Project in the context of current iron ore prices and currency exchange rates and the pending completion of updated Mineral Resource and Ore Reserve estimates incorporating results from substantial drilling undertaken in the June quarter.
Consequently, Mount Gibson considers it prudent to defer development of the Shine project. This will allow the Company to evaluate updated geological information and further optimise the development plan and schedule. The Shine project remains a valuable asset that provides the Company with substantial low capital optionality to supplement production from Extension Hill, with a relatively short start-up time frame.
During the 2014 financial year, the Platts CFR index price for delivery of iron ore fines grading 62% Fe to northern China averaged US$123 per dry metric tonne (dmt) compared with US$127/dmt in the previous year. However, prices fell sharply in the June half, during which the Platts 62% Fe CFR index price averaged US$111/dmt, and touched an 18 month low of US$89/dmt in June.
The vast majority of Mount Gibson's sales contracts are structured as Free on Board (FOB) sales arrangements where the sale occurs in the loading port rather than the delivery port, and the customer incurs the shipping costs. Mount Gibson's average realised FOB price for standard DSO fines product, net of adjustments for iron grade and impurities, was US$95/dmt in the year, compared with US$105/dmt the prior year.
The weighted average realised FOB price for all products sold was approximately $93 per wet metric tonne (wmt) for the year, compared with approximately $97/wmt in the 2013 financial year. The weighted average realised price reflected the Company's broader product mix during the year, which included almost 1.4 million wmt of low grade DSO from Tallering Peak, and 768,000 wmt of RSP from Koolan Island. Mount Gibson achieved an average realised price of US$55/dmt for low grade DSO from Tallering Peak during the financial year.
The widening discounts for ores grading below 58% Fe further highlights the value of higher quality products such as those produced by Mount Gibson. The Company notes that its sales of low grade ore from Tallering Peak occurred while a market window was open for such products and contributed substantially to cashflow during the year due to the modest cash cost of delivering this stockpiled material to market.
Cost performance and savings
Total Cost of Goods Sold (COGS), including royalties, were reduced by 6% to $74.64/wmt, compared with $79.61/wmt in the previous year, reflecting the Company's continued focus on cost reduction. COGS is a standard accounting term which includes cash and non-cash costs, comprising mining, depreciation of plant and equipment, amortisation of deferred waste stripping and mine development balances, crushing, transport, administration and state government royalties.
During the period, Mount Gibson further pursued cost reductions and improved operating efficiencies, particularly at Koolan Island, as production continued to ramp up to the targeted rate of 4 million tonnes of ore per annum by the end of calendar 2014.
The production ramp-up at Koolan Island remains on schedule and is delivering operational improvements in line with those anticipated when the program was announced in 2013, with unit cash mining (and site administration) costs averaging at the lower end of the guidance range of $8-10 per tonne moved for the year.
Mount Gibson continues to target further cost reductions and has revised guidance for unit cash mining costs at Koolan Island to within a range of $7-9 per tonne moved. As previously indicated, the Koolan Island mobile fleet is scheduled for replacement over the next two years at a total cost in the order of $60 million, of which approximately $45 million will be incurred in the current financial year.
The Company currently favours cash purchasing of equipment, but continues to evaluate this against potential lease financing alternatives. Mount Gibson anticipates that it will invest up to $30 million on fleet replacement in the September 2014 quarter. COGS are anticipated to remain broadly similar in the 2015 financial year. Total non-cash depreciation and amortisation is expected to range between $23-26 per tonne of ore sold in the 2015 financial year.
Mount Gibson has declared a fully franked cash dividend of 4.0 cents per share, with a record date of 30 September and payable on 15 October 2014. This is comparable with the 4.0 cents per share distributed in the previous year. The Company's Dividend Reinvestment Plan remains in suspension and will not apply to this dividend.
On distribution of the 2014 dividend, Mount Gibson will have returned approximately $174 million in dividends to shareholders since September 2011. The annual payout ratios since dividends commenced have been: 18% (2011), 27% (2012), 28% (2013) and 45% (2014) of net reported earnings respectively. The Company will assess future dividend payments on a six monthly basis.
Chief Executive Officer
Mount Gibson Iron Limited
Mount Gibson Iron Limited