Annual Report 2016

27 Apr 2017
All figures in accordance with IFRS and in United States Dollars, unless otherwise stated

Consmin, a leading manganese ore producer with mining operations in Ghana and Australia, announces its annual results for the year ended 31 December 2016.

Business Update

  • On 15 August 2016 the Company announced the successful completion of the solicitation of consents to certain amendments to the terms and conditions of the 000% Senior Secured Notes due 15 May 2020. This was supported by the holders of 96.43% of the Senior Secured Notes. These amendments had a beneficial effect of providing the Company with additional liquidity in 2016 through the ability to pay a cash coupon of 2% on the notes with the additional 8% being added to the bond principal as payment in kind interest. The Company has the option in 2017 to pay a cash coupon of 3% on the notes with the additional 7% being added to the bond principal as payment in kind interest.
  • On 15 November 2016 the Company announced that its ultimate beneficial owner and direct shareholders (“Sellers”) had entered into a share purchase agreement (“SPA”) with China Tian Yuan Manganese Limited (“Purchaser”), a subsidiary of Ningxia Tianyuan Manganese Industry Co., Ltd. (“TMI”) pursuant to which the Sellers agreed to sell and transfer to the Purchaser all of their respective right and title to both the entire share capital of the Company and the shareholders funding given by them to the Company (the “Transaction”). The Transaction is conditional upon a number of conditions which are set out in the SPA, including, but not limited to certain government consents and certain consents from the holders of the then outstanding US$400,000,000 8% Senior Secured Notes due 2020 (the “Notes”).
  • On 4 April 2017 the Company announced that holders of 89.84% of its 8.000% Senior Secured Notes due 15 May 2020 have locked up to tender their notes to and provide certain consents in relation to the proposed acquisition of Consmin by China Tian Yuan Manganese Limited, a subsidiary of Ningxia Tianyuan Manganese Industry Co., Ltd. (“TMI”). Pursuant to the Lock-up Deed, the Purchaser has launched the Tender Offer and Consent Solicitation on 4 April 2017. The Tender Offer is open to acceptance by all holders of the Notes. In order to become effective, the holders of at least 90% of the aggregate principal amount of the Notes must tender into the Tender Offer and provide their consent to certain amendments to the terms of the Notes.

Key Highlights

  • Total tonnes of manganese ore production for 2016 decreased 20% compared to 2015. Ghanaian manganese ore production increased by 35% offset by a 84% decrease in Australian manganese ore production compared to 2015. The reduction in Australian manganese ore production was a direct result of the Australian operations being placed into care and maintenance on 2 February 2016 with subsequent production arising from limited processing of remaining low grade ROM stockpiles.
  • Manganese C1 cash costs1 for 2016 were $1.33/dmtu compared to $2.09/dmtu in 2015, a decrease of 36%. The 2016 C1 cash cost includes costs relating to production in the Australian operations up to early February 2016 when the mine was placed into care and maintenance.
  • Total manganese sales tonnes decreased 6% in 2016 compared to 2015. Ghanaian manganese tonnes sold increased 41% but Australian manganese tonnes sold decreased 65% as a direct result of the Australian operations being placed into care and maintenance in early February 2016 with subsequent sales arising from remaining stockpiles at this date and limited processing of remaining low grade ROM stockpiles.
  • Average manganese FOB sales price achieved decreased 24% from $2.68/dmtu in 2015 to $2.05/dmtu in 2016 reflecting the fact that the majority of sales were of the relatively lower grade Ghanaian manganese ore sold.
  • The annual average price for manganese lump (CRU, 44%Mn CIF China) in 2016 was $4.36/dmtu a rise of 40% from $3.11/dmtu in 2015.
  • Based on the December 2016 resource and reserves statement total Ghanaian reserves have increased 14% and resources have increased 8% compared to the December 2015 statement. No resources and reserves update has been provided for the Australian business at December 2016 following the decision to place the business on care and maintenance.
  • Adjusted EBITDA2 for 2016 was $10 million, a reduction of $30 million from $40 million in 2015. This decrease is principally due to lower revenues as a result of lower average pricing and reduced volumes sold from Australia following the transition of the operations into care and maintenance in early February 2016. This reduction was partially offset by reduced mining and other operating costs.
  • Cash EBITDA for 2016 was $26 million, compared to $21 million in 2015 with cash EBITDA in 2015 including a $36 million deduction for capitalised deferred stripping, whereas in 2016 there was no capitalised deferred stripping adjustment.
  • The Group recorded a loss for the year of $77 million compared to a loss of $319 million in 2015. Included within the loss for 2016 was $13 million of restructuring costs relating to the Australian operations. The loss in 2015 included a $256 million impairment charge, an expense of $17 million relating to the net write-down of capitalised exploration costs and $50 million of other operating income relating to funds received from TMI for access to future purchases of Ghanaian manganese ore.
  • During the year the Company had an operating cash outflow of $11 million compared to an inflow of $89 million in 2015.
  • Cash and cash equivalents net of overdraft decreased by $36 million from $76 million at 31 December 2015 to $40 million at 31 December 2016.
  • Total capital expenditure for the group in 2016 was $6 million, 69% lower than in 2015. Capital expenditure in 2016 included an initial spend of $1.3 million on the Pit-C North resettlement project.

Key Performance Indicators

Year Ended
 Unaudited 31 December 2016 31 December 2015 % change
Manganese ore produced (dry kt) 2,199.6 2,763.0 (20.4%)
Manganese ore sales (dry kt) 2,529.4 2,684.4 (5.8%)
Average C1 manganese unit cash cost ($/dmtu)¹ 1.33 2.09 (36.4%)
Average manganese FOB Sales price ($/dmtu) 2.05 2.68 (23.5%)
Revenue ($ million) 152.1 256.7 (40.7%)
Adjusted EBITDA ($ million)2 9.5 39.8 (76.1%)
‘Cash’ EBITDA ($ million)2 25.9 21.3 21.6%
Loss for the period (76.8) (318.5) (75.9%)

 

At 31 December 2016 At 31 December 2015 % change
Cash and cash equivalents ($ million) 40.0 79.1 (49.4%)
Gross debt ($ million) (414.9) (390.3) 6.3%
Gross debt excluding high yield bonds ($ million) (7.1) (17.2) (58.7%)
Net debt ($ million) (374.9) (311.2) 20.5%

 

1 Average C1 manganese unit cash cost represents the cash cost incurred at each processing stage from mining through to shiploading, divided by the total manganese dmtus produced.  Included within the C1 manganese cash costs are an allocation of offsite, non-corporate and support services. Depreciation, government royalty payments, deferred stripping adjustments and stockpile movements are not included in the calculation.

2 “Adjusted EBITDA” is defined as operating profit before depreciation and amortisation, impairment write-back/expense, net foreign exchange gain/loss and exceptional items3. ‘Cash’ EBITDA is defined as Adjusted EBITDA after removing the impact of the non-cash items of deferred stripping and net movement in inventories.  Adjusted EBITDA and Cash EBITDA are the key profitability measures used across the business and reflect performance in a consistent manner and in line with how the business is managed and measured on a day to day basis.  Adjusted EBITDA and Cash EBITDA are not uniformly or legally defined measures and are not recognised under IFRS or any other generally accepted accounting principles. Other companies in the mining industry may calculate these measures differently and consequently, our presentation of Adjusted EBITDA and Cash EBITDA items may not be readily comparable to other companies’ figures.

3 Exceptional items are material or non-recurring items excluded from management’s assessment of profits because by their nature they could distort the Group’s underlying quality of earnings. These are excluded to reflect performance in a consistent manner and in line with how the business is managed and measured on a day to day basis.

Commenting on the results, David Slater (CFO of Consmin) said:

As a result of the Q1 2016 record low manganese ore prices the company took the difficult decision to place its Australian Woodie Woodie mine on care and maintenance in early February 2016.

Despite ending 2015 with $76 million of cash, the weakness and uncertain outlook on pricing, as well as costs associated with placing Woodie Woodie on care and maintenance put further pressure on liquidity with cash reducing to US$41 million by the end of February 2016. As a result Consmin announced on 8 March 2016 that it anticipated discussions with holders of the 8% Senior Secured Notes, which commenced in April 2016, to implement a solution to improve the Company’s liquidity. On 15 August the Company announced it had received consents from over 96% of the Noteholders to amendments that had a beneficial effect of providing the Company with additional liquidity during the period of low and volatile manganese prices.

As a result of the closure of the Woodie Woodie mine Consmin’s production in 2016 decreased 20% compared to 2015, with Australian production down 84% limited since February to processing the remaining ROM stockpiles. Production from the Nsuta mine in Ghana, however, increased 35% year on year underpinned by improved demand for the Company’s Ghanaian ore.

The manganese C1 cash cost for 2016 was $1.33/dmtu, an improvement of 36% from $2.09/dmtu for 2015. The C1 cash cost for 2016 only includes costs from the Australian operations in January after which they were placed on care and maintenance.

In 2016 the company’s total manganese ore shipments were 2.5 million dry tonnes, a decrease of 6% compared to 2015. Shipments of Australian manganese ore decreased 65%, however sales of Ghanaian ore were 41% higher with increased sales to the China alloy market as manganese ore demand and prices improved, while robust sales to long-term major customer TMI and sales to Ukraine were maintained. Despite the final two shipments of 2016 being deferred to early January 2017 record sales of 2.1 million dry tonnes of Ghanaian ore were achieved during the year.

The average price for manganese lump (CRU, 44%Mn CIF China) in 2016 was $4.36/dmtu, an increase of 40% from $3.11/dmtu in 2015 but still slightly lower than the average price in 2014. China’s steel demand and production rose leading to improved demand for manganese ore by the end of Q1 2016. Due to the global production cuts an acute shortage of manganese ore arose, leading to very volatile manganese ore prices. Prices in Q1 2016 were below $1.80/dmtu, and then rose to over $4.00/dmtu in Q2, only to fall again in Q3 to below $2.90/dmtu. By the end of 2016 prices were above $9.00/dmtu for high grade ore, the highest level seen in recent times. However, prices have since retreated, falling by more than 50% to around $4.15/dmtu by late March 2017 t as global suppliers doubled their average monthly shipments to 2.0 million tonnes in December 2016 and January 2017 compared to Q1 2016 of 1.0 million tonnes per month.

The company, although pleased that manganese prices improved in the second half of 2016, remains very cautious as volatility in manganese ore prices have remained, with the main driver of prices being global supplier discipline, rather than demand growth. We believe the manganese ore market still remains fragile, vulnerable to structural oversupply that has built up over the past 5 years, particularly from South Africa.

The average manganese FOB sales price achieved by Consmin in 2016 was $2.05/dmtu, a decrease of 24% from 2015, reflecting the lower average grade sold as most sales were of the relatively lower grade Ghanaian manganese ore.

On 15 November 2016 the Company announced that its ultimate beneficial owner had entered into a share purchase agreement with China Tian Yuan Manganese Limited (“the Purchaser”), a subsidiary of TMI. The transaction is conditional upon a number of conditions, including, but not limited to certain government consents, certain consents from the holders of the 8% Senior Secured Notes and the execution of an offtake agreement between the Company, and Grizal Enterprises Limited

On 4 April 2017 the Company announced that holders of 89.84% of its 8% Senior Secured Notes  have agreed to locked up to tender their notes to and provide certain consents in relation to the proposed acquisition of Consmin by China Tian Yuan Manganese Limited, a subsidiary of TMI. As a result the Purchaser launched the Tender Offer and Consent Solicitation on 4 April 2017. The Tender Offer is open to acceptance by all holders of the Notes. In order to become effective, the holders of at least 90% of the aggregate principal amount of the Notes must tender into the Tender Offer and provide their consent to certain amendments to the terms of the Notes.”

Download the full financial results for year ending 31 December 2016

About Consolidated Minerals Limited

Consmin is a leading manganese ore producer with mining operations in Australia and Ghana.  The principal activities of the Company and its subsidiaries (the “Group”) are the exploration, mining, processing and sale of manganese products. The Group’s operations are primarily conducted through four major operating/trading subsidiaries: Pilbara Manganese Pty Limited (Australia), Ghana Manganese Company Limited (Ghana), Manganese Trading Limited (Jersey) and Pilbara Trading Limited (Jersey).

Consolidated Minerals Limited is headquartered in Jersey and the address of its office is Commercial House, 3 Commercial Street, St Helier, Jersey, Channel Islands, JE2 3RU.

Company Information

For further information, please visit our website www.consmin.com or contact:

Consmin

+44(0)1534 513 300

Mark Camaj, General Manager, Marketing
Jurgen Eijgendaal, Managing Director, Ghana
David Slater, Executive Director and Chief Financial Officer

Conference Call

There will be a conference call for analysts and bondholders, the details of which will be released on the Company website www.consmin.com.

Market, Economic and Industry

Market, economic and industry data used throughout this report has been derived from various industry and other independent sources. Industry publications, surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed and such industry forecasts may not have been updated. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and uncertainties as the other forward looking statements contained in this report.

Forward looking statements

This report includes “forward-looking statements” that express or imply expectations of future events or results.  Forward-looking statements are statements that are not historical facts.  These statements include, without limitation, financial projections and estimates and their underlying assumptions, statements regarding plans, objectives and expectations with respect to future production, operations, costs, products and services, and statements regarding future performance.  Forward-looking statements are generally identified by the words ‘plans,’ ‘expects,’ ‘anticipates,’ ‘believes,’ ‘intends,’ ‘estimates’ and other similar expressions.

All forward-looking statements involve a number of risks, uncertainties and other factors.  Although Consmin’s management believes that the expectations reflected in such forward-looking statements are reasonable, investors are cautioned that forward-looking information and statements are subject to various risks and uncertainties, many of which are difficult to predict and generally beyond the control of Consmin, that could cause actual results and developments to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements contained in this report.  Factors that could cause or contribute to differences between the actual results, performance and achievements of Consmin include, but are not limited to, political, economic and business conditions, industry trends, competition, commodity prices, changes in regulation, currency fluctuations (including the Australian dollar and US dollar exchange rates), Consmin’s ability to recover its reserves or develop new reserves, including its ability to convert its resources into reserves and its mineral potential into resources or reserves, and to process its mineral reserves successfully and on a timely basis. Consmin is also exposed to the risk of trespass, theft and vandalism, changes in its business strategy, as well as risks and hazards associated with the business of mineral exploration, development, mining and production.  Accordingly, investors should not place reliance on forward looking statements contained in this report.

The forward-looking statements in this report reflect information available at the time of preparing this report.  Subject to the requirements of the applicable law, Consmin explicitly disclaims any obligation or undertaking publicly to release the result of any revisions to any forward-looking statements in this report that may occur due to any change in Consmin’s expectations or to reflect events or circumstances after the date of this report.  No statements made in this report regarding expectations of future profits are profit forecasts or estimates, and no statements made in this report should be interpreted to mean that Consmin’s profits for any future period will necessarily match or exceed the historical published profits of Consmin or any other level.