African Rainbow Minerals: lowers dividend offering as earnings drop

Key Takeaways:

1. Decrease in earnings: ARM's headline earnings decreased by 21% in the financial year 2023 compared to the previous year
2. Dividend reduction: The company declared a final dividend of R12.00 per share in 2023, significantly lower than the R20.00 per share declared in the previous year.
3. Robust net cash position: Despite the challenges faced, ARM maintained a robust net cash position of R9.779 billion as of June 2023, although it was lower than the previous year's position.
4. Operational challenges: ARM faced logistical issues that negatively impacted the volumes of key resources such as iron ore, manganese ore, and thermal coal. Additionally, the company experienced higher production costs due to lower volumes and increased costs of essential items.
5. Positive outlook: Despite the challenges, ARM remains optimistic about the profitability of the Bokoni project, with promising results from the Definitive Feasibility Study

Results overview

The financial year 2023 marked a challenging period for ARM (African Rainbow Minerals) as the company's headline earnings witnessed a decrease of 21% to R8.981 billion, a drop from R11.338 billion recorded in the previous year. The company also declared a final dividend of R12.00 per share, a significant reduction compared to R20.00 per share in the financial year 2022. The net cash position of the company remained robust at R9.779 billion as of 30 June 2023, although it was lower than the previous year's R11.175 billion.

Operationally, the company faced several challenges. Logistics issues negatively impacted the volumes of iron ore, manganese ore, and thermal coal. Moreover, unit production costs were under pressure due to lower production volumes and above-inflation increases in the costs of essential items such as explosives, diesel, electricity, consumables, and maintenance costs.

Despite the challenges, ARM remains optimistic about the long-term profitability of the Bokoni project, with the DFS (Definitive Feasibility Study) showing promising results. Other successful projects include the Black Rock Project, completed within the approved budget, and the Gloria Project's Raise Section, which achieved construction completion in June 2023.
However, the company's cash flow faced a decrease from R8.508 billion in 2022 to R8.090 billion in 2023. This decline was due to a decrease in cash generated from operations and an inflow in trade receivables.

Despite the challenges faced, ARM's net asset value per share increased by 7% to R219.04 per share, indicating a positive outlook for the company. For the financial year 2023, the board approved and declared a final dividend of 1,200 cents per share.

African Rainbow Minerals – broker ratings and price targets

A poll of analyst / broker ratings by Refinitiv suggests African Rainbow Minerals to be a long term ‘buy’ as of the 4th of September 2023. A mean of these analyst’s price target estimates suggests a long-term fair value share price of R230.83.