REG-Bisichi Mining PLC: Annual Financial Report <Origin Href="QuoteRef">BISI.L</Origin> - Part 1
28/04/2017 11:50
BISICHI MINING PLC
Results for the year ended 31 December 2016
Summary:
Reported EBITDA: £2,400,000 (2015: £1,400,000)
Adjusted EBITDA*: £1,500,000 (2015: £1.700,000)
· Full year results impacted by both mining challenges and
a supressed coal market for most of the year.
· Exciting development of new opencast reserves at Black
Wattle Colliery
· Coal processing infrastructure improvements to be
completed by the end of the second quarter of 2017
· Physical demand for coal remains strong with coal prices
having improved significantly
· Reported EBITDA benefited from revaluation gain on UK
property of £0.4 million (2015: £0.2m) and exchange rate gains of £0.4
million (2015: loss of £0.5 million)
· UK property portfolio continues to perform well with
voids at only 1.79%
· Final Dividend proposed of 3p per share, taking full year
dividend to 4p per share
· Dividend yield of 5.4% at year end share price
Chairman, Sir Michael Heller, comments:
"In 2017 we continue to make strong progress in developing our new opencast
reserves at Black Wattle and coal prices have improved significantly. We
therefore remain highly confident about the prospects for our South African
coal mining operations and their ability to contribute to our group earnings
and cash generation.”
For further information, please call:
Andrew Heller or Garrett Casey, Bisichi Mining PLC 020 7415 5030
BISICHI MINING PLC
ANNUAL REPORT 2016
Committed to generating sustainable value in
South Africa
Earnings before interest, tax, depreciation and amortisation (EBITDA) of
£2.4million
(2015: £1.4 million)
Operating profit before depreciation, fair value adjustments and exchange
movements (Adjusted EBITDA) of
£1.5million
(2015: £1.7 million)
Dividend yield of
5.4%
at year end share price.
Strategic report
The directors present the Strategic Report of the company for the year ending
31 December 2016. The aim of the Strategic Report is to provide shareholders
with the ability to assess how the Directors have performed their duty to
promote the success of the company for the collective benefit of shareholders.
Chairman’s Statement
For the year ended 31 December 2016, your company achieved earnings before
interest, tax, depreciation and amortisation (EBITDA) of £2.4million (2015:
£1.4 million) and operating profit before depreciation, fair value
adjustments and exchange movements (Adjusted EBITDA) of £1.5million (2015:
£1.7 million).
In 2017 we continue to make strong progress in developing our new opencast
reserves at Black Wattle and coal prices have improved significantly. We
therefore remain highly confident about the prospects for our South African
coal mining operations and their ability to contribute to our group earnings
and cash generation.
A fuller explanation on the performance of our mining operations for the year
can be found within the Mining Review and Financial & Performance Review
sections of this report.
The company’s UK retail property portfolio, which underpins the group and
which is managed actively by London & Associated Properties Plc, continues to
perform well, with average rental yields for the portfolio remaining stable
during the year. A fuller explanation of the portfolio’s valuation results
and financial position are discussed in the Financial & Performance Review and
Directors report. Looking forward, management will continue to look for
opportunities to strengthen and develop
the company’s UK retail property portfolio.
Finally, your directors have decided to hold the dividend at the 2015 level
and will recommend to you, our shareholders, a final dividend of
3p (2015: 3p) payable on Friday 28 July 2017 to shareholders registered at the
close of business on 7 July 2017 making the total for the year 4p (2015: 4p).
Based on the 2016 year end share price, this represents a 5.4% yield, which
is at the high end of the mining sector.
On behalf of the Board and shareholders, I would like to thank all of our
staff for their hard work during the course of the year.
Sir Michael Heller
Chairman
26 April 2017
Principal activity, strategy & business model
The company carries on business as a mining company and its principal activity
is coal mining in South Africa. The company’s strategy is to create and
deliver long terms sustainable value to all our stakeholders through our
business model which can be broken down into three key areas
1 Acquisition & investment 2 Production & sustainability 3 Processing & marketing
Strategy The group actively seeks new opportunities to extend the life of mine of its existing mining operations or develop new independent mining operations in South Strategy The group strives to mine its coal reserves in an economical and sustainable manner that delivers long term value to all our stakeholders. Strategy The group seeks to achieve additional value from its mining investments through the washing, transportation and marketing of coal into both the domestic and export markets.
Africa. The group aims to achieve this through new commercial arrangements and the acquisition of additional coal reserves nearby to or independent from our existing
mining operations.
In addition to the three key areas outlined above, we seek to balance the high
risk of our mining operations with a dependable cash flow and capital
appreciation from our UK property investment operations. The company invests
in retail property across the UK. The UK property portfolio is managed by
London & Associated Properties PLC whose responsibility is to actively manage
the portfolio to improve rental income and thus enhance the value of the
portfolio over time.
Mining Review
The overall performance of Black Wattle, our South African coal mining
operation, was effected by both mining challenges and a supressed coal market
for most of 2016. Looking forward into 2017, management will look to ensure
production from our newly developed opencast areas is increased in order to
benefit from the improved prices achievable for our coal.
Production and operations
For the first half of 2016 Black Wattle continued to supplement production
from its own reserves with coal mined at Blue Nightingale under an agreement
to purchase Run of Mine coal. Unfortunately, the quality of the Blue
Nightingale coal deteriorated as the reserve came to an end and the higher
Rand cost per tonne produced, along with supressed coal prices, impacted on
overall earnings during the first half of the year.
In anticipation of the Blue Nightingale reserve coming to an end, management
plans were already in place to increase production from Black Wattle’s own
reserves. Part of this plan entailed increasing the production from an
existing opencast area at Black Wattle as well as the development of a new
opencast area to replace the coal purchased from Blue Nightingale.
In these new opencast areas we have had to deal with stone contamination
issues which have affected both yield and mining production through the
washing plant. This impacted on sales volumes and earnings in the second half
of the year.
We are pleased to report that management have initiated various infrastructure
improvements to the coal washing plant which will be completed by the end of
the second quarter of 2017 and will deal with these issues. The new
infrastructure will assist in reducing stone contamination through the plant
and will allow Black Wattle to mine at a higher rate of production at our
opencast areas and increase yield.
As a result of the lower production in the second half of the year, overall
Run of Mine production from Black Wattle decreased in 2016, with total
production for the year of 1.26million metric tonnes (2015: 1.58million metric
tonnes). As part of Black Wattle’s mining plan, the opencast areas that we
began to develop in 2016 will be mined throughout 2017. We expect improved
volumes of production to come from these reserves from the second half of
2017.
Main trends/markets
During 2016 management continued to sell coal into both the export and
domestic market. Black Wattle’s export sales were via Richards Bay Coal
Terminal and primarily under the Quattro programme, which allows junior
black-economic empowerment coal producers direct access to the coal export
market via Richards Bay Coal Terminal. We would like to thank Vunani Limited,
our black economic empowered shareholders at Black Wattle, for managing and
developing this opportunity.
The general downturn in commodity and energy prices experienced in recent
years continued for most of 2016. However, in the last few months of the year,
a surge in international coal prices along with increased demand in both the
export and domestic market, began to have a positive impact on the prices
achievable for our coal.
At the beginning of 2016, the average weekly price of Free on Board (FOB) Coal
from Richards Bay Coal Terminal (API4) was $50. For the first half of 2016 the
API4 price remained largely range bound between $50 and $60. In the third
quarter of the year, improvements in the US Dollar linked export price were
largely offset by a reversal of the depreciation of the South African Rand.
However at the end of the third quarter, a shortage of coal on the
international seaborne market resulted in a surge in the API4 price to new
levels. API4 prices rose from around $65 in September 2016 to a peak of over
$100 in November 2016, before stabilising at $85 by the end of the year.
In the domestic market, a similar increase in demand in the last quarter of
2016 impacted positively on prices achievable for our coal going into 2017.
These improved domestic prices are expected to remain stable as long as the
shortage of coal in the domestic market continues.
Overall, the decrease in group revenue, compared to the prior year, can mainly
be attributable to the lower Run of Mine production at Black Wattle as
explained above; offsetting the impact of the higher prices achievable for our
coal in the last quarter.
Looking forward into 2017, both the export and domestic coal prices have
continued to remain stable at these higher levels and we continue to see
strong demand for our coal in both markets.
Sustainable development
Black Wattle continues to strive to conduct business in a safe,
environmentally and socially responsible manner. Some highlights of our
Health, Safety and Environment performance in 2016:
• Black Wattle Colliery recorded one Lost Time Injury during 2016 (2015:
Two).
• No cases of Occupational Diseases were recorded.
• Zero claims for the Compensation for Occupational Diseases were submitted.
We continue to adhere and make progress in terms of our Social and Labour Plan
and our various BEE initiatives. A fuller explanation of these can be found in
our Sustainable Development Report on page 8.
Prospects
Looking forward to 2017, management will continue to focus on improving
production from our newly developed opencast area and keeping our cost of
production low.
Although production in the first quarter of the year to date has been impacted
by higher than expected seasonal rains, the various infrastructure
improvements initiated at Black Wattle remain on track to be completed by the
end of the second quarter of 2017. With strong demand and improved prices
achievable for our coal, we believe the group is in a strong position to
achieve significant value from our South African mining operations especially
in the second half of 2017.
Andrew Heller
Managing Director
26 April 2017
Sustainable development
The group is fully committed to ensuring the sustainability of both our UK and
South African mining operations and delivering long term value to all our
stakeholders.
Health, Safety & Environment (HSE)
Black Wattle is committed to creating a safe and healthy working environment
for its employees and the health and safety of our employees is of the utmost
importance.
HSE performance in 2016:
• No cases of Occupational Diseases were recorded.
• Zero claims for the Compensation for Occupational Diseases were submitted.
• No machines operating at Black Wattle exceeded the regulatory noise level.
• Black Wattle Colliery recorded one Lost time Injuries during 2016.
In addition to the required personnel appointments and assignment of direct
health and safety responsibilities on the mine, a system of Hazard
Identification and Risk Assessments has been designed, implemented and
maintained at Black Wattle.
Health and Safety training is conducted on an ongoing basis. We are pleased to
report all employees to date have received training in hazard identification
and risk assessment in their work areas.
A medical surveillance system is also in place which provides management with
information used in determining measures to eliminate, control and minimise
employee health risks and hazards and all Occupational Health hazards are
monitored on an ongoing basis.
Various systems to enhance the current HSE strategy have been introduced as
follows:
• In order to improve hazard identification before the commencing of tasks,
mini risk assessment booklets have been distributed to all mine employees and
long term contractors on the mine.
• Dover testing is conducted for all operators. Dover testing is a risk
detection and accident reduction tool which identifies employees’
problematic areas in their fundamental skills in order to receive appropriate
training.
• Ongoing basic rigging training is being conducted for all washing plant
personnel.
• A Job Safety Analysis form is utilised to ensure effective identification
of hazards in the workplace.
• In order to capture and record investigation findings from incidents, an
incident recording sheet is utilised by line management and contractors.
• Black Wattle Colliery utilises ICAM (Incident Cause Analysis Method).
• Ongoing training on conveyor belt operation is being conducted with all
employees involved with this discipline.
Black wattle colliery social and labour plan (slp) progress
Black Wattle Colliery is committed to true transformation and empowerment as
well as poverty eradication within the surrounding and labour providing
communities.
Black Wattle is committed to providing opportunities for the sustainable
socio-economic development of its stakeholders, such as:
• Employees and their families, through Skills Development, Education
Development, Human Resource Development, Empowerment and Progression
Programmes.
• Surrounding and labour sending communities, through Local Economic
Development, Rural and Community Development, Housing and Living Condition,
Enterprise Development and Procurement Programmes.
• Empowerment partners, through Broad-Based Black Economic Empowerment
(BBBEE) and Joint Ventures with Historically Disadvantaged South African
(HDSA) new mining entrants and enterprises.
• The company engages in ongoing consultation with its stakeholders to
develop strong company-employee relationships, strong company-community
relationships and strong company-HDSA enterprise relationships.
The key focus areas in terms of the detailed SLP programmes were updated as
follows:
• Implementation of new action plans, projects, targets and budgets were
established through regular workshops with all stakeholders.
• A comprehensive desktop socio-economic assessment was undertaken on
baseline data of the Steve Tshwete Local Municipality (STLM) and Nkangala
District Municipality (NDM).
• Black Wattle has drawn up a new SLP Plan for the next five years (2017 –
2021).
• The current Black Wattle Colliery Local Economic Development (LED)
programmes were upgraded, and new LED projects were selected in consultation
with the key stakeholders from the STLM.
• An appropriate forum was established on the mine and a process initiated
for the consultation, empowerment and participation of the employee
representatives in the Black Wattle Colliery SLP process.
• Included within the new SLP Plan is a new LED project in the Mhluzi
township called Mhluzi Design Printing. The primary focus is to provide
printing and embroidery services to local businesses. Three supply contracts
have already been concluded with business being conducted with two schools as
well as a local South African Military base.
• Black Wattle Colliery has concluded extensive work on various Agricultural
projects as well as the E-Bag Recycling projects. The E-Bag Recycling project
aims to minimize the environmental impact of post-consumer Polyethylene
Terephthalate plastic (PET) on the South African landscape. The project was
awarded the PET Entrepreneur award for 2013. To date in 2016, the E-Bag
recycling project has initiated up to 70 local community jobs in the region.
Black Wattle Colliery has entered into a joint venture project with
Enviroserve Waste Management to further develop and ensure the future
sustainability of this project.
• Various upgrades were initiated at the Evergreen School nearby to Black
Wattle including the erection of new toilet facilities for the boys and girls,
which formed part of the mines portable skills development programme for our
employees.
Social, community and human rights issues
The group believes that it is in the shareholders’ interests to consider
social and human rights issues when conducting business activities both in the
UK and South Africa.
Environment & Environment Management Programme
South Africa
Under the terms of the mine’s Environmental Management Programme approved by
the Department of Mineral Resource (“DMR”), Black Wattle undertakes a
host of environmental protection activities to ensure that the approved
Environmental Management Plan is fully implemented. In addition to these
routine activities, Black Wattle regularly carries out environmental
monitoring activities on and around the mine, including evaluation of ground
water quality, air quality, noise and lighting levels, ground vibrations, air
blast monitoring, and assessment of visual impacts. In addition to this Black
Wattle also does quarterly monitoring of all boreholes around the mine to
ensure that no contaminated water filters through to the surrounding
communities.
Black Wattle is fully compliant with the regulatory requirements of the
Department of Water Affairs and Forestry and has an approved water use
licence.
Black Wattle Colliery has substantially improved its water management by
erecting and upgrading all its pollution control dams in consultation with the
Department of Water Affairs and Forestry.
A performance assessment audit was conducted to verify compliance to our
Environmental Management Programme and no significant deviations were found.
United Kingdom
The group’s UK activities are principally property investment whereby we
provide premises which are rented to retail businesses. We seek to provide
those tenants with good quality premises from which they can operate in an
efficient and environmentally sound manner.
Procurement
Black Wattle is a level 4 contributor to B-BBEE and has achieved a 100% BEE
procurement recognition level. In compliance with the Mining Charter and the
Mineral and Petroleum Resource Development Act, Black Wattle has implemented a
BBBEE-focussed procurement policy which strongly encourages our suppliers to
establish and maintain BBBEE credentials. At present, BBBEE companies provide
approximately 80 percent of Black Wattle’s equipment and services.
We closely monitor our monthly expenditure and welcome potential BBBEE
suppliers to compete for equipment and service contracts at Black Wattle.
Employment
As part of Black Wattle’s commitment to the South African government Mining
Charter, the company seeks to:
• Expand opportunities for historically disadvantaged South Africans
(HDSAs), including women, to enter the mining and minerals industry and
benefit from the extraction and processing of the country’s resources;
• Utilise the existing skills base for the empowerment of HDSAs; and
• Expand the skills base of HDSAs in order to serve the community.
In addition Black Wattle is committed to achieving the goals of the South
African Employment Equity Act and is pleased to report the following:
• Black Wattle Colliery has exceeded the 10 percent women in management and
core mining target.
• Black Wattle Colliery has achieved 22 percent women in core mining.
• 94 percent of the women at Black Wattle Colliery are HDSA females.
Black Wattle Colliery has successfully submitted their annual Employment
Equity Report to the Department of Labour.
In terms of staff training some highlights for 2016 were:
• 17 employees were trained in ABET (Adult Basic Educational Training) on
various levels;
• An additional 5 disabled women continued their training on ABET level one
and two.
• 4 HDSA Females have completed and qualified in their respective
apprenticeships at the mine.
• Black Wattle had several of the staff of Silver Solutions CC, a black
owned private contractor on the mine, trained to become competent to perform
plastic pipe welding. The mine makes extensive use of their services in this
area.
Employment terms and conditions for our employees based at our UK office and
at our South African mining operations are regulated by and are operated in
compliance with all relevant prevailing national and local legislation.
Employment terms and conditions provided to mining staff meet or exceed the
national average. The group’s mining operations and coal washing plant
facility are labour intensive and unionised. During the year no labour
disputes, strikes or wage negotiations disrupted production or had a
significant impact on earnings. The group’s relations to date with labour
representatives and labour related unions continue to remain strong.
In terms of directors, employees and gender representation, at the year end
the group had 6 directors (6 male, 0 female), 7 senior managers (6 male, 1
female) and 187 employees (143 male, 44 female).
Green House Gas reporting
We have reported on all of the emission sources required under the Companies
Act 2006 (Strategic Report and Directors’ Reports) Regulations.
The group has employed the Operational Control boundary definition to outline
our carbon footprint boundary. Included within that boundary are Scope 1 & 2
emissions from coal extraction and onsite mining processes for Black Wattle
Colliery. We have not measured and reported on our Scope 3 emissions sources.
Excluded from the footprint boundary are emission sources considered non
material by the group, including refrigerant use onsite.
We have used the GHG Protocol Corporate Accounting and Reporting Standard
(revised edition) and a methodology adapted from the Intergovernmental Panel
on Climate Change (2006) to calculate fugitive emissions from surface coal
mining activities. Further emission factors were used from UK Government’s
GHG Conversion Factors for company Reporting 2016.
The group’s carbon footprint: 2016 CO2e Tonnes 2015 CO2e Tonnes
Emissions source:
Scope 1 Combustion of fuel & operation of facilities 11,860 10,571
Scope 1 Emissions from coal mining activities 22,171 27,789
Scope 2 Electricity, heat, steam and cooling purchased for own use 8,530 7,571
Total 42,561 45,931
Intensity:
Intensity 1 Tonnes of CO2 per pound sterling of revenue 0.0019 0.0018
Intensity 2 Tonnes of CO2 per tonne of coal produced 0.034 0.029
Principal risks & uncertainties
PRINCIPAL RISK PERFORMANCE AND MANAGEMENT OF THE RISK
COAL PRICE RISK The group is exposed to coal price risk as its future revenues will be derived based on contracts or agreements with physical off-take partners at prices that will be determined by reference to market prices of coal at delivery date. The group’s South African mining operational earnings are significantly dependent on movements in both the export and domestic coal price. The price of export sales is derived from a US Dollar-denominated export coal price and therefore the price achievable in South African Rands can be influenced by movements in exchange rates and overall global demand and supply. The domestic market coal prices are denominated in South African Rand and are primarily dependant on local The group primarily focuses on managing its underlying production costs to mitigate coal price volatility as well as from time to time entering into forward sales contracts with the goal of preserving future revenue streams. The group has not entered into any such contracts in 2016 and 2015. The group’s export and domestic sales are determined based on the ability to deliver the quality of coal required by each market and Quattro programme quotas, together with the market factors set out opposite. Volumes of export sales achieved during the year were primarily dependent on the mine’s ability to produce the higher quality of coal required for export as well as allowable quotas under the Quattro programme and overall global demand. The volume of domestic market sales achieved during the year were primarily dependant on local demand and supply as well as the mine’s ability to produce the lower overall quality of coal required.
demand and supply.
MINING RISK As with many mining operations, the reserve that is mined has the risk of not having the qualities and accessibility expected from geological and environmental analysis. This can have a negative impact on revenue and earnings as the quality and quantity of coal mined and sold by our mining operations may be lower than expected. This risk is managed by engaging independent geological experts, referred to in the industry as the “Competent Person”, to determine the estimated reserves and their technical and commercial feasibility for extraction. In addition, management engage Competent Persons to assist management in the production of detailed life of mine plans as well as in the monitoring of actual mining results versus expected performance and management’s response to variances. The group continued to engage an independent Competent Person in the current year. Refer to page 5 for details of mining performance.
PRINCIPAL RISK PERFORMANCE AND MANAGEMENT OF THE RISK
CURRENCY RISK The group’s operations are sensitive to currency movements, especially those between the South African Rand, US Dollar and British Pound. These movements Export sales within the group’s South African operations are derived from a US Dollar-denominated export coal price. A weakening of the US Dollar can have a negative impact on the South African Rand prices achievable for coal sold by the group’s South African mining operations. This in turn can have a negative impact on the group’s mining operations revenue as well as operational earnings as the group’s mining operating costs are Rand denominated. In order to mitigate this, the group may enter into forward sales contracts in local currencies with the goal of preserving future revenue streams. The group has not entered into any such contracts in 2016 and 2015. Although it is not the group’s policy to obtain forward contracts to mitigate foreign exchange risk on inter-company trading balances or on the retranslation of the group’s South African functional currency net assets, management regularly review the requirement to do so in light of any increased risk of future volatility. Refer to the ‘Financial Review’ for details of significant currency movement impacts in the year.
can have a negative impact on the group’s mining operations revenue as noted above, as well as operational earnings. The group is exposed to currency risk in regard to
the Sterling value of inter-company trading balances with its South African operations. It arises as a result of the retranslation of Rand denominated inter-company trade
receivable balances into Sterling that are held within the UK and which are payable by South African Rand functional currency subsidiaries. The group is exposed to
currency risk in regard to the retranslation of the group’s South African functional currency net assets to the Sterling reporting functional currency of the group. A
weakening of the South African Rand against Sterling can have a negative impact on the financial position and net asset values reported by the group.
NEW RESERVES AND MINING PERMISSIONS The life of the mine, acquisition of additional reserves, permissions to mine (including ongoing and once-off permissions) and new The maintenance of compliance with permits includes factors such as environmental management, health and safety, labour laws and Black Empowerment legislation; as failure to maintain appropriate controls and compliance may in turn result in the withdrawal of the necessary permissions to mine. The management of these regulatory risks and performance in the year is noted on page 15 under the headings environmental risk, health & safety risk and labour risk. Additionally, in order to mitigate this risk, the group strives to provide adequate resources to this area including the employment of adequate personnel and the utilisation of third party consultants competent in regulatory compliance related to mining rights and mining permissions The group also continues to actively seek new opportunities to expand it mining operations in South Africa through the acquisition of additional coal reserves and new commercial arrangements with existing mining right holders.
mining opportunities in South Africa generally are contingent on a number of factors outside of the group’s control such as approval by the Department of Mineral
Resources, the Department of Water Affairs and Forestry and other regulatory or state owned entities. In addition, the group’s South African operations are subject to the
government Mining Charter. Any regulatory changes to the Mining Charter, or failure to meet existing targets, could adversely affect the mine’s ability to retain its
mining rights in South Africa.
POWER SUPPLY RISK The current utility provider for power supply in South Africa is the government run Eskom. Eskom continues to undergo capacity problems resulting in The group’s mining operations have to date not been affected by power cuts. However the group manages this risk through regular monitoring of Eskom’s performance and ongoing ability to meet power requirements. In addition, the group continues to assess the ability to utilise diesel generators as an alternative means of securing power in the event of power outages.
power cuts and lack of provision of power supply to new projects. Any power cuts or lack of provision of power supply to the group’s mining operations may disrupt mining
production and impact on earnings.
FLOODING RISK The group’s mining operations are susceptible to seasonal flooding which could disrupt mining production and impact on earnings. Management monitors water levels on an ongoing basis and various projects have been completed, including the construction of additional dams, to minimise the impact of this risk as far as possible. Refer to page 6 for details of the effect of flooding in early 2017.
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