If mining were a rollercoaster, African Rainbow Minerals (ARM) would be riding the choppiest loop right now.
The mining heavyweight — backed by business baron Patrice Motsepe — has been navigating operational headaches, commodity price swings, market jitters and South Africa’s ever-present infrastructure challenges.
These problems were laid bare when ARM released its results for the six months ended December 2024 in March. Headline earnings plunged 49% to R1.52bn (R7.75 a share), from R2.96bn (R15.07 a share) in the previous period.
Logistical problems slowed down the shipment of iron ore, manganese and coal — the company’s bread and butter. Like most miners, ARM is exposed to Transnet’s dysfunction, relying on its rail lines to move bulk commodities from inland mines to export terminals at Saldanha Bay, Gqeberha and Richards Bay.
ARM is slowly losing a long-standing customer for its iron ore. That customer is ArcelorMittal South Africa (Amsa), which has been scaling back its operations as it considers the permanent closure of its loss-making long steel plants in Vereeniging and Newcastle.
ARM’s Beeshoek and Khumani mines in the Northern Cape supplied Amsa with 2.4Mt of iron ore in 2024. That supply has now been cut to 1.4Mt. ARM no longer has a long-term (12-month) contract with Amsa, as the terms have been amended to supply on a month-to-month basis. As a result, sales to Amsa are no longer as robust as they once were.
On top of that, ARM had to reduce the value of some of its assets at several key operations because they were worth less than previously thought. At Beeshoek, the company wrote down the value of equipment and property by about R96m after tax. ARM’s investment in Sakura Ferroalloys, a company in which it holds a stake through its subsidiary Assmang, was also reduced by about R36m. At the Cato Ridge Works facility in KwaZulu-Natal, there was a smaller writedown of about R4m after tax. ARM will close the Cato Ridge Works operations by August 31, a move that will lead to more than 500 job losses.
Also not helping ARM’s financial situation was a 22% reduction in iron ore prices owing to the slowdown of China’s economy during the interim reporting period, a stronger rand that makes exports pricier and higher cost pressures across several operations. Margins were squeezed tighter than a miner’s glove.
ARM CEO Phillip Tobias said these were “challenging” times for the company, but offered a silver lining to shareholders, saying iron ore prices were starting to recover. This is despite uncertainty over the tariff policies of US President Donald Trump and what impact they will have on global trade and economic growth.
There is also uncertainty over the strength of China, the world’s second-largest economy and the buyer of roughly 75% of global seaborne iron ore.
But there is something that might bring comfort to ARM shareholders. ARM is still sitting on a healthy pile of cash — nearly R7bn — which means it has the ammo to weather the storm.
Management is also prudent about improving liquidity and shoring up the cash position. To do this, ARM has targeted its most valuable investment: the 12% stake it holds in Harmony Gold, one of South Africa’s largest gold mining houses. ARM has entered a financial deal called a “hedging collar” over 18-million of its shares in Harmony. This means ARM has locked in a certain value for part of its Harmony stake, which gives the company access to extra cash if needed, without having to sell the shares right now. The arrangement improves ARM’s liquidity while still allowing it to benefit if Harmony’s share price goes up.
The deal works in two ways. First, ARM is buying a European put option, which allows it to sell Harmony shares at R234.85 each if the price falls, protecting it from downside risk, with a total notional value of R4.2bn. Second, ARM is selling a European call option, which means if Harmony’s share price goes above R562.40, ARM will have to sell at that price, with this part having a total notional value of R10bn.
This setup gives ARM access to funding, protects it if Harmony’s share price drops and still lets it benefit if the price rises — just not above R562.40. There is also a focus on cost-cutting initiatives that are expected to bear fruit in the future.
ARM is making progress on the environmental front, with construction of its 100MW solar power plant for ARM Platinum now 86% complete and expected to start supplying electricity soon. Once operational, this project will provide about 30% of the electricity needs for ARM’s platinum operations.
ARM’s costs are expected to drop with the mechanisation of the Beeshoek mine.
ARM is a bit of a sting for income-focused investors, but that’s understandable given the difficult circumstances. Dividends took a hit, with interim payouts dropping from 600c to 450c a share. ARM’s share price has been on a bit of a rollercoaster ride too.
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