COMMENTARY
INTRODUCTION
The health and safety of our employees and the
social welfare of our communities remain key priorities
for Implats, underpinned by our values of respect and
care. In a period marked by unexpected public health
and associated operational challenges, Implats
recorded 14% and 11% improvements in the lost
time and total injury frequency rates, respectively.
Despite these gains, Implats mourns the loss of five
employees at managed operations and two
employees at joint ventures during FY2020. The
board and management team extend their sincere
condolences to the families and friends of our late
colleagues.
The Implats strategic journey over the past few years
has set the Group on a firm footing for long-term
sustainability and value creation for all stakeholders.
Gains in productivity, safety and efficiency at Impala
Rustenburg resulted in upward revisions to the
planned production profile at the operating complex,
negating the need for large-scale retrenchments. In
Zimbabwe, operations continued to excel despite
increasing socioeconomic pressures. The operational
turnaround and renewed social stability at Marula
endured, yielding substantial financial value and, at
Two Rivers, a project to increase processing capacity
was approved and advanced during the year.
Strengthened relationships with key stakeholders
were affirmed by a multi-year wage agreement
concluded without third-party intervention and a
strong environmental performance underpinned
the continued commitment to responsible corporate
stewardship. Implats’ portfolio was enhanced by
the acquisition of Impala Canada, a mechanised,
high-margin primary palladium producer, which
further diversified the Group’s operating footprint.
The Covid-19 pandemic significantly disrupted and
impacted business performance during the second
half of the financial year. While operational
preparedness for Covid-19 began in earnest in
January 2020, operational disruptions began to
manifest at the end of Q3 FY2020 and were a
marked feature of Q4 FY2020, resulting in an
opportunity cost of 290 000 ounces 6E
in concentrate production.
The Group delivered marginally lower mine-to-market
6E concentrate volumes of 2.5 million ounces,
a 5% decline from the comparable period. Maiden contributions from Impala Canada and stable
deliveries from our Zimbabwean mines offset the
impact of Covid-19 on South African production.
Operational continuity at the Group’s processing
assets resulted in a release of excess inventory.
Group refined 6E production declined 8% to
2.8 million ounces. Platinum volumes declined by
12% to 1.3 million ounces, while palladium volumes
were 2% lower at 892 000 ounces.
THE IMPLATS STRATEGIC JOURNEY
OVER THE PAST FEW YEARS HAS SET
THE GROUP ON A FIRM FOOTING FOR
LONG-TERM SUSTAINABILITY AND
VALUE CREATION FOR ALL
STAKEHOLDERS.
Reported unit costs were impacted by lower
volumes, additional investment in development and
changes in ore mix, which impacted yield. These
compounded the impact of inflationary pressures
and a weaker rand, increasing unit costs by 12% to
R13 345 per 6E ounce.
Adjusting reported unit costs for the R1.3 billion
allocated to abnormal production costs, stockadjusted
unit costs increased 18% to R14 067 per
6E ounce.
Pricing for our primary products was robust and,
together with rand depreciation, drove substantial
improvements in the Group’s financial performance.
Revenue improved by 44% to R69.9 billion, gross
profit increased to R23.3 billion and headline earnings
increased to R16.1 billion – or 2 075 cents per share
– compared to headline earnings of R3.0 billion or
423 cents per share in the prior year.
The Group generated R14.4 billion of free cash flow
after capital investment of R4.2 billion and ended
FY2020 with gross cash of R13.3 billion, net cash of
R5.7 billion and liquidity headroom of R16.1 billion,
notwithstanding the acquisition of Impala Canada, the
payment of the R973 million interim dividend
(125 cents per share) and expenditure incurred to
induce early conversion of the US$250 million bond.
A final dividend of 400 cents per ordinary share was
approved, resulting in a total dividend of 525 cents
per share for FY2020.
COVID-19
The advent of the Covid-19 pandemic has required
new ways of thinking and innovative solutions to
challenges not faced before. Implats took proactive
steps to safeguard its business, with a key focus on
securing the health and wellbeing of employees.
The Group’s response to Covid-19 prioritises the lives
of all stakeholders and seeks to sustain operating
activities under agreed precautionary measures
necessary to secure the vital role Implats plays in the
livelihoods of its employees, its host communities and
the national economies in which it operates.
Implats supported the decisive action taken by the
South African, Canadian and Zimbabwean
governments to reduce and contain the Covid-19
infection rate and committed itself to contributing
where possible to socioeconomic stability.
The safety of employees and contractors on all sites
remains a key priority and measures aligned to global
best practice were put in place to protect the health
of employees working during the lockdown and
thereafter. These include, but are not limited to,
heightened risk mitigation measures through early
Covid-19 detection, an enhanced focus on pandemic
awareness, workplace hygiene, medical surveillance,
additional personal protective equipment (PPE) and
medical supplies, and isolation and treatment of
suspected and confirmed cases. The Group’s
significant in-house medical capacity and facilities
played an invaluable role in effectively responding to
the challenges presented by Covid-19.
A meaningful increase in medical care preparedness
was undertaken by increasing the capacity of internal
medical facilities and through coordinated
collaboration with industry peers, public/private
partnerships and both local community and regional
medical institutions.
Management teams across all Group operations
introduced vital risk-based operating procedures to
further protect employees. These measures aimed at
reducing the risk of viral infections in high-risk work
areas and to vulnerable employee categories. These
steps include improved hygiene, restrictions on the
amount of work performed, social distancing while
performing work and while travelling to and from
work, the provision of additional PPE and the
implementation of screening and testing procedures.
South African employees received full pay during the
country’s initial 21-day lockdown period. The Group
subsequently continued to pay living-out/housing
allowances, medical contributions and insured risk
benefit cover to employees who could not return to
work. The Group also applied for the government’s
“Covid-19 TERS” benefit on behalf of all employees
who were not paid in full for the months of April, May
and June.
Implats has thrown its full weight into supporting its
communities in the face of the global pandemic,
donating R20 million to disaster relief in South Africa
and committing millions more to various initiatives
surrounding its operations in South Africa, Zimbabwe
and Canada.
The Group focused its efforts on supporting and
equipping employees and host communities during
the crisis, on education and awareness and
non-pharmaceutical interventions to prevent the
spread of the virus. These efforts bolstered those of
the governments in host countries to help fight the
spread of Covid-19 pandemic and assist those in
need.
At a Group level, Implats donated R20 million to
supporting South African communities: R10 million
was channelled to the disaster response NGO, Gift of
the Givers Foundation, and R10 million was donated
to South Africa’s Solidarity Fund, established to
cushion the impact of the pandemic on South Africa’s
most vulnerable citizens.
Group subsidiaries in South Africa, Zimbabwe and
Canada also stepped up their contributions during
the pandemic: Impala Rustenburg committed
R10 million to its surrounding communities; Marula
committed R4.1 million; Zimplats spent US$172 307
on donations; and Impala Canada spent C$102 000.
All Group operations initiated campaigns to equip
employees, communities, schools and medical
facilities to combat the virus and keep communities
safe.
Much of FY2021 will be characterised by a “business
unusual” operating environment. The benefit of
experience gained by the team over the past few
months, together with the geographical diversification
of Implats’ operational footprint and its strong
financial position, will prove vital to successfully
navigating the expected variability in the near-term
operating environment. Pleasingly, following steep
increases in the number of Covid-19 infections at
Implats’ South African operations during June and
July 2020, there are encouraging signs of a material
reduction in infection rates and the number of active
cases across Implats’ employee base.
GROUP SAFETY AND SUSTAINABILITY
The Group aspires to deliver superior value to all
stakeholders through operational excellence in
PGMs. This strategic imperative prioritises modern,
safe, responsible, competitive and consistent
operational delivery, while employing leading
environmental, social and governance (ESG)
practices. The Group’s core values – to respect,
care and deliver – underpin health and safety goals,
the management of operational impacts on the
environment, responsible stewardship and
progressive, sustainable development practices,
while building value-accretive relations with host
communities.
This is borne out by improvements in several external
ESG ratings received during the year. Implats’
commitment to effecting change in the gender
equality arena was recognised via its inclusion in the
Bloomberg 2020 Gender-Equality Index, one of
325 companies globally and one of only eight South
African companies. Implats is proud to have achieved
an “A” rating by the Carbon Disclosure Project (CDP)
for disclosures, awareness and management of water
security risk, one of only 72 companies globally to
achieve this in 2019. In addition, the Group achieved
a “B” rating for its climate change action and
disclosures.
The Company’s high standards in ESG performance
was further affirmed by its inclusion in the Top 100
Best Performing companies in emerging markets by
independent global ratings agency, Vigeo Eiris, and it
remains a constituent of the FTSE4Good Index
Series, supported by improved disclosure against set
targets and the decline in the number of fatalities over
the past several years. Implats is also a constituent of
the FTSE/JSE Responsible Investment Top 30 Index.
SAFETY
Implats’ goal is to eliminate harm to the health and
safety of our employees and contractors. As such,
safety is a key priority in achieving the Group’s vision
of zero harm.
It is with deep sadness and regret that the Group
recorded five employee fatalities at managed
operations in the period under review: Odirile Thipe,
Mnonopheli Mkwibiso, Sibusiso Jalisa, Orlando
Buvane and Edward Gallant. Implats offers ongoing
support to their families in recognition of the severe
impact of their loss. In addition, Two Rivers and
Mimosa, the non-managed joint venture operations,
recorded fatal incidents during the year – Mphedi
Lalatji and Stephen Chizola. The board of directors
and management team extended their sincere
sympathies to the families and friends of our seven
colleagues. Each of the tragic incidents was the
subject of rigorous independent investigations,
with learnings and remedial actions shared across
the Group to improve controls and to prevent
recurrences.
The increased leadership focus on safety and mining
discipline accelerated during FY2020 to further
strengthen the Group’s safety and risk-management
interventions. This resulted in an improved safety
performance. This progress was supported by
sustained expenditure in implementing Group-wide
safety initiatives, technical solutions and training.
The improved safety performance is reflected in a
14% improvement in the lost-time injury frequency
rate to 4.54 and an 11% improvement in the all injury
frequency rate to 11.30 per million man-hours
worked. Nine of the Group’s 17 operations achieved
millionaire or multi-millionaire status in terms of fatality
free shifts. The significant advances made in ensuring
the safety of employees at work are testament to the
sterling efforts of the entire team. Our focus remains
on further enhancements to our safety regimen to
achieve our goal of zero harm.
The Covid-19 pandemic required extensive revisions
to operating practices, while additional care was
required to ensure the safe start-up of operations
that were placed on care and maintenance due to
lockdown regulations or Covid-19-related operational
disruptions at Impala Rustenburg, Marula and
Impala Canada.
The focus in FY2021 and beyond is to eliminate
fatalities and reduce the number and severity of
injuries, strengthen critical control management to
prevent material unwanted events, build resilient
safety leadership at supervisory levels, collaborate
with all stakeholders to prioritise operational discipline
and intensify supervision on critical workforce
activities.
HEALTH
The Group’s commitment to improving employee
wellness is firmly rooted in advancing various targeted
interventions to reduce the main occupational and
non-occupational health risks facing employees.
Positive progress was made during the year on
several fronts.
Adherence to HIV and TB treatment remains
exemplary at 95% and 100% respectively,
notwithstanding challenges presented this year by the
Covid-19 pandemic. The incidence of TB reduced
during the year to a rate of 293 per 100 000, well
below the estimated national average of 570 per
100 000. In addition, the incidence of new pulmonary
TB cases reduced by 17%. The Group provides
targeted ART treatment to 6 043 employees. The
number of HIV-related deaths reduced by 50% from
the previous year and is testament to the efficacy of
Group programmes.
Occupational health risks also improved across the
Group, with the exception of noise-induced hearing
loss (NIHL) – 38 cases reported compared to 36 in
the previous year. The Group has prioritised the
removal of latent high-noise machines to arrest
this recent regression in NIHL performance.
Covid-19 risk prevention measures successfully
flattened the curve in cases recorded at South African
operations during the country’s infection peak. Sadly,
four employees had succumbed to Covid-19 as at
year-end.
The Group’s immediate focus is on ensuring optimal
Covid-19 prevention and treatment regimens to
minimise its impacts, timeously identifying at-risk or
symptomatic employees, seeking to manage their
health and recovery and supporting optimal mental
health for employees during this stressful time.
ENVIRONMENT
The Group achieved its seventh consecutive year
with no major or significant (level 4 and 5)
environmental incidents. There was a 35% reduction
in limited-impact (level 3) environmental incidents
(15 compared to 23 in FY2019). No negative
directives were issued to Implats with regard to
environmental regulations during the year. All South
African and Zimbabwean operations had their
environmental management systems certified against
ISO 14001:2015. Impala Canada will shortly initiate
its ISO 14001 certification process aligned to Implats’
best-practice standards.
Water security remains a critical priority as southern
African mining operations are located in water-scarce
areas. Assured water supply within Rustenburg’s
Bojanala district and increasing water supply risks at
Zimplats due to persistent and extreme drought
conditions are considered among the Group’s top 10
business risks. Implats’ leadership in managing water
issues was recognised in a CDP (water) “A” score,
and the Group water recycling rate was 44% during
FY2020, exceeding its 40% target. Impala Canada
maintains a recycling rate of 75%. Total water
consumption, including water withdrawn and water
recycled, decreased by 2% year on year, partly due
to Covid-19-related operational interruptions.
The Group also improved water supply to host
communities in Rustenburg as part of its pandemic
response measures.
As society transitions towards low-carbon energy
models, Implats is developing a low-carbon transition
strategy and has appointed a sustainable
development executive to lead its decarbonisation
efforts and position the Group in the new energy
value chain. Energy use during FY2020 decreased by
1% due to operational interruptions at South African
operations during the Covid-19 lockdown.
Consequently, the Group’s carbon footprint
decreased by 6% during FY2020. Zimplats and
Impala Canada are largely supplied from hydropower
schemes and have the lowest carbon footprints
across Implats. While the Group was further
recognised with a CDP (climate) score of “B” for its
management of climate risks, it continues to focus on
deepening its understanding of climate-related risks
and amelioration opportunities.
Understanding and controlling the gases, dust and
waste generated at operations is vital to preventing
adverse impacts on host communities and to meeting
current and future legislative requirements. Direct SO2 emissions were within air emission licence conditions
for Impala Springs and Impala Rustenburg, while
Zimplats’ fugitive emissions capture system is proving
effective. Implats supports the newly published Global Industry Tailings Management Standard. The
integrity of the Group’s active tailings storage facilities
(TSFs) was confirmed via an independent
assessment, which found they adhered to industry
best-practice standards. The Group started re-mining
the tailings from Impala Rustenburg’s dormant TSF.
The integration of mine-closure planning into
life-of-mine planning continues with a focus on
concurrent rehabilitation, while ensuring the
protection of water and biodiversity resources.
COMMUNITY RELATIONS
Sustainable community development and value-accretive
relationships with mine host communities
continue to be prioritised. The Group’s most
significant contributions to socioeconomic
development are through the core activities of
employment, procurement from host communities
and paying taxes.
During the year, R113 million and R175 million was
spent on community development initiatives and
housing and living conditions, respectively,
R5.4 million was invested in developing local
enterprises and R2.7 billion (or 32% of discretionary
spend) was spent with local-tiered suppliers with
>25% black ownership. At communities surrounding
Impala Rustenburg, an R18 million roads upgrade
benefited some 30 000 community members,
created business opportunities for 14 local
companies and employed 126 community members
during the project. Marula provided access to
electricity and the installation of meters to
245 households and 304 residential stands in its host
community, GaMahlakwane village. Approximately
R45 million in goods and services was procured from
local suppliers during the year following the initiation
of the TSF project at Marula. Zimplats invested
US$152 000 to upgrade the Gutu Rural Hospital and
spent US$221 million spent with local businesses
(including indigenous suppliers with >51% black or
previously disadvantaged ownership) during FY2020.
The Group established formal community
engagement structures that have enabled significantly
improved relations with host communities at its South
African operations. There were no operational
disruptions due to mine-related community unrest at
any of the Group operations and relationships have
strengthened due to Implats’ Covid-19 community
response. Despite the difficult economic environment,
Zimplats continues to enjoy cordial relations with its
communities, while Impala Canada strives to secure
participation agreements with each of its host
indigenous communities.
GROUP OPERATIONAL REVIEW
Implats made good progress in delivering a
strengthened operational performance across the
Group during FY2020. Operating momentum was,
however, significantly impacted by Covid-19-related
operational disruptions, which began to manifest at
the end of Q3 FY2020 and resulted in substantial
production losses across the Group in Q4 FY2020.
South African operations were constrained by the
three-week national lockdown announced on
23 March 2020 and restrictive conditions imposed
under the National Disaster Management Act
regulations thereafter. Several innovative solutions
were developed by management teams, and
supported by employees and unions, including
different cycles of work and staggered shift systems
– aimed at enabling the best possible precautionary
measures against the spread of Covid-19 among
employees. Implats was able to substantially reduce
previously identified excess surface work-in-process
inventory and had successfully ramped-up most
operations to near full production by period-end.
Tonnes milled from managed operations (Impala,
Zimplats, Marula and Impala Canada) increased by
1% to 19.6 million tonnes (FY2019: 19.5 million
tonnes), with the Covid-19 operating losses suffered
at Impala and Marula offset by strong delivery at
Zimplats and the maiden contribution from Impala
Canada. The unit cost per tonne milled at managed
operations increased by 6% to R1 166 per tonne
(FY2019: R1 096 per tonne).
Concentrate production from mine-to-market
operations, including the joint ventures at Two Rivers
and Mimosa declined by 5% to 2.5 million 6E ounces
(FY2019: 2.6 million ounces). Third-party 6E
concentrate receipts declined by 9% to 327 000
ounces (FY2019: 361 000 ounces). In aggregate,
total 6E concentrate production of 2.8 million ounces
declined by 5% (FY2019: 3.0 million ounces).
Group refined production of 2.8 million 6E ounces
matched concentrate production for the year,
reducing by 8% from 3.1 million ounces in the prior
year.
Inflationary cost pressures from labour and utilities
were compounded by the impact of the weaker rand
on the cost base of Zimplats and the maiden
inclusion of the operating costs of Impala Canada.
Total operating costs were reduced by the lower
volumes mined. On a stock-adjusted basis, after
excluding the R1.3 billion in abnormal production
costs incurred during lockdown-enforced care
and maintenance, unit cost increased by 12% to
R13 345 per 6E ounce. The unit cost per 6E refined
ounce increased at a similar rate to R12 839 per
ounce (FY2019: R11 498 per ounce).
(Abnormal production costs of R1.3 billion were
incurred during Covid-19-related operational
disruptions in South Africa and Canada when these
operations were placed on care and maintenance.
These costs were excluded from normal production-related
costs and presented separately in the cost of
sales. Abnormal production costs were calculated
taking into consideration the actual shifts worked in
relation to possible shifts expected to be scheduled.)
Capital expenditure increased by 19% to R4.5 billion
(FY2019: R3.8 billion) as a result of the inclusion of
spend at Impala Canada (C$54 million or
R657 million) and increased expenditure of
R188 million at Marula, where spend accelerated on
the TSF project. These increases were partially offset
by lower spend at Impala (R248 million) due to the
completion of the 20 Shaft project and reduced
capital development caused by fewer available shifts
during the year due to Covid-19 disruptions.
Group smelting and refining operations produced
consistently during FY2020, albeit under more
restricted conditions during the national lockdown
in South Africa. All previously identified excess
work-in-process material was treated in May 2020.
Scheduled acid plant maintenance was brought
forward to better match available processing capacity
with the expected ramp-up in concentrate production
from Group operations. This resulted in an
accumulation of concentrate stocks in June 2020
(100 000 ounces 6E at year-end), which will be
treated in H1 FY2021.
IMPALA
Total production losses of 151 000 ounces 6E in
concentrate (12% lost) are directly attributed to the
impact of Covid-19 during H2 FY2020. Milled
throughput for the year declined by 14% or 1.6 million
tonnes to 9.6 million tonnes, largely as a result of the
Covid-19 pandemic. Investment in development to
improve mineable face length continued during the
year with additional costs balanced by the anticipated
future benefit of improving mining flexibility.
The 6E milled head grade declined by 2% to 3.91g/t
(FY2019: 3.99g/t), impacted by higher development-to-stoping ratios, additional dilution due to rolling
UG2 reef and continued orepass rehabilitation at
16 Shaft, which was completed during the year. The
higher percentage of Merensky tonnage milled at
45.6% (FY2019: 43.1%), and the benefit of improved
recoveries helped mitigate the impact on metal
production, further assisted by initial tailings
retreatment work which delivered 10 000 ounces 6E.
The net outcome of lower grade, better recoveries
and Covid-19-related production losses resulted
in 6E concentrate production declining by 14% to
1.1 million ounces (FY2019: 1.3 million ounces).
The drawdown in processing inventory and a revised
stock reallocation policy between IRS and Impala
implemented in H1 FY2020, helped offset the impact
on refined 6E production, which consequently
declined by 9% to 1.3 million ounces (FY2019:
1.4 million ounces).
Impala incurred R998 million in abnormal production
costs during the national lockdown, which has been
included in cost of sales but excluded from the
calculation of unit costs. The saving in variable costs
due to lower volumes resulted in cash costs,
including all incurred corporate and marketing costs,
declining by 2% to R16.8 billion (FY2019:
R17.0 billion). Costs were negatively affected by
above-CPI increase on utilities and labour spend,
increased rates of working cost development,
inefficiencies at 1 Shaft during extended outsourcing
investigations and the tailings re-treatment project,
which impacted concentrator costs. On a stock-adjusted
basis, unit costs increased by 14% to
R15 021 per 6E ounce (FY2019: R13 130), in line
with lower production volumes. Higher relative refined
volumes assisted refined unit costs, which rose by
8% to R13 190 per 6E ounce refined (FY2019:
R12 256 per ounce).
Covid-19-related operational disruptions negatively
impacted the progress of capital projects and
resulted in a 12% decline in total capital expenditure
to R1.8 billion. Stay-in-business capital decreased by
11% to R1.4 billion (FY2019: R1.6 billion), in line with
the reduced number of available shifts, while lower
spend at 16 and 20 Shafts resulted in an 18% decline
in replacement capital to R331 million.
All operating shafts generated positive contributions
and Impala delivered R8.5 billion in free cash flow,
a four-fold increase from the comparable period,
as significantly stronger pricing offset the impact of
a 13% decreased in 6E sales volumes of 1.3 million
ounces (FY2019: 1.4 million ounces). Impala made a
gross profit of R8.9 billion (FY2019: R1.5 billion) and
contributed R6.5 billion to Group headline earnings
(FY2019: R1.1 billion). This included the benefit of the
reallocation of stock between Impala and IRS, as well
as the write on of R1.3 billion of stock during the year.
The resilience of the team at Impala Rustenburg was
demonstrated by the effective response to the
Covid-19 pandemic. The required changes in
operating parameters and protocols to ensure the
health and safety of employees were delivered
despite the challenges of the multi-shaft complex,
which has the largest labour complement of all South
African mining operations. Following the upliftment of
lockdown restrictions, Impala Rustenburg managed
to systematically rebuild production levels and was
operating at more than 90% of its normal production
rate at the end of June 2020, despite ongoing
Covid-19-related labour shortages.
This was achieved through a well-developed and
managed return-to-work strategy. The creation of
face length was prioritised during the restart, with
production levels initially supported by targeting
backlog tonnes, creating a strong foundation for
the planned build-up in production in FY2021.
IMPALA REFINING SERVICES (IRS)
The operational and financial performance at IRS in
FY2020 reflects both the impact of Covid-19 on the
quantum of concentrates purchased from mine-to-market
and third-party customers and intra-group
stock reallocations on the volume of 6E ounces
refined and sold.
Gross concentrate receipts were negatively impacted
by the declaration of force majeure on 26 March
2020, as an orderly shutdown of Group processing
facilities was implemented ahead of the start of the
national lockdown in South Africa and restrictions
were placed on the transport of non-essential goods
during lockdown.
Receipts from third-party customers declined by
9% to 327 000 ounces 6E (FY2019: 361 000 ounces)
and mine-to-market 6E deliveries were 10% lower at
1.2 million ounces (FY2019: 1.4 million ounces), with
gross concentrate receipts declining by 10% to
1.5 million ounces.
Refined production was impacted by the stock
allocation change, which saw refined volumes
declining by 14% to 1.5 million 6E ounces (FY2019:
1.7 million ounces), with sales volumes 10% lower at
1.4 million ounces (FY2019: 1.6 million ounces).
Force majeure notices instituted on IRS customers
were uplifted in a phased approach in May and June
2020. Excess concentrate and matte inventory
accumulated by customers, including Group
operations, during the force majeure period are
expected to be received in full during H1 FY2021.
The cash operating costs associated with smelting,
refining, and marketing IRS production increased by
7% to R1.5 billion (FY2019: R1.4 billion), with
inflationary pressures on utilities and certain
processing consumables compounded by the high
fixed cost component of allocated smelting and
refining charges. Concentrate purchase agreements
at IRS are dominated by ore feeds from Great Dyke
and UG2 sources. Rising palladium and rhodium
pricing and the weakening of the rand resulted in
the cost of metals purchased increasing by 61% to
R38.2 billion (FY2019: R23.7 billion), despite lower
volumes received. IRS reported a gross profit of
R6.0 billion (FY2019: R3.4 billion) and contributed
R4.3 billion to headline earnings (FY2019:
R2.1 billion). The impact of negative working capital
movements resulted in a free cash outflow of
R116 million during the year (FY2019: R3.4 billion
free cash inflow).
MARULA
Marula continued to deliver an improved operational
performance, with production interruptions limited to
those resulting from the Covid-19 pandemic. A peace
agreement reached between community
representatives enabled Marula and Makgomo
Chrome to operate relatively unimpeded over the
period and the operation delivered a step-change in
safety with a 50% reduction in lost-time incidents and
44% reduction in reportable incidents.
Total production losses of 33 000 ounces 6E in
concentrate (14% lost) are directly attributed to
the impact of Covid-19 during H2 FY2020. Milled
throughput of 1.6 million tonnes declined by 8%
(FY2019: 1.8 million tonnes), largely as a result of the
national lockdown. A successful reduction in stoping
width and an increased stoping-to-development ratio,
resulted in a 7% improvement in the delivered head
grade of 4.70g/t (FY2019: 4.40g/t) and mitigated the
impact on 6E ounces produced in concentrate, which
declined by 3% to 210 500 ounces (FY2019:
216 900 ounces).
Marula incurred R150 million of abnormal production
spend during the national lockdown. Total cash costs
declined by 2% to R2.2 billion rand due to variable
cost savings associated with lower production.
Despite the resultant inefficiencies, unit costs
increased by just 1% to R10 713 per 6E ounce
produced in concentrate (FY2019: R10 562).
Capital expenditure increased by 124% to
R340 million as the TSF project was advanced and
the trackless mining fleet replaced. A relatively high
exposure to rising palladium and rhodium pricing due
to its UG2 basket price resulted in revenue increasing
by 77% to R5.3 billion, despite a 3% decline in sales
volumes to 210 200 6E ounces (FY2019: 216 600
ounces). Gross profit of R2.4 billion increased
eight-fold (FY2019: R300 million) and Marula
generated R2.2 billion in free cash flow (FY2019:
R380 million) and contributed R1.1 billion in headline
earnings (FY2019: headline loss of R77 million).
A Covid-19 outbreak at the operation resulted in
temporary closure in May 2020. However, Marula
delivered a strong ramp-up and was operating
at more than 90% of normal production levels by
year-end, with restored productivity levels, despite
ongoing Covid-19-related labour shortages. A
bankable feasibility study on the extension of the
Clapham decline shaft was progressed during
the year and the operation is well-positioned to
capitalise on sustained operational continuity and
efficiency gains.
TWO RIVERS
Two Rivers continued to face challenges associated
with variable mineralogy and constrained processing
capacity. The rising contribution of ore from split-reef
areas has led to a reduction in run-of-mine (ROM) ore
grade and impacted metallurgical recoveries.
Split-reef areas will be a structural characteristic of
ore feed at Two Rivers for the foreseeable future and
initiatives are now well underway to optimise
production in this paradigm by matching latent mining
efficiencies with expanded concentrator plant and
TSF capacity to restore ounce volumes from the
mine. A 40 000 tonne per month plant expansion
project was approved by the JV partners at an
estimated cost of R427 million, with commissioning
expected during H2 FY2022.
Total production losses of 34 000 ounces 6E in
concentrate (12% lost) are directly attributed to the
impact of Covid-19 during H2 FY2020. Milled
throughput of 3.0 million tonnes declined by 11%
(FY2019: 3.4 million tonnes) due to the impact of the
pandemic. Weaker milled volumes were compounded
by a 2% declined in the 6E milled grade at 3.45g/t
(FY2019: 3.52g/t) and poor metallurgical recoveries
through the plant in Q1 FY2020, resulting in a 17%
reduction in 6E production in concentrate of 261 000
ounces (FY2019: 313 400 ounces).
Capital expenditure increased by 40% to R800 million
(FY2019: R571 million) with spend on deepening and
development activity, the replacement of trackless
fleet and progressing the TSF and concentrator
projects.
The benefit of strong UG2 pricing bolstered Two
Rivers financial performance despite cost inflation and
the 18% decline in annual sales volumes to 261 200
6E ounces in concentrate (FY2019: 317 300 ounces).
Gross profit improved by 192% to R2.8 billion
(FY2019: R963 million) and Two Rivers generated
R1.3 billion in free cash flow for the year (FY2019:
R446 million). Implats recorded attributable profit from
Two Rivers after intercompany adjustments of
R687 million (FY2019: R251 million) and received
R566 million in dividends during FY2020 (FY2019:
R241 million).
The availability of ROM stockpiles helped counteract
the impact of poor labour availability in Q4 FY2020
due to Covid-19, as a high number of skilled foreign
employees at Two Rivers were prevented from
returning to South Africa due to lockdown-related
international border closures. As a result, shortages
of critical skills impacted mining rates at the
operation. Mining capacity was above 70% by
year-end, while milling rates were buffered by ROM
stockpile and had reached more than 90%. In the
new financial year, a steady ramp-up in mined
production was realised as the foreign worker
complement returned to site.
THE ADVENT OF THE COVID-19
PANDEMIC HAS REQUIRED NEW
WAYS OF THINKING AND INNOVATIVE
SOLUTIONS TO CHALLENGES NOT
FACED BEFORE
ZIMPLATS
Zimplats delivered yet another strong operational
performance in FY2020, navigating the challenges
created by increasing socioeconomic pressures in
Zimbabwe and successfully mitigating the substantial
threat to its employees and operations posed by the
Covid-19 pandemic. Zimplats has operated
uninterrupted since the onset of the Covid-19 crisis,
working closely with government health departments
to lend support and raise awareness in the
communities surrounding its operations.
Tonnes milled were 4% higher at 6.8 million tonnes
(FY2019: 6.5 million) while stable 6E grade of 3.48g/t
resulted in a commensurate increase in 6E produced
in concentrate of 597 000 ounces (FY2019: 572 000
ounces). A furnace rebuild was completed in
H1 FY2020, with the unit recommissioned in
October 2019, and scheduled mill relines at the
Selous concentrator completed in H2 FY2020. 6E
production in matte was stable at 580 000 ounces,
while 6E sales volumes of 555 000 ounces were
impacted by the force majeure implemented by IRS
in late-March 2020.
Total cash costs were well controlled and increased
by 5% to US$364 million (FY2019: US$348 million),
with consumable spend benefiting from favourable
foreign exchange movements and lower fuel prices
during the period. The impact of the weaker rand
resulted in translated rand costs increasing by 16%
to R5.7 billion (FY2019: R4.9 billion), with unit costs
per 6E ounce produced in matte rising by 5% to
US$627 and 16% to R9 824 per ounce (FY2019:
US$600 and R8 509), respectively.
Capital expenditure declined by 3% to US$111 million
(FY2019: US$115 million) as project progression at
Mupani was offset by reduced spend on the Bimha
redevelopment project. Zimplats achieved a gross
profit of R7.0 billion (FY2019: R2.7 billion) and
generated EBITDA of R8.3 billion (FY2019: R4.0
billion). Free cash flow generation of R2.5 billion was
impacted by negative working capital and the
headline earnings contribution of R3.4 billion was
affected by intercompany adjustments relating to
sales by Zimplats to IRS, which at year-end, were still
in the pipeline.
MIMOSA
Mimosa was exempted from the Zimbabwean
lockdown implemented in response to Covid-19. The
presence of a significant ROM surface ore stockpile
afforded the mine the opportunity to suspend mining
operations for 10 days in Q4 FY2020, with the
production gap used to institute critical Covid-19
operational preparedness measures. Milling
constraints experienced in Q1 FY2020 were
substantially offset by consistent operational delivery
for the remainder of FY2020 and milled volumes
declined by 4% to 2.7 million tonnes (FY2019:
2.8 million tonnes). While the 6E mill grade of 3.85g/t
was stable, sub-optimal concentrator residence time
due to capacity constraints impacted recoveries and
6E in concentrate production of 247 800 ounces
declined by 5% (FY2019: 260 600 ounces).
Reduced mining rates and favourable foreign
exchange movements benefited consumables
spend, while lower sales volumes reduced transport
costs and revenue related expenditure in the period.
Gross costs of US$190 million declined by 5%
(FY2019: US$201 million), however they increased by
5% to R3.0 billion (FY2019: R2.9 billion) on translation
due to the 10% weakening of the rand in the period.
Milling ROM stockpiles benefited reported unit costs,
which were largely unchanged at US$768 per 6E
ounce in concentrate (FY2019: US$771 per ounce).
Unit costs in rand rose 10% to R12 034 per 6E
ounce in concentrate (FY2019: R10 944).
Sales volumes by Mimosa were impacted by the IRS
force majeure and subsequently compounded by
logistical challenges experienced with the transport
of concentrates and sporadic closures of the
Zimbabwean/South African border. Excess inventory
of c.45 000 ounces 6E is expected to be delivered
by the end of calendar 2020.
Capital expenditure of US$43 million declined
by 12%, with project spend offset by reduced
expenditure on fleet replacement. Sales volumes
lagged mine production due to logistical constraints
and the impact of the IRS force majeure in Q4
FY2020. Notwithstanding, gross profit improved by
141% to R1.9 billion (FY2019: R773 million) and, after
intercompany adjustments, the attributable share of
profit in the Implats Group increased to R421 million
(FY2019: R127 million). Implats received R44 million
in dividends from Mimosa (FY2019: R153 million).
Good progress was made on projects to increase
milling capacity and the purchase of adjacent mineral
reserves to extend the life-of-mine.
IMPALA CANADA
The acquisition of Impala Canada was concluded on
13 December 2019 and the reported operational and
financial results therefore reflect six months and
18 days of metrics.
Operational delivery for the period was severely
impeded by Covid-19. An outbreak in the Lac des
Iles Mine camp led to a six-week closure of the
operation, followed by limitations on travel and
staffing due to the pandemic. In addition, the
operation was impacted by planned orepass
rehabilitation and a workplace fatality in the final
quarter of the financial year. This very difficult set
of operating conditions led to low reported labour
attendance and operating rates, with the mine
producing at 75% of capacity at year-end.
Operational delivery has steadily improved in the new
financial year, with the mine expected to produce
at approximately 90% of plan in Q1 FY2021.
Transitioning the mine to a more sustainable
operation was advanced by progressing several
initiatives. These included the completion of the
orepass rehabilitation, commissioning a mobile
crusher to alleviate strain on the existing crusher
system and initiating a review of processing
infrastructure to address known constraints.
Total 6E production losses of 29 000 ounces
(23% lost) are attributed to the impact of Covid-19
during H2 FY2020. The operation delivered mill
throughput of 1.6 million tonnes and a 6E head grade
of 2.45g/t, yielding 97 000 6E ounces in concentrate.
Gross costs of C$105 million resulted in unit costs of
C$1 076 and R12 998 per 6E ounce in concentrate.
Capital expenditure of C$54 million was incurred on
capital development, the tailings management facility
and refurbishment of the No.1 orepass and
associated underground infrastructure.
The impact of weak volumes was partially offset by
cost savings during the care and maintenance period
and the strong palladium pricing received, with gross
profit of R879 million and free cash flow of
R1.1 billion. After accounting for R191 million of
bridge financing costs, Impala Canada contributed
R168 million to headline earnings.
KEY PROJECTS
Implats’ key replacement shaft projects are focused
on low-cost, long-life extensions that link to current
operations, delivering defensive cash generation to
entrench the Group’s competitive position and sustain
profitability well into the future.
16 SHAFT
To date, capital spend has totalled R7.6 billion of the
R7.9 billion project vote, with spending on track to be
complete in November 2021.
Operational readiness was advanced by a 18%
increase in immediately mineable stope (IMS) face
length to 3 984 metres. The impact of the Covid-19
lockdown and associated labour restrictions resulted
in certain project delays, with the C ore pass
completed in June 2020 and the completion of the
additional D ore pass is expected in early FY2023.
Constrained availability of rock drill operators during
the pandemic and the re-allocation of available
resources to continued operations at 1 and 9 Shafts,
resulted in a reduction in stoping teams deployed at
the project at year-end. Ramp-up to full production of
330 000 ounces 6E is now expected in October
2022. Notwithstanding the shortfall in planned
production, higher rand PGM pricing resulted in the
shaft reaching cash break-even in December 2019
and it contributed free cash of R513 million in
FY2020.
20 SHAFT
The capital project scope of R7.9 billion was
completed on schedule and within budget in March
2019 and the primary focus in FY2020 was
increasing IMS face length to meet the planned
ramp-up in stoping tonnes.
20 Shaft has shown a pleasing improvement in
performance and exceeded plan with IMS face
length increasing by 66% to 2 607 metres at
year-end, with a closing development replacement
ratio of 10.5 against a plan of 18 stoping centares
per metre developed. Improved operational flexibility
is expected to support the planned production
ramp-up to 227 000 ounces 6E, which, due to
Covid-19 delays, is now expected in October 2022.
A reduction in capital expenditure, together with
higher rand 6E metal prices resulted in 20 Shaft
achieving cash break-even in December 2019, with a
free cash flow contribution of R160 million in FY2020.
MUPANI MINE
Excellent progress was made during the year on
Zimplats’ Mupani Mine project, the replacement for
Ngwarati and Rukodzi Mines.
Decline development and overall project progress
remains well ahead of schedule with estimated
steady-state production expected in July 2024.
A total of 260 172 tonnes of ore, at an average
6E head grade of 3.07g/t, has been mined to date.
Commissioning of the first exhaust ventilation shaft
and surface crusher is expected in August and
October 2020, respectively. A total of US$98 million
of the budget of US$264 million had been spent at
the end of the reporting period.
A decision was taken to accelerate the Mupani
project to deliver incremental volume growth at
Zimplats. A bankable feasibility study on a modular
concentrator expansion is expected in H1 FY2021.
Forecast capital investment of US$38 million over
two years could increase monthly milling capacity
and annual ounce production by 40 000 tonnes
and 42 500 6E ounces in concentrate, respectively.
Commissioning is expected in Q1 FY2022, with
US$10 million allotted for investment in an additional
mining fleet and labour to facilitate the early ramp-up
of ore production from the Mupani portal.
MINERAL RESOURCES AND MINERAL RESERVES
The Group’s Mineral Resource estimates increased
by 3%, or 8.7 million ounces 6E, to 277 million
ounces 6E, while Mineral Reserves increased by
8%, or 3.5 million ounces 6E to 47.8 million ounces
6E during FY2020.
The Group’s Mineral Resource estimates remained
largely static for platinum – with a marginal, net
increase to 132.4 million ounces (FY2019:
131.6 million platinum ounces). The inclusion of
Impala Canada and the 15% attributable resource at
the Waterberg Project demonstrates the Group’s
execution against its stated strategy to increase
exposure to palladium in its production mix. The
Group’s palladium Mineral Resource estimate was
boosted to 89.9 million ounces (FY2019: 81.5 million
ounces).
Similarly, the Group’s Mineral Reserve estimates
remained largely static on an attributable platinum
basis – with a marginal increase to 21.8 million
platinum ounces from 21.2 million ounces, net of
production depletion. The planned continuation of
production from Impala Rustenburg’s 1, 12 and
14 Shafts offset platinum production depletion across
the Group and, combined with the inclusion of Impala
Canada, had a significant effect on the Group’s
Mineral Reserve estimate, resulting in a year-on-year
increase of 18% to 17.3 million palladium ounces
from 14.7 million palladium ounces on an attributable
basis.
FINANCIAL REVIEW
A substantial increase in received rand PGM basket
prices offset the operational impact of Covid-19 and
drove a strong improvement in financial performance
in FY2020. The pandemic introduced significant
uncertainty to the operating environment and is a
marked feature of the financial results in the period
under review. This will likely persist in FY2021.
Revenue at R69.9 billion was 44% or R21.2 billion
higher than the previous comparable period:
- Higher dollar metal prices realised a 43% or
R20.8 billion benefit. Rhodium revenue increased
by R10.6 billion, while higher palladium and
platinum prices saw revenue gains of R8.8 billion
and R1.1 billion, respectively. The improvement in
prices, together with changes in the sales mix,
resulted in a 46% improvement in total dollar
revenue per 6E ounce sold to US$1 624 (FY2019:
US$1 112).
- The weaker rand contributed 11% or R5.1 billion.
The average achieved exchange rate of R15.31/
US$, was 8% weaker than the R14.20/US$
realised in FY2019. Together with higher dollar
metal prices, the rand revenue per 6E ounce sold
rose by 57% to R24 863 (FY2019: R15 790).
- A fair value adjustment of R151 million related to
provisional pricing on the Impala Canada sales
debtor.
- These benefits were partially offset by the 10% or
R4.9 billion decrease in revenue associated with
lower 6E sales volumes, which declined by 8% to
2.8 million ounces (FY2019: 3.0 million ounces).
Cost of sales increased by 11% or R4.8 billion for
the year:
- Cash costs associated with mining, processing,
marketing and corporate activities increased by
7.2% or R1.8 billion. Calculated mining inflation of
6.9% for the Group includes the impact of the
translation of the Zimplats cost base to rand at the
weaker prevailing exchange rate. Cash costs were
further impacted by the maiden inclusion of cash
costs from Impala Canada of R1.3 billion and
R263 million in additional spend associated with
the Covid-19 pandemic. These increases were
partially offset by the reduction in variable costs
due to lower volumes mined due to Covid-19
lockdowns. Unit cost increases were adversely
impacted by the lower production volumes and
resulted in the Group’s stock-adjusted unit cost
per 6E ounce, including corporate and marketing
spend, rising by 12% to R13 345 per ounce
(FY2019: R11 886 per ounce).
- An increase of R6.7 billion in the cost of IRS metal
purchased due to higher rand metal prices despite
the lower volumes received.
- Abnormal production costs of R1.3 billion incurred
during the care and maintenance period. These
costs have been excluded from the calculation
of the stock-adjusted unit cost per 6E ounce.
- A R1.0 billion increase in depreciation due to the
inclusion of the depreciation associated with
Impala Canada, the additional depreciation due to
the change in estimate of useful lives for certain
assets at Zimplats, as well as the impact of
translating the Zimplats depreciation at a weaker
rand.
- These increases were partially offset by a
R6.9 billion rand increase in the credit to metal
inventory due to the combination of higher
production costs and rand metal prices and the
stock write-on for FY2020 of R1.3 billion (FY2019:
R404 million), which more than offset the financial
impact of reduced excess work-in-process
inventory achieved in the period.
The significant improvement in revenue resulted in the
Group generating a gross profit of R23.3 billion for
the year, a 240% or R16.4 billion increase from the
R6.8 billion achieved in FY2019.
There were several cash and non-cash items
accounted for in profit before tax. The revaluation of
foreign currency balances resulted in a gain of
R786 million, versus a loss of R362 million recorded
in FY2019. These gains were largely due to the
weaker rand on dollar debtors and the intercompany
loan between Implats and Impala Canada. Other net
expenses of R1.5 billion increased by R1.1 billion
from R375 million in FY2019 primarily due to:
- An expense of R441 million relating to the fair
value reversal of R230 million gain on the foreign
exchange collars and payment of R211 million in
settlement thereof (FY2019: gain of R230 million);
- The R509 million incentive premium on the US$
bond conversion together with losses on the mark
to market of the conversion option of R203 million
(FY2019: loss of R1.6 billion) and a loss of
R74 million on the cancellation of the Cross-
Currency Interest Rate Swap; and
- Transaction costs of R147 million incurred on the
acquisition of Impala Canada.
In addition, other net expenses in the prior year,
included Zimplats’ receipts of R652 million arising
from export incentives and a customs duty refund,
which did not recur in the current year.
Improved profitability at Two Rivers and Mimosa
resulted in a R684 million increase in income from
associates to R1.1 billion.
Net finance costs declined by R151 million to
R617 million as interest and associated costs on
bridge funding in Impala Canada of R191 million, as
well as interest on the term loan at Impala Canada,
were offset by higher interest received from higher
Group cash balances and lower interest costs on the
US$ bond, following the incentivised conversion
during August 2019.
The Group recorded EBITDA of R29.4 billion at an
EBITDA margin of 42% (FY2019: R10.5 billion and
22%). Profit before tax rose by R19.7 billion to
R23.0 billion due to the significant increase in gross
profit because of the weaker rand and the higher
dollar metal prices achieved.
The tax charge of R6.5 billion reflected higher
profitability across the Group, with an effective tax
rate of 28%.
Basic earnings were R16.1 billion or 2 066 cents per
share, with earnings in the prior year of R1.5 billion
were impacted by the after-tax impairment charge of
R1.7 billion relating to the Afplats assets.
The Group generated headline earnings of
R16.1 billion and 2 075 cents per share with positive
contributions from all Group companies. The
weighted average number of shares in issue
increased to 777.2 million due to the issue of
64.3 million Implats ordinary shares in August 2019,
after US$ bonds were converted into Implats ordinary
shares.
The Implats board approved the declaration of a final
dividend of R4.00 per ordinary share, in line with the
approved dividend policy, bringing the total dividend
for FY2020 to R5.25 per ordinary share. The dividend
was declared from retained earnings and will be
subject to a 20% dividend withholding tax for
shareholders who are not exempt from, or do not
qualify for, a reduced rate of withholding tax. The final
dividend will be paid on Monday, 28 September
2020.
Net cash from operating activities benefited from
higher rand metal prices and increased to
R17.1 billion (FY2019: R10.7 billion).
Capital expenditure increased to R4.2 billion from
R3.9 billion due primarily to inclusion of spend on
Impala Canada in H2 FY2020, the impact of the
weaker rand on spend at Zimplats and higher
expenditure at Marula as the TSF project was
advanced.
Free cash flow, as a result, increased to R14.4 billion
(FY2019: R7.7 billion).
With effect from 13 December 2019, Implats
acquired 100% of the outstanding shares of Impala
Canada for a cash consideration of C$983 million
(R10.8 billion), using a combination of existing cash,
proceeds from a forward sale of excess inventory and
the proceeds raised on a bridge loan facility. Cash
balances of R1.4 billion held by Impala Canada at the
time of acquisition resulted in a net outflow at
acquisition of R9.4 billion.
Borrowings (excluding lease liabilities) increased
to R7.6 billion (FY2019: R7.2 billion) due primarily to
the outstanding balance of US$219 million
(R3.7 billion) on the Impala Canada term loan which
offset the benefit of the reduction in debt due to the
incentivised early conversion of US$ bond. The final
scheduled Zimplats debt repayment of
US$42.5 million was made in December 2019. The
scheduled repayment of the Marula BEE loan was
deferred from June to September 2020 as an initial
cash preservation measure at the onset of the
national lockdown in South Africa. However, gross
cash balances of R13.3 billion, which include the
consolidated cash balances of R3.6 billion at Zimplats
and Impala Canada, benefited from improved
profitability and closing net cash, excluding finance
leases, rose from R1.1 billion to R5.7 billion. The
gross cash balance includes R0.9 billion pledged in
respect of the settlement of the Marula BEE loan at
30 June 2020.
At the end of the period, the Group had an undrawn
revolving credit facility of R4 billion. Liquidity
headroom, comprising gross cash, net of restricted
cash, and undrawn committed facilities, increased to
R16.1 billion (FY2019: R12.2 billion).
CAPITAL ALLOCATION
The optimisation of the Implats balance sheet and
Group capital allocation were meaningfully advanced
during the year. The board approved a capital
allocation framework, with specific policies regarding
the approach to balance sheet and liquidity
positioning, dividends, and the guiding principles for
developing the business through investment in
value-accretive growth opportunities. This framework
aims to balance the need to strengthen the Group’s
financial flexibility, with its strategic imperative to
create value for all stakeholders while providing
attractive returns to shareholders.
Implats remains exposed to a single grouping of
commodities and is hence vulnerable to significant
potential market volatility. Management remains
steadfast in its view that a proactive approach to
reducing debt is both prudent and key to building
financial resilience.
Collectively, the repayment of debt by Zimplats, the
induced conversion of the US$ bonds and the funds
retained by the Group, delivered improved net cash
and liquidity. These steps harness the results of
better-than-expected profitability for the enduring
benefit of the Group – creating increased flexibility
and resilience to withstand future potential
operational and market volatility.
Finally, by concluding the acquisition of Impala
Canada with an optimal funding structure comprising
cash and short-term debt, the Group was able to
enhance potential returns from the acquisition while
delivering on Implats’ strategic intent to grow
exposure to shallow, mechanised, palladium-rich ore
bodies. An added benefit is the establishment of an
operational footprint in a leading global mining
jurisdiction and a region which represents one of
the largest global PGM markets. The impact of this
acquisition – net cash acquired, external funding
raised and repaid to 30 June 2020 – was a net cash
outflow of R6.5 billion.
Pleasingly, the strong free cash flow generated by the
Group enabled the implementation of the approved
dividend policy guided by a declaration of around
30% of free cash flow, pre-growth capital, for the
year. Implats remains well-positioned to leverage its
strong balance sheet through prudent and balanced
capital allocation priorities to generate value for all
stakeholders.
MARKET REVIEW (CALENDAR YEARS
UNLESS OTHERWISE STATED)
All three major PGM markets – platinum, palladium
and rhodium – recorded fundamental deficits during
2019. While surging automotive use drove
fundamental industrial deficits in palladium and
rhodium, robust physical investment absorbed
the industrial and jewellery surplus in the platinum
market.
Covid-19-related market shocks were considerable.
PGMs face unprecedented demand destruction
balanced by simultaneous and unforeseen supply
reductions due to lost production during the national
lockdown in South Africa. Secondary supply was also
impeded by interruptions to the collection of
automotive and industrial scrap during the prevention
of normal industrial and consumer activity which
characterised much of H2 FY2020.
The confluence of demand and supply interruptions is
likely to result in moderated deficits in the palladium
and rhodium markets in CY2020. In platinum, another
year of strong investment inflow will likely compensate
for weakened automotive and jewellery demand and
substantially tighten the market relative to previous
baseline forecasts.
While several meaningful near-term revisions to
market forecasts were required, Implats continues to
expect persistent market deficits in both palladium
and rhodium – constrained primary supply and
legislated demand growth were marked features of
these markets and are unlikely to be mitigated by the
impact of lower vehicle sales.
Investment demand, spurred by the safe-haven
appeal of precious metals, tightened the platinum
market in 2020, but we continue to expect an
over-supplied market in the medium term. This
surplus will likely be eroded in the longer term,
however, with stagnant primary and secondary
supply offset by continued growth in industrial
demand, spurred by increased uptake from elements
of the hydrogen economy, tightening global
heavy-duty vehicle emission standards and some
switching in gasoline catalysts.
The disruption to economic activity caused by
national Covid-19 lockdowns resulted in substantial
adjustments to individual market components of
forecast demand and supply in 2020 and 2021.
However, Implats’ view remains that the impact of the
pandemic is likely to be cyclical rather than structural
in the long term.
In February 2020, BASF launched a commercial
tri-metal catalyst solution, the result of a project
delivered in collaboration with Implats and
Sibanye-Stillwater. Following a lengthy research and
development process, BASF’s innovative technology
allows the partial substitution of palladium with
platinum in gasoline catalytic converters and is an
important step towards rebalancing the global PGM
demand profile with the current ratios of global
primary supply.
The need to develop alternative PGM ratios in
catalytic converters has long been anticipated by
Implats and the Group was pleased to be part of the
team which worked for several years to ensure a
practical and cost-efficient solution for its customer
base.
The solution is expected to benefit all members of the
value chain – from miners to refiners, fabricators, and
OEMs. While the impact of Covid-19 has created
headwinds for rapid adoption of the technology, the
persistent discount of platinum to palladium
reinforces the commercial rationale and early
adoption of varied catalyst formulations is expected
from 2022.
The impact of the pandemic on industrial demand
was less severe than on either jewellery or automotive
offtake. Although industrial activity was heavily
impacted during lockdowns globally, many
applications continued at a reduced pace and could
achieve some “catch up” on higher use in the second
half of 2020. Currently, it appears that medium-term
growth provided by capacity increases in several
segments remains intact, with capital investment
likely delayed rather than cancelled.
The global focus on decarbonisation has been
intensified by Covid-19, with increasing momentum
for the establishment of a “hydrogen economy”
through a series of recently announced government
initiatives. This has served to accelerate the
“mainstreaming” of hydrogen and the varied
applications of fuel cells over the recent past. It also
bodes well for increasing industrial demand for
platinum and iridium in the hydrolyser and fuel cell
segments and provides a structural hedge against
the expected decline in diesel-derived automotive
demand in the longer term.
The impact on global consumer activity due to
Covid-19-related lockdowns is expected to result in a
further annual decline in platinum jewellery demand
in 2020. The Group, however, assumes a recovery
to previously forecast levels of demand in the medium
term. The steep discount to gold has spurred
renewed interest from Chinese manufacturers and
retailers and the “reboot” strategy led by the PGI has
gained substantial momentum.
In India, the impact of the lockdown of the domestic
economy resulted in jewellers missing important
festivals and the wedding season for jewellery
purchasing in the first quarter of 2020 following the
outbreak of Covid-19. This compounded the impact
of rising unemployment and the resultant loss of
income and purchasing power. The PGI believes
platinum, as a niche product, is well positioned
for a recovery as any jewellery industry consolidation
favours PGI partners who can capitalise on the
platinum price.
There have been negligible PGM project releases over
the past year – increasingly prudent capital allocation
by the peer group, together with rising regulatory
oversight and increasing stakeholder requirements,
have raised the “hurdle rate” for new projects in our
view, while constrained processing capacity and the
challenges associated with Eskom present further
material challenges to primary supply growth in
South Africa.
GROUP STRATEGY
Implats’ review of its business in 2018 identified the
following strategic imperatives: protecting and
strengthening the Group’s licence to operate,
a restructuring of loss-making operations at Impala
Rustenburg and a repositioning to the lower half
of the cost curve, the optimisation of the Group’s
value chain, the improvement of organisational
effectiveness, the enhancement of the
competitiveness of the Implats portfolio and the
optimisation of the balance sheet and capital
allocation priorities.
Implats’ strategic focus has now adapted to reflect
the substantial progress and delivery against these
objectives and the refined focus is on an integrated
operating model founded on:
- Responsible corporate stewardship
- Operational excellence in PGMs through
value-driven, modern, safe and competitive
production
- Organisational effectiveness
- Sustaining an optimal capital structure
- Leveraging the competitive portfolio of mineral
and processing assets
- Supporting market development and value chain
optimisation to unlock future potential.
The health and safety of employees and the social
welfare of Implats’ host communities remain key
priorities, underpinned by the Group’s values of
respect and care. Implats advanced delivery against
these fundamental principles during the global
pandemic through an integrated and effective
Covid-19 response. Investments made at all Group
operations, together with contributions to local
communities and the public health sector in each
of South Africa, Zimbabwe and Canada, served to
strengthen relationships with key stakeholders
through Implats’ role in the management and
mitigation of this unprecedented global health crisis.
Implats’ commitment to responsible corporate
stewardship was further evident in the absence
of serious environmental incidents reported and
improvement in several external ESG ratings received
during the year.
The sustained improvement in operational delivery
at Impala Rustenburg allowed upward revisions
to production plans at the mining complex and
mitigated the need for large-scale retrenchments,
creating substantial value for all stakeholders. The
operational resilience of the Group was also
demonstrated in the successful ramp-up of
production at the South African operations
post-lockdown, with Implats mines returned to
approximately 90% of capacity by year-end.
Restored profitability and targeted debt reduction
resulted in substantial progress in ensuring an optimal
capital structure, creating a firm foundation for
prudent capital allocation. This enabled the funding of
the Impala Canada acquisition through a combination
of debt and cash, the reinstatement of dividend
payments during the year and the planned
cancellation of the Group’s treasury shares.
The competitive mineral and processing asset
portfolio was strengthened by the acquisition of
Impala Canada, a mechanised, palladium-dominant
PGM producer. In addition, Implats completed an
extended maintenance programme on its furnaces
while facilitating the release of previously identified
excess inventory during the year. Studies and
projects aimed at matching installed concentrating
capacity with inherent mining efficiencies were
advanced at Zimplats, Mimosa and Two Rivers. The
Waterberg feasibility was advanced during the year.
The Group has decided to retain and secure its
15% strategic interest, with beneficial rights to
process future metal production from the project.
Implats continues to sustain efforts in market
development and value chain optimisation,
announcing a commercial switching solution for
gasoline auto catalysis through a project with BASF
and continued support from the PGI and WPIC
during the period. The benefit of long-term
relationships with key contractual customers was
evidenced by robust and uninterrupted demand for
Implats’ products at a time when economic activity
and PGM demand was under substantial threat.
PROSPECTS AND OUTLOOK
The progress made in the strategic repositioning of
Implats over the past several years enabled the
Group to successfully navigate the challenges
created by the unprecedented external shock of the
Covid-19 pandemic. Operational resilience enabled
sustained delivery of refined metal to our customers
and the Group benefited from robust pricing for
primary products, achieving stellar financial results.
Production rates at most operations have normalised
back to near full capacity.
The Group made meaningful advances in
strengthening its balance sheet and dividend
payments were reinstated. The capital allocation
framework adopted during the year will serve to guide
the effective future allocation of financial resources.
The impact of Covid-19 will be a feature for some
time and operating in a “business as usual”
environment will not be possible until effective
prevention and treatment measures become readily
available. Internal planning to secure operational
resilience during the pandemic has been ongoing
since its emergence in early 2020 and vigilance in
protecting the safety and health of employees will
be maintained in FY2021.
The operational focus in the near-term will be on the
integration and optimisation of Impala Canada, the
production ramp-up of the growth shafts at Impala
Rustenburg, the advancement of processing projects
aimed at capitalising on the inherent mining
efficiencies and flexibility at Zimplats, Mimosa and
Two Rivers and the completion of the definitive
feasibility study for life-of-mine extension through
existing infrastructure at Marula and Mimosa.
PGM miners are under increased pressure to meet
challenging and sometimes conflicting stakeholder
expectations and this task has been complicated by
the economic devastation and uncertainty associated
with Covid-19.
In Zimbabwe, efforts to maintain open and
constructive engagement with the government will
continue amid the ever-challenging economic and
political environment. Implats is also committed to
advancing positive and mutually beneficial
relationships with indigenous mine-host communities,
including the First Nations in Canada.
GUIDANCE
Production volumes will be supported through the
planned release of accumulated inventory and Group
refined production is estimated to be between
2.8 and 3.4 million 6E ounces for FY2021. Group
operating costs are expected to be between
R14 500 and R15 500 per 6E refined ounce on a
stock-adjusted basis, with Group capital expenditure
forecast to be between R6.0 and R6.8 billion. This
guidance is based on assumed R/US$ and C$/US$
exchange rates of R16.63/US$ and C$1.35/US$,
respectively, and does not account for further
Covid-19-related public health disruptions.
Full year 6E in concentrate production estimates for
the operational entities are as follows:
|
1.10 to 1.25 million ounces |
|
570 000 to 600 000 ounces |
|
260 000 to 300 000 ounces |
|
250 000 to 280 000 ounces |
|
230 000 to 260 000 ounces |
|
220 000 to 260 000 ounces |
|
330 000 to 380 000 ounces |
The financial information on which this outlook is
based has not been reviewed and reported on by
Implats’ external auditors.
DIRECTORATE AND MANAGEMENT
In August 2019, Implats announced the resignation
of Mr Udo Lucht as a non-executive director of the
board of directors. Ms Boitumelo Tapnis Koshane
was appointed as non-executive director of the board
replacing Mr Lucht as a representative of the Royal
Bafokeng Nation. The board adopted the
Independent Regulatory Board for Auditors
Mandatory Audit Firm Rotation rule earlier than
required, and appointed Deloitte as Implats’ external
auditor from FY2020.
Post year-end, in August 2020, the board of directors
announced the appointment of Adv Thandi Orleyn as
an independent non-executive director and chairman
designate. Her appointment to the board was
immediate and she will assume the chairmanship
at the conclusion of the Company’s annual general
meeting (AGM) on 14 October 2020. Current
chairman, Dr Mandla Gantsho, will retire from the
board at the conclusion of the AGM.
