COMMENTARY
INTRODUCTION
Implats delivered stellar results for its half year ended
31 December 2020 despite the challenges presented
by navigating Covid-19. An improved fatal free safety
performance underpinned operational momentum,
while increased processing availability and the
six month inclusion of contributions from Impala
Canada allowed the Group to deliver higher sales
volumes into robust rand PGM pricing and achieve
record financial results.
Record free cash flow has allowed further proactive
management of the Group balance sheet, with a
series of debt repayments and targeted transactions
to strengthen financial flexibility and secure
sustainable shareholder returns.
IMPLATS DELIVERED A STELLAR
OPERATING PERFORMANCE DESPITE
THE CHALLENGES PRESENTED BY
NAVIGATING COVID-19 AND ACHIEVED
RECORD FINANCIAL RESULTS.
COVID-19
Managing the Covid-19 pandemic remained a critical imperative in the period under review, as the second wave threatened to overwhelm many countries around the world. Ensuring the safety of employees and contractors on all Implats sites remained a priority. The best-practice measures and processes put in place during FY2020, and which have served the Group well, will remain active through the course of the pandemic. These include heightened risk mitigation through early Covid-19 detection, pandemic awareness initiatives, 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 continue to play a proactive and important role in managing Covid-19. The remainder of calendar 2021 will be characterised by operating with the threat of Covid-19. Until large-scale vaccination has been achieved in all our operating jurisdictions, the virus will remain a prominent feature of the Group’s operating environment. Implats is ready to take a leading role, working closely with all role players, in rolling out an effective vaccine strategy.
Post period-end, the Group saw a pleasing reduction in active and new Covid-19 cases as the second wave came off peak. The Group’s current Covid-19 mortality rate, at around 1.27% deaths per positive case, is below that recorded by South Africa and globally. Regrettably, however, the Group recorded 17 Covid-19-related deaths during the first half. To date, 44 employees have succumbed to the virus.
SAFETY AND SUSTAINABILITY
Implats core values – to respect, care and deliver –
underpin the Group’s health and safety goals, its
environmental management programmes and its
relations with host communities. The Group adopts
leading ESG practices and aspires to create a better
future through the metals it produces and the way
it conducts its business.
External ESG ratings received post period-end
underscore this aspiration. Implats’ commitment to
effecting change in gender equality was recognised
via its inclusion in the Bloomberg 2021 Gender-
Equality Index, one of only 380 companies globally.
Implats again achieved an “A” rating by the Carbon
Disclosure Project (CDP) for disclosures, awareness
and management of water security risk in 2020, and
was awarded a “B” rating for its climate change
action and disclosures.
HEALTH AND SAFETY
Zero harm to the health and safety of Implats’ employees and contractors is a key objective. As such, there is a relentless focus on safety.
Implats reported zero fatalities in the period under review (H1 FY2020: three fatalities). This outcome is the result of a sustained increase in leadership focus on safety and mining discipline, supported by strategic Group-wide safety initiatives, technical solutions and training, and underpinned by disciplined teamwork. Post the end of the period, Implats achieved nine million fatality free shifts – a record for the Group – while Impala Rustenburg has worked more than seven million shifts without a fatality.
Implats delivered a solid safety performance, improving on all metrics other than the LTIFR, which deteriorated by 6% to 5.13 per million man-hours worked from H1 FY2020. Twelve of the Group’s 17 operations achieved millionaire or multi-millionaire status in terms of fatality-free shifts.
It is with deep regret, Implats reports the death of Mr Kudzanai Manyonganise, a colleague at Zimplats, post the end of the reporting period, following a wall collapse at the Ngwarati Mine box-cut. No other employees were hurt in the incident and investigations are currently underway. The Implats board and management team have extended their sincere condolences to his family, friends and colleagues.
ENVIRONMENT
The Group maintained a record of zero major or
significant (level 4 or 5) environmental incidents
and zero environmental related fines or production
stoppages. There was a 67% improvement in
limited-impact (level 3) environmental incidents
to three (H1 FY2020: nine).
The Group’s Marula, Refineries and Zimplats operations
achieved recertification on the environmental
management system standard ISO 4001:2015, with
Marula joining Zimplats in achieving the ISO 45001:2018
(safety management systems standard) certification,
while Refineries maintained its status.
During the first half, the Group surpassed its
44% water recycling/reuse target for 2021 to achieve
47% – up 18% on the previous comparable period.
The improvement is attributable to the inclusion of
Impala Canada for the full six months, with water
recycling rates above 70%.
During the latter part of 2020, Eskom, the South Africa state-owned utility, struggled to meet power demand. South African operations experienced an unprecedented level of load shedding and curtailment calls. Like all large power users, Implats’ South African operations have curtailment agreements with Eskom, with local reduction agreements for when Eskom struggles to meet demand.
COMMUNITY RELATIONS
The Group’s most significant contributions to socioeconomic development are through the core activities of employment, procurement from host communities and the payment of taxes. Adverse socioeconomic conditions within local communities have been further impacted by Covid-19 and resulted in increased demands for employment and procurement opportunities. Implats’ initiatives aimed at supporting job creation, food security and poverty alleviation will remain important in restoring dignity and maintaining cordial relations with these communities. Currently, the Group is working with government and industry bodies to proactively assist local communities with a vaccine rollout programme.
In December 2020, the Group donated a further R10 million to disaster response NGO, Gift of the Givers Foundation bringing Implats’ total contribution to R20 million, which went towards providing food, PPE, water and hygiene relief effort in Implats’ South African mine-host communities, including in the Group’s labour-sending areas. During H1 FY2021, the Group’s South African operations made good progress on their respective social and labour plans (SLPs) with most of the infrastructure projects on track to be completed by financial year-end.
Zimplats continues to enjoy cordial relations with its communities and launched a food relief programme during 2020, benefiting 4 000 households, to mitigate the impact of the worst drought the southern African region has faced in 35 years. At Impala Canada, negotiations relating to community benefit agreements are progressing well. The operation continues to support local educational institutions and donate food and PPE to host and Indigenous communities.
GROUP OPERATIONAL REVIEW
Despite the complexity of managing the ongoing
impact of Covid-19, Implats delivered a strong
underlying operating performance in its first half.
Tonnes milled from the managed operations at
Impala Rustenburg, Zimplats and Marula were
bolstered by the six-month contribution from Impala
Canada and increased by 14% to 11.79 million
tonnes (H1 FY2020: 10.31 million tonnes).
Concentrate production at managed operations
increased by 11% to 1.21 million 6E ounces
(H1 FY2020: 1.09 million ounces).
The resolution of milling challenges experienced at
both Mimosa and Two Rivers in the prior comparable
period resulted in a 9% gain in 6E concentrate
production volumes of 283 000 ounces from the joint
ventures. In total, mine-to-market 6E concentrate
produced increased by 10% to 1.49 million ounces
(H1 FY2020: 1.35 million ounces).
Third-party 6E concentrate receipts of 196 000 ounces
were 3% higher and gross 6E concentrate volumes
rose by 9% to 1.68 million ounces (H1 FY2020:
1.54 million ounces).
Gross refined output benefited from improved
availability at Group processing assets following
scheduled maintenance in the prior comparable
period and the contribution of saleable ounces from
Impala Canada. Refined 6E production increased by
29% to 1.69 million ounces (H1 FY2020: 1.32 million
ounces). Excess stock of 100 000 6E ounces is
expected to be released by the end of FY2021.
Inflationary pressures were compounded by the
impact of the weaker rand on the cost base at
Zimplats, additional expenditure due to Covid-19, the
inclusion of Impala Canada, development to improve
mining flexibility and targeted spend on asset integrity
at Impala Rustenburg. Total cash operating costs
increased by 24% from the prior comparable period.
Unit costs benefited from higher volumes and, on a
rand per tonne milled and on a stock-adjusted basis,
increased by 9% to R1 259 per tonne and
R14 292 per 6E ounce, respectively (H1 FY2020:
R1 157 per tonne and R13 099 per 6E ounce).
Capital expenditure at managed operations rose by
39% to R2.67 billion, primarily due to the inclusion of
spend at Impala Canada and the acceleration of the
Mupani project at Zimplats.
IMPALA RUSTENBURG
At Impala Rustenburg, the strategy remains focused on transitioning the business to a lower-cost and sustainable operation. Improved profitability is being opportunistically harnessed to strengthen and optimise the business through investment in creating mineable face length, enhancing and de-risking critical infrastructure and assessing a suite of potential life-of-mine extensions to support sustained production levels in the medium and longer term.
Positive operational momentum was maintained, despite the challenges presented by Covid-19, infrastructure and capacity constraints at Eskom and the impact of rising socioeconomic pressures facing surrounding communities.
The constraints on labour availability and attendance due to Covid-19 were anticipated and mitigated by the executed ramp-up strategy. The labour complement was proactively increased during the period and mining activity at the major producing shafts was prioritised. The focus on development resulted in mineable face length improving by 7% to a seven-year high and benefited from gains at the growth shafts, 16 and 20, despite the closure of 9 Shaft in the period.
Tonnes milled decreased by 3% to 5.58 million tonnes
(H1 FY2020: 5.74 million tonnes) primarily due to the
closure of 9 Shaft, a mechanical failure at 20 Shaft and
reduced waste contamination at 16 Shaft. Milled grade
benefited from reduced off-reef mining and the
separation of waste from reef on completion of the
ore-pass rehabilitation at 16 Shaft, improving
by 3% to 4.03g/t (H1 FY2020: 3.91g/t).
Concentrator recoveries improved by 1% resulting
in a 6E concentrate production increasing by 1% to
660 000 ounces, while stock-adjusted 6E production
increased by 4% to 670 300 ounces (H1 FY2020:
644 700 ounces).
In the prior comparable period, reduced processing
capacity during scheduled maintenance was offset
by the benefit which accrued from a revised stock
reallocation policy between Impala Refining Services
(IRS) and Impala Rustenburg. Refined 6E volumes
of 728 900 ounces declined by 4% (H1 FY2020:
760 500 ounces), while the mix of refined volumes
more closely matched mined output.
Total cash costs, including corporate and marketing
costs, increased by 12.8% to R10.56 billion
(H1 FY2020: R9.36 billion). Above-CPI increases on
utilities and labour were compounded by additional
spend on development and improvements in
infrastructure. Covid-19-related expenditure amounted
to R191 million (R285 per 6E ounce) in the period. On
a stock-adjusted basis, unit costs increased by 9% to
R15 754 per ounce (H1 FY2020: R14 515 per ounce),
with volume gains offsetting inflationary pressures.
Capital expenditure declined by 2% to R982 million
(H1 FY2020: R998 million). Project capital declined
by 24% to R132 million, while stay-in-business capital
increased 3% to R850 million (H1 FY2020:
R825 million). Of this, R50 million was invested in
smelting and refining (H1 FY2020: R102 million).
To date, capital spend on 16 Shaft has totalled
R7.7 billion of the R7.9 billion project vote, with
spending on track to be complete in November 2021.
The impact of Covid-19 on project advancement and
labour availability across the Impala Rustenburg
complex resulted in a reduction in stoping teams to
78 at the end of FY2020. In the first half of FY2021,
operational readiness was advanced and immediately
mineable stope (IMS) face length increased by 24%
to 4 813 metres, while the number of stoping teams
increased to 122 by the end of the period.
The fully commissioned C-ore-pass had a positive
impact on grade and 16 Shaft delivered stable
production of 102 000 6E ounces in the period. Team
build-up is expected to continue in the second half
and steady state 6E production of 330 000 ounces
is targeted for October 2022.
The capital project scope at 20 Shaft was completed
in March 2019 and the key focus remains on
increasing mineable face length to allow a ramp-up
in stoping teams and production. A 27% increase in
IMS to 3 051 metres was achieved, with stable 6E
concentrate production of 68 000 ounces, despite a
mechanical shaft incident which impacted operational
activity in October.
During the first half, Impala delivered R10.66 billion in
free cash flow, a 50% increase from the comparable
period, mainly due to high rand PGM pricing and
despite lower sales volumes. Impala made a gross
profit of R10.88 billion and contributed R7.44 billion
to Group headline earnings (H1 FY2020: R2.64 billion).
IMPALA REFINING SERVICES (IRS)
6E receipts in matte and concentrate from mine-to-market
operations increased by 18% to
746 700 ounces (H1 FY2020: 631 400 ounces).
Receipts in the comparable period were impacted by
processing constraints at Two Rivers and Mimosa and
the temporary increase in smelter inventory at Zimplats
following scheduled furnace maintenance. The
backlog of concentrate inventory at Mimosa was also
received during H1 FY2021. Third-party 6E receipts
increased by 3% to 196 000 ounces (H1 FY2020:
190 400 ounces). In total, gross 6E receipts of
942 700 ounces were 15% higher than the previous
comparable period (H1 FY2020: 821 800 ounces).
Reported operational and financial metrics for IRS
were impacted by the reallocation of stocks between
IRS and Impala Rustenburg in Q2 FY2020, which
increased working capital in the prior comparable
period. Consequently, refined 6E volumes increased
by 54% to 845 200 ounces, further benefiting from
the improved availability of processing capacity.
6E sales volumes of 848 700 ounces increased
by 51% (H1 FY2020: 563 000 ounces).
The cash operating costs associated with smelting,
refining, and marketing IRS production increased
by 8% to R917 million. Concentrate purchase
agreements at IRS are dominated by ore feeds from
Great Dyke and UG2 sources. Rising palladium and
rhodium pricing, a weaker rand and higher volumes resulted in the cost of metals purchased increasing
by 88% to R31.20 billion (H1 FY2020: R16.62 billion).
IRS reported a gross profit of R2.92 billion and
contributed R2.51 billion to headline earnings. Free
cash flow of R4.76 billion benefited from higher
pricing and sales volumes, together with the positive
working capital impact of low contractual payments
after interruptions to concentrate receipts in the final
quarter of FY2020.
MARULA
The challenges of managing the ongoing Covid-19 pandemic were compounded by reduced mining flexibility, community disruptions and the shortage of supervisory management, which was impacted by Covid-19 isolation requirements in Q2 FY2021.
Tonnes milled declined by 4% to 934 000 tonnes (H1 FY2020: 970 000 tonnes), while a weak mining performance impacted the ratio of development-to-stoping tonnes and resulted in a 4% decline in the 6E milled head grade to 4.40g/t (H1 FY2020: 4.60g/t). This was partially offset by improved concentrator recoveries and 6E in concentrate production decreased by 2% to 121 400 ounces (H1 FY2020: 124 300 ounces).
Total cash costs were impacted by inflation and the additional costs associated with a change in shift patterns to compensate for Covid-19 protocols and rose by 9% to R1.39 billion (H1 FY2020: R1.28 billion). Cost inflation was compounded by lower volumes and units cost increased by 11% to R11 433 per 6E ounce (H1 FY2020: R10 265 per ounce). Covid-19 expenditure of R23.5 million equates to spend of R193 per 6E ounce.
Capital expenditure slowed in line with the progress made at the new tailings’ storage facility project and due to delays in the delivery of the new fleet, declining by 49% to R105 million (H1 FY2020: R204 million).
The impact of a 5% decrease in 6E sales volumes of 121 500 ounces (H1 FY2020: 128 200 ounces) was more than compensated for by strong rand PGM pricing and the relative contributions of both palladium and rhodium to Marula’s metals basket. Sales revenue improved by 63% and gross profit increased by 134% to R2.73 billion. The refinancing of the black economic empowerment (BEE) structure at Marula was concluded in the period and a reported headline loss of R113 million was impacted by the R1.51 billion IFRS 2 BEE charge relating to refinancing the BEE transaction. Marula generated R897 million in free cash flow, reflecting the lagged
impact of delayed contractual payments as a result
of the IRS force majeure period in FY2020.
TWO RIVERS
The delayed return of foreign employees following
Covid-19-related national border closures impacted
staffing levels at Two Rivers in the early weeks of the
reporting period, but the mine had returned to full
staffing and production levels in the first quarter
of the period.
Milled volumes declined by 1% to 1.63 million tonnes
(H1 FY2020: 1.65 million tonnes) and milled head
grade of 3.37g/t was 2.2% lower (H1 FY2020:
3.45g/t). Production volumes benefited from plant
stability and recoveries and 6E metal in concentrate
increased by 9% to 150 300 ounces (H1 FY2020:
138 200 ounces).
Total cash costs increased by 15% to R1.53 billion
as mining rates increased to build up the run-of-mine
stockpile ahead of commissioning the plant expansion.
Consequently, unit costs per tonne milled increased by
16% to R936 per tonne (H1 FY2020: R807 per tonne)
and by a more moderate 6% to R10 153 per 6E ounce
in concentrate (H1 FY2020: R9 616 per ounce).
Covid-19-related expenditure of R15.5 million equates
to spend of R103 per 6E ounce.
Capital expenditure increased by 41% to R552 million
(H1 FY2020: R391 million) as spend was accelerated
on several projects including the plant expansion,
tailings storage facility and fleet replacement
programme.
Higher pricing for Two Rivers’ UG2 production,
together with improved sales volumes, resulted in a
step change in reported gross profit, which increased
to R3.26 billion (H1 FY2020: R944 million), while free
cash flow rose to R721 million. Two Rivers contributed
R652 million to Group headline earnings (H1 FY2020:
R166 million) and Implats received R368 million in
dividends from the associate in the period.
ZIMPLATS
Zimplats delivered another strong set of operating
and financial results and continues to benefit from
sustained operational momentum, successfully
navigating the challenges created by increasing
socioeconomic pressures in Zimbabwe, which have
been compounded by Covid-19.
Milled volumes declined by 1% to 3.35 million tonnes
(H1 FY2020: 3.38 million tonnes) due to a scheduled
reline at the Ngezi concentrator. Milled head grade
of 3.49g/t was unchanged and consequently,
6E production in concentrate of 296 900 ounces was
1% lower (H1 FY2020: 299 000 ounces). 6E matte
volumes, impacted by the scheduled furnace rebuild
in the prior comparable period, improved by 8% to
288 300 ounces (H1 FY2020: 267 400 ounces). Sales volumes increased by 19% to 301 200 ounces
(H1 FY2020: 252 700 ounces) as residual inventory
accumulated due to the FY2020 IRS force majeure was dispatched to IRS.
Total cash costs increased by 6% to US$192 million,
with mining inflation compounded by higher smelting
costs. Due to the impact of the weaker rand,
translated costs grew by 18% to R3.12 billion
(H1 FY2020: R2.65 billion). Unit costs per tonne
milled increased by 6% to US$57 per tonne, while
higher matte volumes resulted in flat unit costs of
US$641 per 6E ounce (H1 FY2020: US$642 per
ounce). A weaker rand resulted in 18% and 10%
increases in the R931 per tonne and R10 402 per
6E ounce in matte costs, respectively (H1 FY2020:
R786 per tonne and R9 432 per ounce).
Capital expenditure increased by 21% to US$57 million
(H1 FY2020: US$47 million) and was 36% higher in
rand terms as the Mupani Mine replacement project
was accelerated to meet the planned expansion in
milling capacity at the operation.
Further good progress was made on Mupani. Fleets
are being redeployed from Rukodzi to Mupani to
facilitate the early ramp-up of ore production, in
line with the decision to facilitate incremental volume
growth at Zimplats ahead of the full ramp-up of the
2.1 million tonne per annum mine, planned in
July 2024.
Zimplats achieved gross profit of R5.93 billion
(H1 FY2020: R2.24 billion), generated R2.29 billion
in free cash flow and contributed R2.53 billion in
headline earnings to the Group.
IMPALA CANADA
Operational and financial data reflect six months of
contributions from Impala Canada, versus 18 days
post-acquisition in the prior comparable period.
During the period, Impala Canada was impacted
by challenges associated with Covid-19. Operational
results also reflect progress on the planned
underground expansion, including infrastructure
enhancements.
The operation delivered mill throughput of 1.92 million
tonnes and a 6E head grade of 2.58g/t, yielding
127 100 6E ounces in concentrate. Gross costs of
C$131 million were impacted by the start-up costs
associated with the Sherriff Pit and resulted in a unit
cost of C$1 033 or R12 722 per 6E ounce in
concentrate. Covid-19-related expenditure of
R14.1 million equates to spend of R110 per 6E ounce.
Capital expenditure of C$52 million was incurred on
the development of the underground expansion
project, the tailings storage facility and strengthening
critical infrastructure at the Lac des Iles mine site.
Impala Canada achieved gross profit of R1.98 billion
and contributed R1.41 billion in headline earnings to
the Group. Free cash flow generation of R952 million
was affected by the negative working capital impact
of delayed contractual payments from Covid-19-related production interruptions in H2 FY2020.
MIMOSA
Mimosa operated well despite the complexities of
the worsening Covid-19 pandemic in Zimbabwe and
the increasing socioeconomic challenges facing its
stakeholders.
Extended repairs to the milling circuit in the prior
comparable period resulted in a return to normalised
throughput in H1 FY2021, with milled volumes of
1.43 million tonnes increasing by 10% (H1 FY2020:
1.31 million tonnes). Marginally higher head grade
of 3.89g/t was offset by weaker recoveries. 6E in
concentrate production of 132 400 ounces improved
by 10% (H1 FY2020: 120 000 ounces). 6E sales
volumes benefited from the deferred delivery of
concentrate inventory accumulated during the IRS
force majeure in FY2020 and increased by 36% to
161 900 ounces (H1 FY2020: 118 700 ounces).
Cash costs at Mimosa increased by 6% to
US$106 million (H1 FY2020: US$100 million) with
inflationary pressure compounded by higher milled
throughput and increased transport and selling
expenses. Unit costs per tonne milled improved by
3% to US$74 per tonne (H1 FY2020: US$76 per
tonne), while unit costs per 6E ounce of US$798
were 4% lower (H1 FY2020: US$830 per ounce).
The weaker rand resulted in a 7% and 6% increase
in translated unit costs of R1 197 per tonne and
R12 961 per ounce, respectively.
Capital expenditure increased by 29% to
US$32 million (H1 FY2020: US$25 million) largely as
spend on the plant optimisation project accelerated.
Robust pricing and higher sales volumes resulted in
a material improvement in reported gross profit, which
rose to R2.79 billion (H1 FY2020: R830 million). Free
cash flow increased to US$30 million (H1 FY2020:
US$9 million) and Mimosa contributed R337 million
to Group headline earnings (H1 FY2020: R65 million).
Implats received R102 million in dividends from the
joint venture in the period.
MINERAL RESOURCES AND MINERAL RESERVES
There has been no material change during the
half-year assessment of the Implats Mineral Resource
and Mineral Reserve estimates.
Estimated total attributable Mineral Resources
decreased by 0.6% from 277.1 million 6E ounces to
275.3 million 6E ounces. Estimated total attributable
Mineral Reserves decreased by 2.7% from 47.8 million
6E ounces to 46.5 million 6E ounces.
The depletion in Mineral Resource and Mineral
Reserves is consistent with the production
performance during the period. The revised Mineral
Resource and Mineral Reserve statement, as at
30 June 2021, will provide detailed updated
estimates.
FINANCIAL REVIEW
The Group continued to benefit from higher received
dollar PGM basket prices, the weaker rand and
operational momentum which resulted in higher
sales volumes in the period, despite the ongoing
challenges and uncertainty in the operating
environment due to Covid-19.
Revenue of R58.12 billion increased by 107% or
R30.10 billion from the previous comparable period:
- Higher dollar metal prices realised a 65% or
R18.24 billion benefit. Higher rhodium and
palladium prices increased revenue by
R12.18 billion and R5.27 billion, respectively.
The improvement in dollar prices, together with
changes in the sales mix, resulted in a 55%
improvement in total dollar revenue per 6E ounce
sold to US$2 197 per ounce (H1 FY2020:
US$1 420 per ounce).
- Higher sales volumes, due to improved processing
availability and the inclusion of Impala Canada for
the full six months period, resulted in a 23% or
R6.35 billion gain. Overall, 6E sales volumes
increased by 22% to 1.62 million ounces with
palladium sales volumes increasing by 46% to
580 400 ounces.
- The weaker rand contributed 19% or R5.38 billion
in additional revenue. The average achieved
exchange rate of R16.22/US$, was 10.3% weaker
than the R14.71/US$ realised in H1 FY2020.
Together with higher dollar metal prices, the rand
revenue per 6E ounce sold rose by 71% to
R35 635 (H1 FY2020: R20 888).
Cost of sales of R35.76 billion increased by 64% or
R13.90 billion from the previous comparable period:
- Higher rand metal prices and the increase in the
volume of concentrate receipts resulted in a
R7.69 billion increase in the cost of IRS metal
purchased.
- The cost of sales from Impala Canada increased
by R2.28 billion reflecting a full six-month inclusion
relative to the 18-day contribution in H1 FY2020.
- Royalties increased by R1.53 billion in line with
higher revenue and the effective rates for South
African government royalties due to improved
profitability.
- The credit to the cost of sales from changes in
stock remained relatively flat compared to the
previous comparable period, due to the higher
cost of production and value of metals purchased.
- A total of R283 million was incurred on Covid-19-related costs at managed operations in the period.
The significant improvement in revenue resulted in the
Group generating a gross profit of R22.37 billion for
the period, up 263% from the R6.17 billion achieved
in H1 FY2020.
There were two significant non-cash items accounted
for in profit before tax:
- An impairment reversal of R14.73 billion (pre-tax)
comprising a partial reversal of the impairments
on property, plant, and equipment (R10.44 billion)
and the prepayment of the Royal Bafokeng
royalties (R4.29 billion) relating to Impala
Rustenburg. This impairment reversal is due to
changes in the estimates, particularly long-term
metal prices, used to determine the recoverable
amount of Impala Rustenburg assets.
- The restructuring of the Marula BEE debt involving
the IFRS 2 BEE charge of R1.51 billion in other
expenses arising on the difference in fair value
of the shares disposed and the fair value of the
consideration received from the BEE shareholders.
Improved profitability at Two Rivers and Mimosa
resulted in a R756 million increase in income from
associates to R1.00 billion, while net finance costs
benefited from improved cash balances at the
Group. Implats recorded EBITDA of R25.06 billion
(H1 FY2020: R7.57 billion) at an EBITDA margin of
43% (H1 FY2020: 27%). The increase in the tax
charge of R10.47 billion from R1.3 billion in the
previous comparable period, reflected the impact
of improved profitability across the Group and the
deferred tax raised on the impairment reversal. The
IFRS 2 BEE charge was non-deductible for tax
purposes. The effective tax rate remained flat at 29%.
Basic earnings increased to R25.08 billion or
3 222 cents per share from R3.40 billion and
439 cents per share, respectively, in the prior
comparable period. After adjusting for the after-tax
profit on the reversal of impairment, headline earnings
improved four-fold to R14.44 billion or 1 855 cents
per share (H1 FY2020: R3.38 billion and 436 cents
per share), with improved contributions from all Group
companies except Marula, which was impacted by
the R1.51 billion IFRS BEE charge. The weighted
average number of shares in issue increased to
778.5 million from 774.4 million in the prior
comparable period following the conversion of
ZAR bonds into equity by bondholders.
The Implats board has approved the declaration of an
interim cash dividend of 1 000 cents per ordinary
share in terms of the Group’s dividend policy, which
is aligned with its capital allocation framework. The
dividend was declared from retained earnings and
will be paid on Tuesday, 23 March 2021.
Net cash from operating activities of R21.77 billion
increased by R15.78 billion due to higher received
rand PGM pricing, increased sales volumes and the
benefit of the lag in IRS contractual payments for
metals purchased. Cash flow in the previous
comparable period was impacted by the inventory
lock up but benefited from the receipt of proceeds
of R2.0 billion from forward sales of metal in the half
year. Capital cash outflows increased by 39% to
R2.55 billion (H1 FY2020: R1.83 billion) due primarily
to the inclusion of spend at Impala Canada, the
impact of a weaker rand and the acceleration of
project spend at Zimplats in the current period. Free
cash flow increased four-fold to R20.15 billion from
R4.99 billion in the prior comparable period.
Borrowings (excluding lease liabilities) decreased as
a result of the scheduled repayment of the Standard
Bank Marula BEE debt, the accelerated capital
repayment of the Impala Canada term loan and the
impact of reduction in the ZAR bond liability following
a combination of bond repurchases and conversions
to equity by bondholders. As a result, closing debt of
R4.56 billion declined from R7.94 billion in the
previous comparable period, while closing cash
balances of R24.84 billion resulted in a net cash
position, excluding finance leases, of R20.28 billion
(H1 FY2020: net debt of R1.94 billion).
At the end of the period, the Group had an undrawn
revolving credit facility of R4.00 billion. Liquidity
headroom, comprising gross cash, net of restricted
cash, and undrawn committed facilities increased to
R28.5 billion (H1 FY2020: R10.0 billion). Subsequent
to 31 December 2020, the Group refinanced this
existing revolving credit facility with a new dual
tranche unsecured committed revolving credit facility,
which will comprise a R6 billion tranche and a
US$125 million tranche, with various South African
and international lenders.
MARKET REVIEW (CALENDAR YEARS
UNLESS OTHERWISE STATED)
All three major PGM markets recorded fundamental
deficits in 2020. Covid-19-related market shocks
were considerable, with PGMs facing significant
demand destruction, balanced by similarly reduced
primary and secondary refined supply.
In platinum, another year of strong physical
investment demand absorbed the industrial surplus,
resulting in a market deficit of 665 000 ounces.
In palladium and rhodium, resurgent automotive
demand outstripped supply in the second half of
2020, resulting in market deficits of 1.2 million and
121 000 ounces, respectively.
Despite substantial intra-period volatility, platinum,
palladium and rhodium each recorded annual
gains in average pricing in 2020.
Platinum benefited from improving investor sentiment,
driven by its association with, and discount to, both
gold and palladium. While speculative length
remained constrained, ETF inflows were supported
by strong interest from European and North American
funds as the mainstreaming of the hydrogen
economy gained momentum and supported an
improving demand outlook.
The palladium price was supported by persistent
physical tightness and the absence of substantial
speculative investment support. The resurgence in
automotive demand during the second half of 2020
was compounded by weak supply from secondary
flows and the impact of peer group processing
interruptions. In addition, during 2019, Russian
supplies were boosted by a release of inventory
and were lower year-on-year in 2020.
Rhodium pricing was driven by increased auto
demand due to tighter NOx limits for gasoline
powered internal combustion engines. The impact
of the South African lockdown, weak secondary
scrap flows and processing interruptions at the peer
group were felt very keenly in the market.
Pricing remained robust in the first weeks of 2021
with seasonal strength in underlying demand from
industrial end-users given impetus by fears of
potential supply constraints given ongoing Covid-19
restrictions and the residual impact of inventory
accumulation across the peer group.
AUTOMOTIVE
Light-duty vehicle sales staged a sharp recovery in
the latter part of 2020, as pent-up demand created
during economic lockdowns resulted in surging sales.
The outlook for 2021 is positive with depleted
inventories supporting underlying production growth
in excess of sales and second wave lockdowns
allowing greater economic activity. After steady
increases in light-duty catalyst loadings over the past
few years, we expect some evidence of thrifting to
emerge in the short term as OEMs target cost
reductions, before rising again in anticipation of more
stringent testing regimes in the medium term. Implats’
medium-term automotive demand outlook is
underpinned by expectations for rising production
volumes of catalyst-bearing light-duty vehicles. The
global heavy truck market declined in 2020 with a
further moderate contraction expected in 2021 before
resuming a growth trajectory in 2022 and 2023. The
impact of tighter heavy-duty legislation in China and
India should underpin a step change in PGM loadings
globally. This growth, together with incremental
demand from palladium substitution in gasoline
catalysts, should herald a period of automotive-derived
growth for platinum.
JEWELLERY
The impact of lockdowns on global consumer activity
is likely to have resulted in the 24% contraction in
annual demand in platinum jewellery demand in
2020. As pandemic-related restrictions eased, global
demand for jewellery strengthened over the latter
months of 2020. The outlook for 2021 is positive
with a persistent platinum price discount to gold, a
vaccine-assisted recovery in economic outlook and
restocking of the industry as manufacturing and
consumer sentiment improves underpinning
resurgent demand.
INDUSTRIAL
The chemical, glass, electrical, biomedical and
petroleum sectors drive industrial demand for PGMs.
Capacity expansion in emerging markets
underpinned global industrial demand and helped
buffer the impact of Covid-19 on platinum demand
in 2020, while persistent price gains in palladium and
rhodium resulted in continued thrifting of demand
where possible. The outlook for a recovery in demand
remains positive and is underpinned by the varied
and evolving uses for PGMs.
In December 2020, Implats became a Limited Partner
and Advisory Board Member in AP Ventures Fund II,
with a multi-year, total committed investment of
US$ 61 million. This investment increases Implats’
focused market development on key evolving
end-uses for PGMs, including hydrogen, fuel cell
mobility and energy storage.
INVESTMENT
Investment activity in platinum substantially benefited
from the macroeconomic climate created by the
pandemic, its steep price discount to both palladium
and gold, and the mainstreaming of the hydrogen
economy. Together with net ETF purchases of
526 000 ounces, Implats estimates physical platinum
investment reached 1.18 million ounces in 2020,
tightening the market and lending price support.
Conversely, both palladium and rhodium ETFs
returned metal to the market with net sales of
89 000 and 6 600 ounces, respectively.
NYMEX net paper positioning for both platinum and
palladium fell sharply in 2020. While recent platinum
price strength has coincided with rising speculative
length, palladium positioning remains muted, limiting
downside risk to price from investor flows.
PROSPECTS AND OUTLOOK
The factors driving current and future PGM demand
and the characteristics of the economic impact
of the pandemic continue to support our view that,
ultimately, the impact of Covid-19 will be cyclical rather
than structural in nature. A strong rebound in both
demand and supply is expected in PGM markets in
2021. While the expected short-term deficits in
palladium and rhodium have been moderated by the
anticipated release of in-process concentrate inventory
accumulated in 2020, they remain meaningful and
lend support to elevated pricing.
The operational focus in the remainder of the
FY2021 will be on the continued 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 studies for
life-of-mine extensions through existing infrastructure
at Marula and Mimosa.
Implats has successfully navigated the impact of
Covid-19 during the period and is well positioned
to deliver as planned into robust rand PGM pricing.
The focus is on maintaining operational momentum,
leveraging the windfall on pricing to reward investors
and secure future growth and sustainability for the
business. The Group is pleased to upgrade
the operational guidance provided with the FY2020
results release, with upward adjustments reflecting
the strong operational performance in H1 FY2021.
| Business area |
Unit |
Actual
FY2020 |
|
Previous
guidance
FY2021 |
New
guidance
FY2021 |
|
|
|
|
|
|
| Refined production |
|
|
|
|
|
| Implats |
6E koz |
2 813 |
|
2 800 – 3 400 |
3 200 – 3 460 |
| Concentrate production |
|
|
|
|
|
| Impala |
6E koz |
1 109 |
|
1 100 – 1 270 |
1 200 – 1 300 |
| Zimplats |
6E koz |
597 |
|
570 – 600 |
580 – 600 |
| Two Rivers |
6E koz |
261 |
|
260 – 300 |
280 – 300 |
| Mimosa |
6E koz |
248 |
|
230 – 260 |
250 – 270 |
| Marula |
6E koz |
210 |
|
220 – 260 |
220 – 260 |
| Impala Canada |
6E koz |
97 |
|
250 – 280 |
260 – 280 |
| IRS (third-party) |
6E koz |
327 |
|
300 – 380 |
360 – 400 |
| Group unit cost |
R/oz 6E |
13 345 |
|
14 500 – 15 500 |
14 600 – 15 100 |
| Group capital expenditure |
Rm |
4 488 |
|
6 000 – 6750 |
5 800 – 6 200 |
| Exchange rate assumptions |
R/US$ |
|
|
|
R15.62 |
| |
R/C$ |
|
|
|
R12.00 |
DIRECTORATE AND MANAGEMENT
Implats announced the appointment of Adv Thandi
Orleyn as an independent non-executive director of
the board of directors and chairman designate with
effect from 3 August 2020. Dr Mandla Gantsho
stepped down as an independent non-executive
director and chairman on 26 October 2020, at which
time Adv Orleyn assumed chairmanship of the board.
Mr Ralph Havenstein was appointed as an
independent non-executive director and member of
the audit committee with effect from 1 January 2021.
