Commentary
Implats is a leading producer of platinum group metals (PGMs) structured around six mining operations and Impala Refining Services, a refining business.
The year’s highlight was securing ownership of Royal Bafokeng Platinum Limited (RBPlat) and the Group is advancing its plans to integrate and optimise the asset to ensure maximum value from this important acquisition.
INTRODUCTION
Enhanced operational flexibility, resilience and disciplined execution enabled Implats to successfully navigate a series of domestic and regional challenges, which compounded the effects of softening dollar pricing, rand depreciation and persistent inflation in the year under review. This is a testament to the skills and strength of our people, with standout performances at Impala Canada, Zimplats and Impala Rustenburg.
The year’s highlight was securing ownership of Royal Bafokeng Platinum Limited (RBPlat) and the Group is advancing its plans to integrate and optimise the asset to ensure maximum value from this important acquisition. The combined asset base of Impala Rustenburg and RBPlat – which will be renamed Impala Bafokeng on delisting – will result in a more secure and sustainable Rustenburg operating complex in years to come, with a premier mine-to-market production base, well-capitalised infrastructure and long-term competitive positioning, enhanced by industry-leading integrated processing capability.
Amid softening rand platinum group metals (PGM) pricing and lower refined production and sales, the Group recorded EBITDA of R36.0 billion, headline earnings of R18.8 billion or 2 211 cents per share, and generated free cash flow of R14.2 billion, after funding capital expenditure of R11.4 billion and R4.9 billion in RBPlat acquisition costs. The board of directors of Implats (board) declared a final dividend of 165 cents per share, resulting in a total dividend for FY2023 of 585 cents per share.
The Group improved its safety metrics and its sustainability journey gained momentum with several accolades received in the period, recognising excellent environmental, social and governance (ESG) management.
Despite the challenging operating environment, Implats delivered a strong performance and ended the year in a robust, sustainable, flexible and more competitive position, well placed to continue creating and sharing value with all stakeholders.
SAFETY
Safe production remains the Group’s foremost priority, with the goal of achieving zero harm to the health and safety of our employees and contractors. All safety metrics improved in the period, benefiting from a focus on fatal risk control protocols, risk mitigation using leading indicators, visible leadership and mine-safety discipline. However, the Group regrettably reported five employee fatalities at managed operations during the period (FY2022: seven), and one at joint venture (JV) operation, Two Rivers.
In memoriam: Mr Estevao Matsimbe who sustained fatal injuries from an equipment accident at 16 Shaft, Impala Rustenburg; Ms Lydia Gore who succumbed to injuries from a fall-of-ground at Zimplats’ Bimha Mine; Mr Seutlwadi Ramathelesa who passed away following a fall from height at Two Rivers; Mr Abraham Mofokeng who was fatally injured in a blasting accident at Impala Rustenburg’s 14 Shaft; Mr Henry Raki who was fatally injured in a fall-of-ground at Zimplats’ Mupani Mine; and Mr Thembile Ngqanji who passed on following a fall-of-ground at Impala Rustenburg’s 20 Shaft.
Following investigations in each case, the Group renewed its focus on targeted safety interventions, adopted leading practices related to fall-of-ground incidents, further embedded critical controls and intensified employee engagement on safety adherence. The board and the management team extended their sincere condolences to the families and peers of our lost colleagues and the Group offers ongoing support to their families.
During the 12 months to end-June 2023, the Group’s fatal injury frequency rate improved by 29% to 0.040 per million man-hours worked (FY2022: 0.056). The lost-time injury frequency rate improved by 7% to 3.92 (FY2022: 4.21) and the all-injury frequency rate by 5% to 9.25 per million man-hours worked (FY2022: 9.76). By year-end, 13 of the Group’s 18 operations had achieved millionaire or multimillionaire status in terms of fatality-free shifts.
CREATING A BETTER FUTURE
Implats’ strategy serves to achieve the Group’s purpose — to create a better future. Implats prioritises value in a zero-harm environment to deliver sustainable outcomes. The strategy allows for the agility and resilience needed to respond to the dynamic environment in which the Group operates and the evolving markets for its primary products. Implats’ strategic objectives are:
The Group’s focus is to deliver these strategic objectives, in pursuit of its purpose and to ensure Implats is robustly high-value, sustainable, profitable and competitive.
RBPlat acquisition
The Group launched the proposed acquisition of RBPlat in November 2021, with an offer of R90.00 in cash and 0.3 Implats shares per RBPlat share. The Competition Tribunal approved the transaction on 16 November 2022, and the mandatory offer closed on 21 July 2023, with Implats securing 98.91% ownership post-year-end. The compulsory acquisition of the residual shareholding, in terms of section 124(1) of the Companies Act (71 of 2008) as amended, will be effected by 14 September 2023.
The equity interest in RBPlat was accounted for as an associate until Implats’ shareholding increased to over 50% on 30 May 2023, following which RBPlat became a subsidiary of Implats. As a result, with effect from 1 June 2023, RBPlat’s operating and financial results are consolidated into the Implats results.
Securing outright ownership of RBPlat marks an important milestone for Implats, after a process that was lengthy and contentious. It creates the best possible chance of maximising value from this important acquisition — it enables sustainable socio-economic benefits for the Rustenburg region and its communities, secures employment, unlocks significant value from the neighbouring operations and contiguous orebodies at Impala Rustenburg, and secures the most significant source of global primary PGM production.
The combined asset base represents the dominant resource and production base in the region and it is further differentiated by the quality of its well-capitalised, long-life operating assets, which include the Group’s competitive smelting and refining infrastructure.
Through a series of short, medium and long-term priorities, the Group looks forward to delivering meaningful value from RBPlat as it optimises the current performance, delivers on latent production potential and secures the significant synergies available.
The acquisition results in increased broad-based ownership in the PGM sector through the implementation of an empowerment ownership structure at both Impala Rustenburg and RBPlat. The proposed empowerment transaction includes commitments made in relation to creating a community share ownership trust across both companies, as well as the option to replace the current proposed RBPlat employee share ownership plan with an employee share ownership trust, at the election of employees. In addition, as part of the proposed empowerment transaction, Implats has partnered with Siyanda Resources Proprietary Limited (Siyanda), which will lead a broad-based empowerment consortium. The empowerment transactions are expected to be finalised and implemented during FY2024.
Included in the disclosed acquisition-related costs of R415 million in the period under review, is a provision of R250 million which is earmarked for local investing activities. Implats has committed to
co-fund up to R200 million in South African hydrogen technology projects, or its commercialisation, which will be identified in conjunction with the Industrial Development Corporation of South Africa (IDC), as well as R50 million to fund proof-of-concept activities, jointly managed by Implats and the IDC.
Key projects
Implats is proceeding responsibly with its multi-billion rand, multi-year capital investment programme to extend life-of-mine development at several of its operations, increase beneficiation capacity, ensure regulatory compliance, strengthen energy security and progress the Group towards achieving its decarbonisation targets.
Of this capital investment, R12 billion is earmarked to expand its South African and Zimbabwean smelting and refining facilities. Around R8 billion is being invested across managed and JV southern African mining operations to extend the life-of-mine at producing mines, secure meaningful employment and entrench southern Africa’s status as a stable and sustainable global PGM producer, to support enduring benefits for all stakeholders.
The Group is sensitive to recent metal price weakness and has instituted capital prioritisation initiatives aligned to prevailing pricing.
The projects under study and in implementation at our integrated processing assets will reduce the Group’s processing environmental footprint and directly increase local beneficiation, improve operational flexibility and enhance metallurgical efficiencies, positioning the region more competitively as a global mine-to-market PGM producer.
Added to several other life-of-mine extension projects at Impala Rustenburg and the successful acquisition of RBPlat, Implats is confident of growing the total refined 6E PGM supply from its southern African assets over the next decade.
Energy security and decarbonisation projects
Implats’ Zimplats operations are midway through constructing a US$37 million solar plant at the Selous Metallurgical Complex. The 35MW facility is the first phase of an intended 185MW complex that will secure supply and reduce the unit cost of energy. The first phase will go live in Q2 FY2024. This is the first large-scale project towards meeting the Group’s short-term (2030) decarbonisation target of a 30% reduction against the 2019 baseline, and it supports Implats’ stated ambition of achieving carbon neutrality by 2050. Following the agreement of a 50MW hydro-power offtake with the Zambia Electricity Supply Corporation Limited (ZESCO) in April 2023, Zimplats now sources 67% of its energy from regional hydro-electric facilities. The proportion of renewable energy will grow during FY2024 as the first phase of the operation’s solar programme is commissioned.
Feasibility studies are underway at Impala Rustenburg (140MW) and Marula (30MW) for the construction of photovoltaic facilities to advance energy security and improve their carbon footprints. These studies are taking place in parallel to Implats’ programme to procure wheeled renewable electricity for all South African operations — wheeling is the process of moving privately generated electricity (own-generated or generated by independent power producers) to customers across national utility-owned power grids. Energy wheeling will address the site limitations at Impala Rustenburg and Impala Refineries. In addition, Impala Refineries is undertaking conceptual studies for a combined heat and power project to eliminate coal usage.
Impala Canada’s grid-supplied energy is 100% renewable (hydropower), while the operation uses carbon-based fuels (diesel, petrol and propane) for mobile equipment and heating.
Zimplats’ mine replacement and beneficiation projects
In the prior financial year, the board approved the expansion of existing smelter capacity at Zimplats and the installation of SO2 abatement to mitigate the operation’s air quality impact, at a total capital vote of US$521 million. Together with the phased solar projects, the abatement plant will result in an industry-leading environmental footprint for the Zimbabwean smelting facilities. The smelter expansion will accommodate an additional 600 000 6E ounces per annum, the matte from which will initially be transported to Implats’ South African processing facilities for refining. The first matte production from the new 38MW furnace is scheduled for Q4 FY2024, and the acid plant commissioning is expected in Q4 FY2027.
US$190 million was approved during the year under review to rehabilitate the Base Metal Refinery at Selous which will facilitate in-country beneficiation of base metals. This facility is forecast to be commissioned towards the beginning of FY2027.
The US$468 million mine replacement projects, focused on upgrading Bimha Mine and developing the new Mupani Mine, progressed well and remained ahead of schedule. Full production of 3.1 million tonnes and 3.6 million tonnes per annum is on schedule for Q1 FY2024 and Q1 FY2029, respectively. Bimha and Mupani will collectively replace the Ngwarati, Rukodzi and Mupfuti mines, on depletion.
Zimplats’ construction of a new 0.9 million tonnes per annum module at the third concentrator plant (US$104 million), together with the associated mining fleet (US$18 million) and infrastructure, was completed and commissioned on schedule in Q2 FY2023. This project results in Zimplats’ overall milling capacity increasing to 7.6 million tonnes per annum.
Impala Refineries projects
The Group’s PGM production evolves over time due to the nature and quantum of its ore feeds and those received from third parties. Future production is set to increase in line with Implats’ growth and beneficiation strategy. As such, R2.5 billion over five years was allocated to improve the South African refining facilities, of which R500 million was approved to debottleneck sections of the Base Metals Refinery in Springs and expand treatment capacity by circa 10% to provide room for future growth.
The debottlenecking project is progressing well with the final unit process package forecast to be completed before the end of FY2024. Beneficial occupation of some of the early packages was accomplished and these units are providing added flexibility to the operation.
In addition, the Group is completing three replacement sections at the precious metals refinery. Regulatory compliance projects addressing atmospheric emissions and water use requirements are underway to secure Impala Refineries’ continued licence to operate.
Marula’s Phase II expansion project
The project to expand and extend Marula’s life-of-mine was initiated in FY2022. During the year under review, the programme to expand mining and milling by 20% was split into discrete projects — for the two mining complexes and the plant — to facilitate optimal resource allocation and funding while maintaining production targets. The R5.7 billion programme will deliver a 15-year life-of-mine extension to FY2045 at 2.4 million tonnes per annum, with steady-state production expected in FY2028.
Two Rivers’ Merensky Mine, UG2 plant expansion and tailings projects
In partnership with JV partner, African Rainbow Minerals, Implats committed R7.3 billion to construct a new Merensky mine and concentrator at the Two Rivers operation. The Merensky mining project was approved in FY2021 and will expand production by circa 180 000 6E ounces, with first concentrate production scheduled in late FY2024 and full production planned for FY2025. The mining schedule is on plan with the run-of-mine stockpile built up during the period. The concentrator construction progressed significantly, with most mechanical equipment on site and civil and structural activities on schedule.
Implats has a 46% stake in Two Rivers, but 100% of the 180 000 6E ounces of the project’s production will be treated through the Group’s smelting and refining facilities.
The tailings storage facility (TSF) expansion was completed, to cater for both the UG2 expansion and the Merensky project.
Mimosa’s North Hill project
The US$130 million North Hill project will extend Mimosa’s life-of-mine by circa 10 years to FY2044. The feasibility study was completed and a memorandum of understanding to support project execution is under discussion with the Zimbabwean government. The project will increase life-of-mine at the current production platform and sustain 227 000 tonnes per month into the existing processing plant. Steady-state production from North Hill is forecast for FY2034.
During the period, Mimosa completed its plant optimisation project to increase floatation retention times and improve mill grinds, and recoveries improved to planned figures.
The extension of the current TSF, which accommodates arisings from the remaining life-of-mine, is in progress and on schedule. Early commissioning is expected from December 2023.
Mimosa is a 50:50 JV with Sibanye-Stillwater with 100% of concentrate production treated through the Group’s smelting and refining facilities.
Impala Canada’s mill decoupling project
A mill decoupling project at Impala Canada was commissioned during the period. The C$29 million facility will deliver a more consistent feed rate, in a tighter size range, to the concentrator’s SAG mill.
The considerable organic and acquisitive growth outlined above was made possible by a relentless focus in recent years on achieving an optimal capital structure and ensuring that windfall profits from PGM cycles were appropriately harnessed to secure long-term benefits, and enhance flexibility and asset integrity to entrench sustainable operational excellence.
SUSTAINABILITY
Implats is committed to creating a better future for all stakeholders, building value through excellence and execution, and delivering responsible stewardship and long-term value creation. The Group seeks to sustain livelihoods through and beyond mining and leave a positive social and environmental legacy. As such, sustainable development is a core strategic focus.
The Group’s commitment to prioritise sustainable development and ESG disclosure practices are recognised in several rankings by leading global and regional agencies. The process involved in attaining these recognitions enables Implats to directly report key sustainability metrics and benchmark the Group’s performance on a wide range of industry-specific economic, environmental and social criteria. These are relevant to demonstrate our commitment and enhance our disclosures to meet the growing number of sustainability-focused investors, while contributing to the Group’s financial sustainability. The rankings assist in benchmarking Implats’ ESG performance against global best practice, as expected by responsible investors and other stakeholders.
ESG ratings and recognition
Health and wellness
Implats aims to engender a fitter and healthier workforce and motivate employees to participate in the health and wellness solutions provided. The Group adopts a proactive approach to health and wellbeing and engages in extensive employee and community education on health and wellness topics, conducts regular employee and community vaccination and wellness outreach drives, facilitates access to its on-site medical facilities and promotes uptake of the Implats Employee Assistance Programme.
The Group also has a proactive clinical approach to effectively managing the main occupational and non-occupational health risks facing employees, responding to on-site injuries, and detecting and monitoring chronic disease and mental wellbeing. As a result, good progress was made on targeted interventions to reduce the main health risks facing employees.
During the period, there were 219 new cases of noise-induced hearing loss (NIHL), due to the Group reporting the backlog of NIHL cases accumulated during the Covid-19 pandemic, during which time hearing screenings were suspended as a Covid-19 preventative measure. Implats has committed to reducing the number of new NIHL cases by 50% in FY2024.
Pulmonary TB and HIV levels were well controlled. At South African operations, the annualised TB incidence rate of 226 per 100 000 employees remains well below the estimated national average of 51 per 100 000 citizens, and the Group aims to reduce the incidence rate a further 10% in FY2024.
Adherence to HIV treatment has remained consistently excellent at 95%. Implats aims to increase the uptake of anti-retroviral treatment to eliminate Aids-related deaths among in-service employees by 2025.
All operations focus on supporting the mental health and wellness of their healthcare workers, employees and dependants, and the Group continues to strengthen its approach, informed by learnings and evolving global best practice.
Environment
Implats’ achievements in responsible stewardship are anchored in a robust risk assessment framework, underpinned by strong governance, and seek to maximise social and environmental benefit and ensure a just transition as the Group accelerates its decarbonisation journey. The Group delivered a sound environmental performance during the period and published its second supplementary report on climate-related risks and opportunities, in line with recommendations of the Task Force on Climate-related Financial Disclosures (TCFD).
There were no major (level 5) or significant (level 4) environmental incidents, and no fines or non-monetary sanctions were imposed for non-compliance with environmental regulations, licences or permits at any Group operation. Seven limited-impact (level 3) incidents (FY2022: four) were recorded, the majority of which related to uncontrolled water releases following unseasonal rainfall. All were closed out and enhanced controls were implemented.
Climate change, energy and decarbonisation
Climate change is a global challenge requiring businesses to reduce greenhouse gas (GHG) emissions across the value chain, and to build operational and asset portfolio resilience while ensuring transparent communication and engagement with stakeholders.
The Group’s decarbonisation strategy targets carbon neutrality by 2050, with a short-term target to reduce carbon emissions 30% by FY2030 (off FY2019 as the baseline year). Highlights include a commitment that all new mines will have at least 30% renewable energy, and each operation with at least five years of life-of-mine remaining will have a renewable energy source by 2025.
Good progress was made on several renewable energy projects and initiatives (see Key projects, above), with each project including a social impact contribution to ensure the just transition. The Group also set an internal carbon price to stress-test its investment, which is now part of the capital approval process.
During the period, Implats’ carbon emissions and energy-use intensity improved by 6% and 4% to 0.171 CO2 tonnes per tonne milled and 0.851 GJ per tonne milled, respectively, due primarily to decreased energy consumption and energy efficiency improvements.
Zero-carbon fuels and offsets, while not part of the Group’s short-term decarbonisation plan, will play a role in the later stages towards meeting carbon emission neutrality, as technology readiness improves. The Group is assessing an opportunity for a coal-to-gas combined heat and power solution, and a 1.5kW hydrogen fuel cell is being tested under realistic load conditions at Impala Refineries — the operation already has grey hydrogen piped to site. Implats aims to ensure green hydrogen is a feature in decarbonising and powering its own operations. In addition, the Group is considering projects for carbon credits from established and verifiable emissions trading schemes.
Water management
Sound water management is critical at Implats’ water-scarce southern African sites — access to water is a vital operational resource, a basic human right, and essential to the socio-economic development of mine-host communities. Implats is deepening its understanding of water issues critical to the security of supply, compliance, efficiency and integrated management. In parallel, it has addressed supply constraints in vulnerable host communities through major infrastructure projects and continues to focus on alleviating water shortages, while also working with municipalities and schools to improve water conservation and climate change awareness.
The Group assists with strategic regional planning and local service provision, and works with local stakeholders to address immediate needs and ensure bulk infrastructure is maintained and long-term planning is in place. Implats is an active member in two long-term water infrastructure public-private-partnership projects with other commercial water users — the Olifants Management Model and the Rustenburg Water Services Trust. These projects will supply bulk water to adjacent communities along the pipeline and allow for non-potable water offtake agreements for commercial users.
Group water-use practices improved in the period, resulting in 52% of water being recycling against a target of 54% — the goal is to reach 70% by 2030. Several initiatives are underway to improve water recycling/re-use, water-use efficiencies and reduce freshwater withdrawal.
Rehabilitation, biodiversity and waste management
Implats drives concurrent rehabilitation, aspiring to transition disturbed land into the next most usable state as soon as land is confirmed ready for rehabilitation — and not to wait until mine closure — to minimise the overall footprint of operations. In achieving this, Implats seeks to employ local companies to demolish and clear surface infrastructure and fill the shafts with waste. Implats has strengthened its closure liability financial facilities by increasing the cash holdings to R2.5 billion. There was a 3% increase in the quantum of land rehabilitated in the period.
The Group is advancing its journey towards biodiversity mainstreaming — which is to integrate or incorporate biodiversity considerations directly into business strategies, investments and production processes. Implats’ approach to biodiversity conservation seeks to align with International Council on Mining and Metals (ICMM) guidelines. Site-level biodiversity management plans are being developed to achieve a net positive impact on biodiversity in areas affected by Group activities.
Implats is committed to reducing the amount of non-mineral waste sent to landfills, with a target of diverting nearly 80% of non-mineral waste by 2030. In managing non-mineral waste, Implats seeks to identify circular economy opportunities to benefit its operations and host communities. The Group’s environmental strategy presents several opportunities for circular economy initiatives, and inclusive opportunities are identified within these projects, with several existing waste recycling projects in operation. Of the non-mineral waste generated during the period, 71% was diverted from landfills. Implats aspires to divert 85% of non-mineral waste from landfills by 2030 and achieve zero waste to landfill by 2040.
The tailings re-mining project at Impala Rustenburg is a large-scale recycling opportunity – by processing the tailings, the PGMs missed in the first processing phase are extracted in a low-risk and cost-effective way, reducing the Group’s environmental footprint and enabling concurrent rehabilitation of the tailings dam. This project has created 55 local jobs from host communities and is managed in a JV with a community-led company.
Implats supports the ICMM’s Global Industry Standard on Tailings Management (GISTM). All Group operations have annual reviews by an independent tailings review board (ITRB) to provide senior, independent and ongoing reviews of all aspects of their tailings facilities, as recommended by the GISTM. The ITRB review for the period concluded that all facilities are being operated safely and effectively, have minimal risk to local communities and the environment, and meet the applicable local government and international standards.
Social
Implats is committed to promoting sustainable social and economic transformation through constructive collaboration with our stakeholders. Businesses must play an active role in finding solutions to societal challenges. The Group works with its partners in business, the government, labour and local communities to build an inclusive economy that provides opportunities for social mobility, facilitated by equitable access to jobs, education and health. Ensuring the social, economic and environmental viability of mine-host communities and the broader economy is critical to safeguarding the continuing viability of the business.
During the past financial year, Implats made significant progress in its efforts to build sustainable livelihoods in mine communities. Projects worth R545 million were delivered, focused on community wellbeing, education and skills development, enterprise development, inclusive procurement and infrastructure development. Collectively, these initiatives directly benefited more than 135 000 people and sustained approximately 5 400 employment opportunities in the Group’s mine communities.
More than 36 800 people benefited from Implats’ community wellbeing programmes, including five agriculture and three conservation programmes, four food programmes and three gender-based violence (GBV) programmes. The Group supported six health care centres and sponsored training for 30 healthcare workers.
The Group’s education and skills development initiatives supported more than 14 800 learners, provided 160 bursaries, and offered 500 learnerships for community members. Four early childhood development centres and 55 schools were assisted, and Implats sponsored sports events for more than 3 700 youth.
Local procurement continued to receive attention, to support the growth of resilient small, medium, and micro enterprises (SMMEs). Over the past year, Implats assisted 940 SMMEs and conducted training for 240 entrepreneurs from mine communities. As a result, more than 5 100 job opportunities were sustained and 250 new jobs were created.
Forty community infrastructure development projects were completed, positively impacting more than 12 280 beneficiaries. These included five school upgrade projects, 31 water projects or installations, three healthcare projects and one community sports field. The Group continues to build houses for employees and, since the start of its industry-leading housing programme, it has delivered better lives for close to 4 000 households.
Implats is a member of the United Nations Global Compact and aligns its security practices with the United Nations Voluntary Principles on Security and Human Rights. The Group is committed to upholding the human rights of employees and communities at all its operations, in line with international and local legislation.
GROUP OPERATIONAL REVIEW
Tonnes milled from the Group’s managed operations increased by 7% to 23.88 million tonnes (FY2022: 22.36 million tonnes) with higher reported volumes at each of Impala Rustenburg, Zimplats and Impala Canada together with a consolidated contribution of 403 000 tonnes at RBPlat offsetting lower throughput at Marula. 6E production at managed operations increased by 6% to 2.42 million ounces (FY2022: 2.29 million ounces), and a maiden contribution of 43 000 6E ounces in concentrate from RBPlat was recorded for the 30 days to 30 June 2023.
6E concentrate production of 541 000 ounces from JV operations declined by 1% (FY2022: 548 000 ounces). Safety stoppages, and intermittent localised community disruptions at Two Rivers exacerbated the ongoing impact of split-reef and development tonnage on milled grade. At Mimosa, processing and plant stability was impacted by commissioning and optimising the concentrator project, power interruptions, changes in reagent supply and poor water quality. Third-party 6E concentrate receipts declined by 18% to 287 000 6E ounces, with several operational challenges reported at peer-group producers and the termination of two contracts in Q3 FY2023. In total, Group 6E production increased by 2% to 3.25 million ounces (FY2022: 3.19 million ounces).
Implats manages the lower stages of load curtailment by reducing power to its furnaces and concentrators, with mining and hoisting volumes impacted at higher stages. These mitigating actions result in a combination of ‘foregone’ and ‘deferred’ production volumes. In addition to load curtailment at South African managed and JV operations during the period, severe loadshedding was experienced across the Zimbabwean national grid in March 2023, while operations at Mimosa were impacted by further intermittent power outages in May and June 2023. In total, Implats estimates 36 000 6E ounces of production were foregone across southern African managed and JV operations during the period.
Circa 101 000 6E ounces were deferred due to power constraints at the Group’s smelting operations and the consequent delay to restart the refurbished Number 4 furnace in Q4 FY2023. A further 10 000 6E ounces were deferred due to cable theft at Impala Rustenburg, particularly the instance which resulted in power supply interruptions to the metallurgical complex.
Group refined 6E production of 2.96 million ounces, including saleable production from Impala Canada and RBPlat, declined by 4% (FY2022: 3.09 million ounces), impacted by constrained smelting capacity from the scheduled rebuild of Number 4 furnace in Rustenburg and the increased severity and duration of load curtailment experienced. Implats ended the period with circa 245 000 6E ounces of excess inventory (FY2022: 40 000 ounces).
Notable rand depreciation compounded the impact of high consumable and utilities inflation on the translated cost and capital expenditure at Zimbabwean and Canadian operations. Total cash operating costs increased by 19%, while unit costs benefited from higher throughput at managed operations and, despite lower refined output, increased by 14% to R19 834 per 6E ounces (FY2022: R17 364 per 6E ounce).
Capital expenditure at managed operations rose by 27% to R11.5 billion (FY2022: R9.1 billion) as spending on replacement and growth projects accelerated and the rand weakened against the dollar. Stay-in-business spend of R7.3 billion, replacement capital of R2.3 billion and expansion capital of R1.9 billion increased by 16%, 61% and 41%, respectively.
Impala
A series of targeted strategies and short and long-term interventions were implemented at Impala Rustenburg to restore underlying production performance and operational stability. These have begun to yield improvements, helping to offset a persistently challenging operating environment. Notable improvements in safety were recorded, with Impala achieving an LTIFR of 4.71 in FY2023, the lowest reported in 13 years, and a 9% improvement from FY2022, which resulted in a notable reduction in production losses associated with safety stoppages. Total development declined by 5% from FY2022, in line with the planned reduction of development teams. However, primary development increased by 4% and mineable face length increased by 3% to 26.5 km, with notable increases at both 12 and 20 shafts.
Tonnes milled increased by 5% to 10.25 million tonnes (FY2022: 9.80 million tonnes) and tonnes milled per employee costed increased by 5%. Milled grade increased marginally to 3.88g/t (FY2022: 3.86g/t) supported by an increase in stoping volumes. Load curtailment led to reduced volumes of treated tailings and impacted yield. Stock-adjusted 6E production increased by 3% to 1.23 million ounces (FY2022: 1.20 million ounces). An estimated 25 000 6E ounces were foregone due to operational adjustments in response to the increased severity and duration of load curtailment in the period.
The scheduled rebuild of Number 4 furnace was completed during the period and, together with load curtailment, impacted processing capacity. Refined 6E volumes increased by 6% to 1.21 million ounces (FY2022: 1.14 million ounces) as Impala Refining Services material was stockpiled during load curtailment in Q4 FY2023.
Total cash costs, including corporate and marketing costs, increased by 10% to R26.7 billion (FY2022: R24.4 billion). Above-CPI increases on contractors, consumables and utilities resulted in mining inflation of 9%. The discretionary employee bonus payment contributed R359 per 6E ounce (FY2022: R455 per 6E ounce) and costs were also negatively impacted by additional engineering costs and overtime, and additional production shifts worked. On a stock-adjusted basis, unit costs increased by 7% to R21 685 per 6E ounces (FY2022: R20 340 per 6E ounce).
Capital expenditure increased by 21% to R4.1 billion (FY2022: R3.4 billion). Stay-in-business spend increased by 15% to R3.6 billion as investment across several mining and processing projects continued. Replacement capital increased by 79% to R333 million as spend on the 11 and 12 shaft life-of-mine extension projects continued, while R159 million was spent on expansion projects.
R1.2 billion (FY2022: R796 million) was invested in the Rustenburg smelters and refineries as spend continued on the new flash dryer, the final metals Phase 3 and 4 projects at the Precious Metals Refinery, and debottlenecking the Base Metal Refinery. The scheduled rebuild of Number 4 furnace began in late-November 2022 and was completed as planned in April 2023, but full recommissioning was delayed due to load curtailment, which worsened in May 2023. Number 5 furnace is scheduled to be rebuilt during H2 FY2024.
Sales volumes increased by 4% to 1.20 million 6E ounces (FY2022: 1.16 million ounces 6E), aided by destocking some refined platinum inventory, while the achieved rand revenue per 6E ounce sold declined by 5% to R35 768 (FY2022: R37 454 per 6E ounce). During FY2023, Impala delivered R7.5 billion in free cash flow, a 30% decrease from the previous comparable period. The impact of lower revenue, higher cash costs and increased capital expenditure offset the impact of lower royalties and taxation and higher interest income. Impala recorded gross profit of R9.6 billion (FY2022: R15.6 billion) and contributed R8.0 billion (FY2022: R11.5 billion) to Group headline earnings.
Impala Rustenburg’s production remains vulnerable to the severity of load curtailment, which is expected to persist at similar levels to those experienced in FY2023. 6E stock-adjusted production is expected to be between 1.18 and 1.28 million 6E ounces in FY2024.
Impala Refining Services (IRS)
Receipts of 6E matte and concentrates from managed operations at Marula and Zimplats declined by 5% to 838 500 ounces (FY2022: 878 000 6E ounces) — receipts in the prior period were elevated by deferred deliveries from Zimplats. Receipts from the JVs, Two Rivers and Mimosa, declined marginally to 531 900 6E ounces (FY2022: 534 200 6E ounces). Third-party 6E receipts decreased by 18% to 287 300 ounces (FY2022: 351 000 6E ounces) as peer-group producers faced operational challenges and two long-term contracts concluded in Q3 FY2023. In aggregate, gross 6E receipts were 6% lower at 1.66 million ounces (FY2022: 1.76 million ounces).
Refined 6E volumes declined by 16% to 1.45 million ounces as available processing capacity was limited by the planned rebuild of Number 4 furnace, intensified load curtailment, and the Group prioritised processing higher-grade concentrates during the period and base-metal-rich inventory was accumulated.
Cash operating costs associated with smelting, refining and marketing IRS production increased by 9% to R2.1 billion (FY2022: R2.0 billion). Higher smelting and refining inflation was partially offset by lower treated volumes due to load curtailment. Lower purchased volumes and softening rand PGM pricing resulted in the cost of metals purchased declining by 14% to R47.2 billion (FY2022: R54.6 billion). The impact of higher in-process inventory was fully offset by net realisable value adjustments due to the significantly weaker closing dollar pricing for rhodium, resulting in a credit to inventory of R6.0 billion (FY2022: R2.9 billion). IRS reported a gross loss of R0.6 billion (FY2022: profit of R8.0 billion), and a headline loss of R362 million (FY2022: profit of R5.7 billion). Free cash flow declined to R1.3 billion (FY2022: R8.4 billion) due to adverse working capital movements. Receipts of third-party 6E in concentrate are expected to be between 180 000 and 210 000 ounces in FY2024.
Zimplats
Zimplats successfully navigated a series of challenges, including persistent inflation and intermittent power availability, while simultaneously progressing a significant suite of replacement and expansion projects across its mining, renewable energy and processing assets. Mining operations ramped up volumes and new milling capacity was commissioned.
Tonnes mined at the operation increased by 7% to 7.6 million tonnes (FY2022: 7.1 million tonnes) and tonnes milled were 9% higher at 7.5 million tonnes (FY2022: 6.9 million tonnes). The third concentrator was commissioned at the end of September 2022 and optimised to installed capacity during the period. Milled grade declined by 3% to 3.33g/t (FY2022: 3.42g/t) as the mining mix was negatively impacted by increased throughput of lower-grade development tonnage and closure of the higher-grade Rukodzi mine at the end of June 2022. Production was impacted by power constraints across the national grid in March 2023, but benefited from higher mining volumes from all production units. There was a higher development rate at Ngwarati, an improved contractor performance at Mupfuti, and volumes at both Bimha and Mupani mines continued to ramp up, which offset the closure of Rukodzi. 6E in matte production rose 5% to 611 200 6E ounces (FY2022: 583 500 6E ounces).
Total cash costs increased by 19% to US$503 million (FY2022: US$423 million) with mining inflation of 11% intensified by a 42% increase in electricity tariffs in October 2022, as well as higher labour and running costs associated with the third concentrator and higher mined volumes. Translated costs were impacted by rand depreciation and increased by 39% to R8.9 billion (FY2022: R6.4 billion). Unit costs per tonne milled increased by 10% to US$67 per tonne, while stock-adjusted costs, including stockpile movements, increased by 16% to U$836 per 6E ounce (FY2022: US$724 per 6E ounce).
Capital expenditure increased by 15% to US$310 million (FY2022: US$270 million) and, at R5.5 billion, was 34% higher in rands (FY2022: R4.1 billion). Zimplats is progressing a series of stay-in-business, mine replacement and expansion projects. The refurbishment of the Selous Base Metal Refinery was approved by the board and initiated in the period. Project spend was completed on the third concentrator and accelerated on the smelter expansion and SO2 plant.
Sales volumes in the prior comparable period were bolstered by deferred deliveries due to export administrative delays in late FY2021 and, in the period under review, declined by 3% to 603 300 6E ounces (FY2022: 622 800 6E ounces). Revenue decreased by 7% to R18.0 billion (FY2022: R19.3 billion) benefiting from higher nickel pricing and a weaker rand, but was negatively impacted by weaker palladium and rhodium pricing and lower sales volumes. Gross profit declined by 37% to R6.4 billion (FY2022: R10.2 billion) and Zimplats contributed R5.0 billion (FY2022: R6.8 billion) in headline earnings to the Group. Free cash flow of R1.8 billion was impacted by lower revenue, higher capital expenditure and higher prepayments associated with the capital expansions underway. Zimplats is expected to produce between 630 000 and 660 000 6E ounces in matte in FY2024, and the smelter expansion and first phase of the solar project will also be commissioned in the period.
Marula
Operating momentum at Marula was negatively impacted in the second half of the financial year by a series of community disruptions. As a result, production metrics in FY2023 retraced from the record achieved in FY2022.
Milled tonnage declined by 3% to 1.94 million tonnes (FY2022: 2.00 million tonnes). Grade declined by 3% to 4.39g/t (FY2022: 4.53g/t), impacted by Phase II project waste tonnage and a higher development to stoping ratio, while plant stability and recoveries were impacted by load curtailment. 6E concentrate volumes declined by 7% to 241 000 ounces (FY2022: 259 400 6E ounces).
Employee numbers increased to accommodate novice labour from the community, and higher maintenance and engineering costs further compounded mining inflation. Total cash costs, including the discretionary employee bonus, increased by 15% to R3.9 billion (FY2022: R3.4 billion). This increase was exacerbated by lower volumes, resulting in unit costs increasing by 24% to R16 303 per 6E ounce (FY2022: R13 200 per 6E ounce), with the bonus payment contributing R198 per 6E ounce (FY2022: R241 per 6E ounce). Capital expenditure increased by 74% to R558 million (FY2022: R321 million) as investment in the Phase II project increased and R288 million (FY2022: R23 million) of replacement spend was incurred.
Sales volumes declined by 9% to 238 800 6E ounces (FY2022: 261 200 6E ounces). Sales revenue per 6E ounce declined by 10% to R32 062 per 6E ounce (R35 423 per 6E ounce), impacted by the rhodium and palladium prices materially weakening. Negative pricing provisions increased markedly in H2 FY2023 and revenue declined by 18% to R6.9 billion (FY2022: R8.4 billion). Gross profit declined by 39% to R2.7 billion (FY2022: R4.3 billion), headline earnings decreased 23% to R2.3 billion (FY2022: R3.0 billion) and Marula generated R2.5 billion in free cash flow (FY2022: R3.1 billion). Marula is expected to produce between 230 000 and 250 000 6E ounces in concentrate in FY2024.
Impala Canada
Impala Canada delivered a step-change in production volumes, benefiting from improved operational stability and continuity in the period, which partly offset persistent cost inflation and the softening palladium price. Mined volumes increased by 12% to 4.54 million tonnes (FY2022: 4.07 million tonnes) and the plant decoupling project was commissioned, resulting in improved processing throughput and recoveries, with a 3% increase in tonnes milled to 3.80 million tonnes. Grade benefited from increased quantities of high-grade underground ore and rose by 9% to 2.93g/t (FY2022: 2.68g/t). 6E production in concentrate increased by 17% to 290 900 ounces (FY2022: 248 700 ounces).
Cash costs of C$358 million (FY2022: C$316 million) were impacted by mining inflation of 7.8%, compounded by higher employee numbers and increased mined and milled volumes. Unit costs benefited from volume increases and retraced by 3% to C$1 231 per 6E ounce (FY2022: C$1 272 per 6E ounce). Rand depreciation resulted in a 7% increase in reported 6E unit costs to R16 325 per ounce (FY2022: R15 312 per ounce).
Capital expenditure declined 14% to C$92 million, with spend in the prior comparable period elevated by the plant decoupling project (FY2022: C$107 million).
Rand weakness and a 15% increase in sales volumes helped offset the weaker palladium price and revenue increased by 8% to R7.5 billion (FY2022: R6.9 billion). Gross profit declined by 66% to R587 million (FY2022: R1.7 billion), impacted by inflation, translation of cost of sales at a weaker rand exchange and higher depreciation charges on revisions to the quantum of reserves used in calculating units of production. Impala Canada generated R604 million (FY2022: R1.0 billion) in free cash flow in the period and contributed R94 million (FY2022: R965 million) in headline earnings to the Group. The operation is expected to produce between 270 000 and 290 000 6E ounces in FY2024.
Two Rivers
The operating environment at Two Rivers was typified by extended safety stoppages and community interruptions. This compounded the ongoing challenges presented by higher input inflation, the operational complexity of navigating the split-reef on the UG2 horizon and progressing the Merensky expansion project.
Tonnes milled increased by 3% to 3.56 million tonnes (FY2022: 3.46 million tonnes), but head grade declined by 4% to 3.09g/t (FY2022: 3.22g/t), impacted by the treatment of lower-grade Merensky development ore volumes, increased challenging geological features and split reef. Recoveries were impeded by ore mix and plant instability due to power interruptions, and 6E concentrate production declined by 2% to 295 400 ounces (FY2022: 301 900 6E ounces).
Total cash costs increased by 20% to R4.0 billion, with the weaker rand exacerbating inflationary pressures on diesel, explosives and fleet, the increase in labour and higher mined volumes. Costs per 6E ounce in concentrate increased by 22% to R13 974 per ounce on a stock-adjusted basis (FY2022: R11 491 per ounce), including the allocated cost of stockpile milled.
Capital expenditure increased by 67% to R3.0 billion (FY2022: R1.8 billion) as spend accelerated on the Merensky project, deepening the declines at Main and North shafts. During the period, a project review highlighted time delays, additional required earthworks and civil engineering costs associated with building the concentrator, required scope changes for additional water and electricity, as well as the impact of the current inflationary environment and procurement challenges associated with Covid-19 and global geopolitical events. This has resulted in a circa four-month delay in the expected commissioning date for the concentrator to Q4 FY2024 and a revised project estimate of R7.3 billion (from R5.7 billion).
Sales volumes were largely unchanged at 293 200 6E ounces (FY2022: 295 100 6E ounces), while revenue per 6E ounce sold declined by 11% to R30 332 per 6E ounce (FY2022: R33 968 per 6E ounce), due primarily to softer palladium and rhodium pricing, which offset the impact of the weaker rand, and stronger chrome revenues. Revenue declined by 16% to R7.9 billion (FY2022: R9.4 billion), gross profit declined by 37% to R3.1 billion (FY2022: R4.9 billion), and Implats’ 46% share of profit in Two Rivers decreased by 23% to R1.5 billion (FY2022: R2.0 billion). Implats received R414 million in dividends from the JV in the period (FY2022: R1.1 billion). Two Rivers is expected to produce between 290 000 and 320 000 6E ounces in concentrate in FY2024.
Mimosa
Mimosa operated well, despite the impact of power constraints and the persistent macro-economic challenges characteristic of Zimbabwe’s operating environment. Production was impacted by the decision to trial milled volumes at nameplate capacity for a short period, to validate achievable processing recoveries ahead of commissioning and optimising the concentrator project. Concentrator performance was further impeded by poor water quality and changes in reagent supply.
Tonnes milled decreased by 3% to 2.74 million tonnes (FY2022: 2.82 million tonnes) and milled grade of 3.77g/t declined 1% as lower grade sections of the orebody were mined (FY2022: 3.82g/t). Plant recoveries benefited from changes in operating protocols at the concentrator and improved residence time on increased milling and flotation capacity, and 6E production was stable at 245 100 ounces (FY2022: 246 400 6E ounces).
Cash costs at Mimosa increased by 12% to US$252 million (FY2022: US$226 million), impacted by Zimbabwean mining inflation of 9%, the 42% increase in electricity tariffs levied during the period, higher reagent use and initiatives to increase spend in the local currency. Unit costs per 6E ounce increased by 13% to US$1 030 per ounce (FY2022: US$915 per 6E ounce). Translated rand unit costs were negatively impacted by currency depreciation and increased by 31% to R18 290 per 6E ounce (FY2022: R13 933 per 6E ounce).
Capital expenditure increased by 56% to US$122 million (FY2022: US$78 million), with increased expenditure on the plant project and TSF.
Sales volumes were stable at 236 800 6E ounces. Gains in nickel pricing and rand depreciation helped offset weaker palladium and rhodium pricing, resulting in a 2% decline in revenue per 6E ounce sold to R34 786 per 6E ounce (FY2022: R35 553 per 6E ounce). Revenue was negatively impacted by provisional pricing adjustments and declined by 7% to R7.5 billion (FY2022: R8.0 billion). Gross profit declined by 46% to R2.0 billion (FY2022: R3.7 billion) and the Group’s 50% attributable share of profit in Mimosa decreased by 31% to R887 million (FY2022: R1.3 billion). Implats received R209 million (FY2022: R438 million) in dividends from Mimosa in the period.
MINERAL RESERVES AND MINERAL RESOURCES
The attributable Mineral Resource estimate decreased by 2% to 262.7 million ounces 6E, due to production depletion and model update to the Zimplats Hartley Mineral Resources. This decrease is offset by the model update to Two Rivers’ Merensky Mineral Resources and the addition of the Rukodzi and Ngwarati pillar reclamation at Zimplats.
The attributable Mineral Reserves decreased by 5.8% to 52.5 million ounces 6E, due to production depletion, update to models, mine design and scheduling, and economic tail cutting of life-of-mine at predominantly Impala Rustenburg, Marula and Lac des Iles. This decrease is offset by the addition of Zimplats’ Mupani Upper Ores I and the pillar reclamation at Rukodzi and Ngwarati mines.
In March 2023, RBPlat released a Mineral Reserve and Mineral Resource estimate of 15.13 million and 65.69 million 4E ounces, respectively. This has yet to be verified by Implats and full disclosure will be made when the Group reports interim results in February 2024.
FINANCIAL REVIEW
The Group’s financial performance was negatively impacted by the retracement in rand PGM pricing, lower refined production and sales volumes, continued higher levels of inflation, and the accounting impact of end-of-period inventory valuations and impairments related to Impala Canada and RBPlat, the latter as required by its consolidation.
Revenue of R106.6 billion was 10% or R11.7 billion lower than the prior comparable period:
Cost of sales of R84.3 billion increased 9% or R7.2 billion:
The debit to the cost of sales arising from movement in inventory increased to R2.5 billion from a credit of R21 million in the prior comparable period. Higher levels of in-process stock were fully offset by the impact of lower prices, particularly the lower rhodium prices, which resulted in a write down of rhodium inventory of R2.9 billion to net realisable value.
Stock-adjusted unit costs increased by 14% or R2 470 per 6E ounce to R19 834:
The combination of lower revenue and higher cost of sales reduced gross profit by 46% to R22.3 billion (FY2022: R41.3 billion).
Implats accounted for three significant once-off items in FY2023:
Income benefited from foreign exchange gains of R0.9 billion, while other net expenses included transaction costs and funding commitments of R415 million associated with the RBPlat acquisition. Income from associates declined by 22% to R3.4 billion, with profitability at both Two Rivers and Mimosa receding on weaker PGM pricing, but benefiting from the positive movement in unrealised profits. There was a R597 million contribution from RBPlat for 11 months prior to being consolidated.
The Group recorded an EBITDA of R36.0 billion (FY2022: R53.4 billion) at an EBITDA margin of 34% (FY2022: 45%).
The tax charge for the year amounted to R3.6 billion, resulting in an effective tax rate of 37% (FY2022: R12.1 billion and 27%). The tax charge in the prior comparable period benefited from a credit of R0.2 billion following the change in the South African tax rate, while in the current period it was elevated by the impairment and remeasurement of RBPlat investments, which were not tax deductible.
Basic earnings declined to R4.9 billion or 577 cents per share, from R32.0 billion or 3 856 cents per share. Headline earnings of R18.8 billion or 2 211 cents per share were 41% and 43% lower, respectively. The weighted average number of shares in issue increased to 850.28 million from 831.25 million, with total issued capital on 30 June 2023 increasing to 866.40 million shares. During FY2023, Implats issued 16.18 million shares with a fair value of R2.6 billion, in part consideration for the additional 18.6% stake acquired in RBPlat.
The board approved the declaration of a final dividend of R1.49 billion or 165 cents per ordinary share, in terms of the Group’s dividend policy, which is aligned to its capital allocation framework. This brings the total dividend for FY2023 to 585 cents per share (FY2022: 1 575 cents per share). The dividend was declared from retained earnings and will be paid on Tuesday, 26 September 2023.
Net cash from operating activities declined by 33% to R23.6 billion due to lower sales volumes delivered into softer rand PGM pricing. Capital cash outflows of R11.4 billion (FY2022: R 9.0 billion) increased by 27% or R2.4 billion. Stay-in-business spend increased by 16% to R7.3 billion, while replacement spend of R2.3 billion and expansion capital of R1.9 billion increased by 61% and 41%, respectively. The increase in capital expenditure was impacted by rand depreciation, inflation and increasing spend on a suite of mine extension and processing projects underway across the Group’s managed operations. A further R1.3 billion was incurred on deposits, primarily associated with the Zimplats capital projects.
The cash consideration associated with the acquisition of RBPlat resulted in a R4.9 billion outflow. Implats received R1.6 billion in dividends from its JVs and associates, of which R0.9 billion was received from RBPlat. Dividend payments totalling R13.6 billion (FY2022: R14.8 billion) were made to shareholders and non-controlling interests at Marula and Zimplats. The consolidation of RBPlat resulted in a cash inflow of R5.3 billion. A further R0.6 billion was invested to fund future rehabilitation obligations. Net cash and cash equivalents decreased by R0.6 billion, while exchange rate changes resulted in a R0.9 billion benefit to closing cash balances of R26.8 billion (FY2022: R26.5 billion). Consolidating the RBPlat PIC housing facility resulted in gross closing debt of R1.5 billion, and Implats closed the period with net cash (excluding finance leases of R1.1 billion) of R25.3 billion.
At the end of the period, the Group had undrawn, dual-tranche revolving credit facilities (RCF) of R6.5 billion and US$93.8 million in place, with a further R2 billion undrawn on the pre-existing RBPlat RCF, resulting in liquidity headroom of R37.0 billion at 30 June 2023 (FY2022: R34.5 billion). Post-yearend, Implats increased its shareholding in RBPlats to 98.91% for a cash consideration of R11.1 billion and the issue of 37 million Implats shares. The compulsory acquisition of all remaining RBPlat shares not already owned by Implats will result in a further R0.3 billion outflow.
Implats’ capital allocation framework aims to sustain and grow meaningful value for all stakeholders and provide attractive returns to shareholders, while maintaining financial flexibility for the Group.
During the period, Implats incurred R9.5 billion on stay-in-business and replacement capital, with a further R0.4 billion spent on acquiring shares for the Implats share incentive schemes. After adjusting for R0.9 billion in foreign exchange translation gains, the Group generated R16.6 billion in adjusted free cash flow (FY2022: R29.9 billion).
Of this adjusted free cash flow, 43% was allocated to growth and investment by funding the cash consideration of the RBPlat acquisition, investment in brownfield expansion projects at our processing and mining operations, and contributing to AP Ventures (PGM venture capital). Free cash flow allocation to shareholder returns, through the interim and final dividends and payments to Zimplats and Marula minority shareholders, accounted for 38% of adjusted free cash flow in the period.
Total dividends declared for the financial year amounted to circa 30% of adjusted free cash flow pre-growth capital, in line with the Group’s dividend policy, and considering the liquidity requirements during a period of elevated capital expenditure, the required integration and operation of RBPlat and the PGM pricing environment. R3.2 billion or 19% of adjusted free cash flow generated was therefore allocated to the balance sheet, with R0.6 billion invested for future rehabilitation obligations and the remaining cash to be used to fund the acquisition of the remaining shares in RBPlat not already held at year-end.
PGM MARKET OUTLOOK (calendar years unless otherwise stated)
Palladium and rhodium markets tightened in 2022 — primary supply retraced as the release of work-in-progress inventory moderated and South African processing capacity was impeded by scheduled maintenance and the increased severity and duration of load curtailment. Automotive supply chain constraints eased and underpinned a modest recovery in light-duty vehicle production, while industrial demand remained robust. Platinum benefited from underlying auto and industrial demand growth, but saw negative investor sentiment as the precious metals complex came under pressure, exchange traded funds (ETFs) returned metal to the market and the Chinese jewellery market face headwinds, leading to a post-investment surplus for the year.
There have been several revisions to forecast PGM supply and demand in 2023. Primary supplies continue to be challenged by the South African operating environment, while processing maintenance will result in lower refined Russian supplies. Forecasts for secondary flows continue to be downgraded as scrap collections fall short of expectations in the face of rising interest rates, increased regulatory scrutiny and still-weak new vehicle sales.
While expectations for auto production and sales have enjoyed modest upgrades, forecasts for net metal demanded by industrial users have been adjusted down to account for the destocking of inventory. Negative revisions to the outlook for Chinese jewellery demand have largely been countered by a stronger-than-expected performance in India, the US and Europe.
Our forecasts indicate fundamental deficits for each of the PGMs in 2023. However, the potential impact and pattern of industrial and auto original equipment manufacturer (OEM) destocking, particularly in rhodium, will likely heavily influence physical market tightness, and hence pricing, during the year.
Macro-environment and pricing
Global economic activity in the first half of 2023 proved resilient, despite the challenging environment, with surprisingly strong labour markets and a significant easing in supply chain disruptions. Energy and food prices moderated, allowing global inflation pressures to ease faster than expected. Despite these ‘green shoots’, global commentators and market forecasts remain exceedingly cautious, highlighting the persistence of several challenges.
There are signs that global activity is losing momentum, with tightening monetary policy bringing policy rates into contractionary territory. This has started to weigh on activity, slowing credit growth, increasing interest payments, and placing pressure on real estate markets. China’s recovery following the re-opening of its economy, shows signs of losing steam amid continued concerns about the property sector, with implications for the global economy.
Precious metal pricing continues to be heavily influenced by the global macro-economic outlook and, simplistically, the outlook for US interest rates. Persistently high domestic inflation amid a resilient economic performance resulted in upward revisions to the trajectory of the interest rate outlook, and deferred expectations for rate cuts into early 2024. This, in turn, led to enduring strength in the US dollar and persistent downward pressure on precious metal pricing.
The platinum price closed the financial year just 1% higher at US$ 897 per ounce, with average pricing declining by 4% to US$ 968 per ounce. The platinum market remains in a modest ‘pre-investment’ surplus, with underlying auto, industrial and jewellery demand insufficient to absorb primary and secondary refined supply. Pricing remains heavily dependent on macro-economic news flow in general, and the trajectory of the US dollar and the gold price. Volume trade on the Shanghai Gold Exchange slowed materially in 2023 and price support garnered from ETF purchases eased on profit taking by South African investors, while NYMEX investor positioning contracted on rising short positions into period end.
Palladium closed FY2023 some 20% lower at US$1 254 per ounce with average pricing of US$1 763 per ounce declining by 20%, under pressure from a confluence of factors including the flow of discounted Russian primary supply and destocking by auto OEMs adjusting inventory levels. This was compounded by financial flows — NYMEX net short investor positioning was at multi-year highs. Perceived supply risk has dissipated materially since the advent of the Ukraine conflict, while rising electrification of the global light-duty vehicle fleet and the soft outlook for global growth is weighing on investor sentiment, despite the outlook for tight medium-term markets.
Rhodium pricing also exhibited significant price weakness over the course of FY2023. Average pricing declined 30% to US$ 11 458 per ounce versus the prior comparable period, but the closing price at period end was 57% lower at US$ 4 300 per ounce. Rhodium was negatively impacted by soft spot demand from Chinese fabricators due to a slower-than-expected recovery in economic activity on the easing of zero-Covid-19 policies; the destocking of inventory by domestic fibreglass manufacturers facing financial difficulties; elevated levels of inventory at OEMs; and increased flows of Russian metal to Asia. Rhodium is a small and illiquid market, and the availability of excess stock resulted in a rapid decline in pricing on limited volumes of traded metal.
Auto
The global light-duty vehicle market remains on an improving path, with recent seasonally adjusted selling rates indicating a much firmer performance in 2023. The semi-conductor chip shortage continues to be the primary factor determining market sizes, especially in the mature markets of Europe and North America.
Long vehicle lead times and low inventory levels continue to characterise the industry. Light-duty vehicle sales of 42.7 million units in H1 2023 rose by a notable 11% from the prior comparable period, as the easing of supply constraints supported improved production volumes, and pent-up consumer demand proved resilient to broader consumer confidence and affordability concerns.
July forecasts from Global Insight indicate a 7% and 5% increase in annual sales in each of 2023 and 2024, respectively. Battery electric vehicles (BEVs) continue to gain market share, with rolling 12-month global light-duty market share of 12% in June 2023 versus 9% in the prior comparable period. Questions remain over the global market’s ability to sustain the near-doubling of BEV sales in H1 2023 into the second half of the year — US growth seems set to remain high, but Europe may struggle.
Recovery in the global medium and heavy truck market is also expected to take place in 2023. Last year’s sharp drop was driven primarily by the Covid-19-shocked Chinese market, which is now normalising. Global Insight expects global production of medium and heavy trucks to rise 7% from 3.0 million units in 2022 to 3.3 million units in 2023, with China accounting for most of the increase, and a further 5% in 2024.
PGM demand will benefit from the continued recovery in production volumes. However, platinum will outperform due to growth in the truck market (which is dominated by diesel powertrain) and increased levels of switching platinum for palladium in the light-duty vehicle gasoline market.
Jewellery
Global jewellery demand is characterised by the divergence in performance and expectations in the Chinese market – where manufacturing demand was eroded by a confluence of competitive forces – relative to the burgeoning Indian market and the better-than-expected resilience and latent growth potential from mature markets in the US, Europe and Japan.
In China, the promising start provided by robust consumption and a stabilising manufacturing and investment pace indicated a narrowing of year-on-year declines in jewellery demand. However, as economic activity faltered and consumer confidence remained subdued, momentum wavered. The widely acknowledged fragility of economic data increased the urgency for government stimulus and support. Platinum Guild International (PGI) estimates that fabrication contracted by 19% in H1 2023 versus the prior comparable period.
In India, the government has remained focused on strong growth with an expansionary national budget, and the broader jewellery industry enjoyed modest growth – however, platinum as a high-margin category outperformed and delivered double-digit increases. PGI India is developing the opportunity to use India as a pilot to enter the Gulf region, where a large and affluent Muslim and Indian male demographic is seen as an attractive target for platinum growth by PGI’s partners.
In Japan, the market swung back to growth after Covid-19 restrictions were lifted, despite the impact of rising inflation, and jewellery sales are set for their eighth successive quarter of expansion. In the US, although GDP slowed, consumption levels stayed relatively resilient. As expected, sales dipped slightly from 2022 levels, which benefited from high wedding demand and pent-up savings following the pandemic, but were better than previously expected given the economic constraints and the concomitant shift in spending patterns.
In total, our medium-term outlook for jewellery continues to indicate market dominance shifting away from China, with a strong US and burgeoning Indian market. This provides resilient and meaningful stability to the outlook for this segment of demand in our own modelling.
Industrial
The chemical, glass, electrical, biomedical and petroleum sectors drive industrial demand for PGMs, with annual demand impacted by both capacity utilisation rates and changes in installed capacity. The underlying outlook for industrial demand in 2023 was somewhat overshadowed by the pattern of industrial users destocking elevated PGM inventory levels, particularly rhodium, which led to meaningful dislocations in market liquidity and created significant pricing pressure.
Steady investment in both the petroleum and chemical sectors will continue to support industrial demand, while glass capacity expansions will moderate – expansions have slowed in response to the weak consumer electronics sector. The price-sensitive elements of palladium demand, including electronics and dental, are expected to continue their steady decline, with still-high pricing and shifts in consumer preferences weighing on demand.
Investment
Implats’ definition of the investment market includes ETF flows and net bar and coin purchases. As of 30 June 2023, the 13 platinum, palladium and rhodium ETFs in Europe, Asia, North America, Australia, Japan, and South Africa held a total of 3.26 million ounces platinum, 624 000 ounces palladium and 9 000 ounces rhodium with year-to-date inflows of 194 000 ounces, 66 000 ounces and 350 ounces, respectively. These flows will positively impact platinum demand and supply balances after heavy disinvestment in 2022.
After a quarter of accumulation in Q1 2023, the strong yen platinum price resulted in net returns of bars by Japanese investors in Q2 2023, with modest net purchases in the year-to-date as a result. Elsewhere, strong coin demand in Europe and North America will support another positive year of demand from this segment.
Hydrogen
The development of a hydrogen economy and the latent potential offtake for PGMs underpins our long-term view of future demand and the continued role our primary products will play in a changing world. Implats believes evolving demand from electrolysers and fuel cells will be augmented by that from adjacent and associated technologies and processes — enabling new and diversified uses for PGMs. In the case of platinum, hydrogen-related demand will likely offset the anticipated decline in demand from catalysing emissions from internal combustion engines, while also delivering absolute growth for each of platinum, iridium and ruthenium.
The adoption of coordinated, long-term regulatory policy and incentives which have been outlined by many early adopter markets including Europe, Japan, Korea, China and the US de-risks the outlook for demand from this sector. Implats base-case forecasts indicate a potential PGM market for more than 2.5 million ounces of annual PGM demand over the next two decades.
Supplies
Refined PGM mine supply should expand modestly in 2023. South African supply remains vulnerable to inventory accumulation due to persistent constraints across industry processing assets due to load curtailment. The ability to supplement refined metal shortfalls by drawing down refined stock is also limited, in our view, given the pattern of these sales and residual inventory across the peer group.
The rapid regression in PGM pricing will result in a keen focus on cost and capital plans across the industry, and we expect negative revisions to production profiles as projects are slowed and rescoped in response to margin contraction. The fall in rhodium pricing has consequences for the economic viability of the UG2 production base, which has been the focus of production upgrades and life extensions in the recent past.
In North America, palladium-rich orebodies have been challenged by high inflation due to labour and skills shortages, supply chain constraints following Covid-19, and the material retracement in revenues in 2023 year-to-date, which threatens the future production profile of these operations.
Finally, accurately forecasting the pattern of future Russian production and sales has become more challenging, while the route-to-market and pricing of these ounces is a key market dynamic for PGMs in 2023.
Forecasts for secondary PGM supplies continue to be downgraded in the near term, with an expected period of ‘catch-up’ in the medium term. The cost and complexity of collecting, funding and transporting spent catalyst materials remains challenging, with the decline in palladium and rhodium pricing providing further headwinds to supply. We continue to expect meaningful growth from this source, however, with capacity expansions in China key to unlocking regional growth.
PROSPECTS AND OUTLOOK
The uncertain macro-economic environment and the recent material decline in dollar PGM pricing heralded a period of rapid margin compression across the sector, which requires decisive action and focus to preserve business sustainability. The pricing decline, however, is taking place in the context of a robust medium-term outlook for our primary products – discounted metal flows from Russia and destocking by OEMs and industrial end users is causing pricing dislocations, exacerbated by the impact of speculative flows in both platinum and palladium.
Implats remains focused on delivering consistent and safe production, constructively collaborating with key stakeholders and entrenching operational agility and flexibility.
Each operation was reviewed in the context of current pricing, and their operating and capital plans aligned to ensure an appropriate response to the reality of current PGM pricing. Implats’ ability to do so was underpinned by a prudent and consistent approach to balance sheet management, capital allocation and the Group’s investment framework, which collectively guided the current capital expenditure profile.
The Group invested heavily in asset integrity, harvesting the benefit of its recent strong financial performance to materially strengthen its portfolio competitiveness. Implats’ expansion projects are focused on the lowest-cost and most capital-efficient producing assets.
It is imperative that each operation generates positive margins through the cycle. The Group is advancing targeted capital and cost interventions in response to the current market conditions. Implats will sustain investment across projects key to ensuring regulatory compliance and strategic value creation. The commitment is to prioritise shareholder returns, with a dividend policy founded on a minimum allocation of free cash flow generated before growth capital.
The near-term focus at RBPlat is to optimise costs, improve metallurgical performance, complete the Styldrift ramp-up, and plan and implement the medium and longer-term initiatives to realise the synergies provided by the RBPlat acquisition. The downturn in palladium pricing compounded margin compression from structural changes in the operating and cost context faced by Impala Canada, largely due to the aftermath of Covid-19 and the subsequent supply-chain constraints, labour market tightness and hyper-inflationary pressures from rising global utility and consumables pricing. Teams are working to secure a sustainable value proposition for the asset, underpinned by the volume gains and operating momentum established in FY2023 – specifically targeting mining from higher-grade areas.
At Two Rivers, a comprehensive review of the Merensky project was completed, reaffirming the quality and growth potential from this low-cost, mechanised orebody. Operational challenges, which impeded the planned ramp-up in UG2 tonnage to fill increased milling capacity, will be addressed and the Group anticipates a stabilisation and subsequent improvement in production momentum at the mine in FY2024.
Guidance
Group production in FY2024 will be supported by volume gains from increased milling capacity at Zimplats and Two Rivers, while the improved operational stability established at Impala Rustenburg and Impala Canada bodes well for further efficiency gains. Concentrate volumes from RBPlat will materially alter the production profile for the Group, while third-party receipts reflect expected volumes from pre-existing contracts at IRS. Refined volumes will be impacted by the planned rebuild of Number 5 furnace, with Group sales in line with refined and saleable production.
Group 6E refined production is expected to be between 3.30 and 3.45 million ounces. Group unit costs are forecast to rise by between 6% and 10% to between R21 000 per ounce and R22 000 per ounce on a stock-adjusted basis. Group capital expenditure is forecast to be between R12.5 billion and R13.5 billion, inclusive of growth capital of between R3.0 billion and R3.5 billion. This guidance assumes exchange rates of R18.25/US$ and C$1.34/US$, respectively.
FY2023
FY2024
1 Includes Impala Canada and RBPlat saleable ounces.
The financial information on which the above guidance is based has not been reviewed and reported on by Implats’ external auditors.
DIRECTORATE
Ms Mametja Moshe and Mr Billy Mawasha were appointed as independent non-executive directors with effect from 1 July 2022 and 1 September 2022, respectively. After 10 years of service, Mr Alastair Macfarlane’s planned retirement as independent non-executive director took effect on conclusion of the annual general meeting on 12 October 2022. We were saddened to report that Mr Peter William Davey, an independent non-executive director, passed away on 7 February 2023 after a short illness. Mr Bernard Swanepoel was appointed as the lead independent director of the board on 21 February 2023.