The period under review has seen a reversal of global economic conditions driven primarily by the worsening Eurozone crisis. The downward pressure this has exerted on prices has been somewhat ameliorated by the weakening of the rand resulting in gross margins decreasing only marginally. The major projects currently being undertaken, namely the development of the three new shafts at Rustenburg and the Phase 2 expansion at Zimplats remain on track. Empowerment discussions with the Government of Zimbabwe are ongoing regarding that country’s Indigenisation law.
Safety
Safety performance remained unsatisfactory with six fatalities during the half year ended December 2011. All the incidents occurred at Impala Rustenburg. Three were due to falls of ground, two due to equipment handling incidents and the other resulted from an explosives incident. The Board, Management and all of the Implats team extend their sincere condolences to the family and friends of our late colleagues who lost their lives during the period under review.
The Group Lost-Time Injury Frequency Rate also remains a concern given the 18.4% deterioration to 5.85 per million man-hours worked. Impala and Marula deteriorated by 23.7% to 6.69 and 27.9% to 11.75 respectively, whilst Zimplats improved by 70.7% to a record of 0.22. Mimosa deteriorated to 1.29. Total Injury Frequency Rate improved 6.7% to 12.56.
The Implats safety strategy continues to focus on changing the safety culture of the organisation and closing the supervision gap in order to ultimately achieve our vision of zero harm. In the current financial year, the main areas being targeted are: changing the culture, increasing supervision, visible leadership, measurement and reporting of leading safety indicators, and safety rule compliance.
Market overview
If ever any doubt existed about fundamentals being the only drivers of PGM markets, then 2011 provided ample evidence that the actions of the investment community proved more influential to our metals’ fortune than demand alone.
PLATINUM
Platinum prices started the year in the mid $1 700’s, and after briefly touching a high of $1 900 in late August, succumbed to a bout of investor selling as the world’s economic woes, especially in the Eurozone countries, led a flight of capital out of commodities into the relative safety of the US dollar and gold – resulting in a $400 drop in September alone. Prices ended the year at around $1 400, having tested the mid $1 300’s in late December, and averaged $1 720 for the year. The market reverted to a small surplus for the year, driven by an improvement in North American primary supply and increased recycling, offsetting a relatively stable demand environment, with increased industrial demand overshadowing a reduction in investment demand.
Automotive demand increased by just over 5% for the year, despite the woes of Europe – platinum’s main automotive market, as its diesel share increased and the fitment of emission control systems to heavy duty diesels globally gathered momentum. Furthermore, the lower price environment, where prices dropped below that of gold for the first time in nearly a decade, resulted in an increase in platinum jewellery sales in China, with total jewellery demand growing by some 7%.
PALLADIUM
From a palladium point of view, bullish fundamentals were swept aside as investors unwound positions in the latter part of the year. Having started the year near $800, the second half saw significant selling which forced prices down to the $560’s, averaging $733 for the year but still nearly 40% higher than 2010 levels. The low levels experienced during October triggered substantial forward buying and physical purchases which pushed prices back towards $565 at the year end.
Automotive demand grew close to 10% for the year, but the combination of a half a million ounces net redemption of metal from Exchange Traded Funds (ETFs), together with the re-emergence of Russian destocking left the market in a significant surplus.
RHODIUM
Despite the launch of a rhodium ETF during the year, average prices reduced by 15% from 2010 levels as the market continued to be adequately supplied. Increases in automotive demand were well matched by growth in SA supplies via the ever increasing UG2 mix as well as aggressive selling from secondary refiners / recyclers.
Operational review
Mine-to-market production remained virtually unchanged at 738 000 ounces of platinum, however a 47.6% decrease in third party and toll treatment volumes over which the Group has no control, resulted in an 11.1% decline in gross platinum production to 846 000 ounces. Unit cost increased by 9.9% to R11 283 per platinum ounce (12.8% to R11 589 per platinum ounce excluding the change in estimate of off-reef development as described in the Financial review). This is reflective of the recent wage agreements and power tariff increases in both South Africa and Zimbabwe.
IMPALA
Impala Rustenburg was severely impacted by the issuance of a significant number of high impact Section 54 notices which commenced in September and continued through to the end of the reporting period. In excess of 510 000 tonnes were lost as a result and a loss of some 33 000 platinum ounces can be attributed to these interventions. Tonnes milled (underground and opencast) decreased by 12.3% to 6.85 million. This was mitigated by the treatment of approximately 680 000 tonnes of additional surface material and processing pipeline adjustments, which resulted in refined platinum production of 490 000 ounces.
Unit costs per platinum ounce refined excluding share based payments rose by 8.2% to R10 994 (11.6% to R11 339 before change in capitalisation estimate). The increase was due to the ongoing impact of the high inflationary environment and lower production.
The focus at Rustenburg remains on the development of the three new major shafts. At 20 Shaft the decision at the end of June 2011 to delay production ramp-up by 12 months to allow focus on the development of the incline and decline was vindicated as this development has achieved its targeted rate and production is scheduled to commence in FY2013. At 16 Shaft sinking has been completed and shaft equipping is in progress with production remaining on schedule for FY2014. Sinking at the 17 Shaft complex remains on target. The development of the first two horizontal levels have commenced. First production is still expected in FY2017. Capital expenditure increased by 63.6% to R3.0 billion.
ZIMPLATS
Tonnes milled increased by 4.4% to 2.17 million resulting in a corresponding increase in platinum production in matte to 92 000 ounces. Unit costs per platinum ounce in matte increased by 16.8% to $1 322 in dollar terms and by 23.8% in rand terms to R10 010. This was due to a combination of the award of a statutory 20% salary increase backdated to January 2011 and a provision for the 59% tariff increase proposed by Zimbabwe Electricity Supply Authority (ZESA) in September.
The Phase 2 expansion which will increase production by 90 000 to 270 000 ounces of platinum in FY2014 remains on schedule. The declines at Portal 3 are progressing well and are now approximately 100 metres below surface while work on the concentrator and other infrastructure continues.
The company announced in October that it would establish a 10% community share ownership scheme as part of its indigenisation plan which was submitted in late November. The Trust has since been registered, but the transaction has yet not been implemented as discussions remain ongoing with the Government of Zimbabwe on the overall indigenisation plan.
MIMOSA*
Mill throughput increased by 0.8% to 1.15 million tonnes and platinum production in concentrate increased 2.3% to 52 400 ounces due to improved grade and recoveries. Unit costs per platinum ounce in concentrate rose by 21.1% to $1 502 in dollar terms and rose by 28.5% to R11 374 in rand terms due to the same inflationary pressures experienced by its sister Zimbabwean mine.
In December the company announced that it had established a community share ownership trust that would hold 10% of the company as an integral part of its indigenisation plan. This transaction has also not been effected due to ongoing discussions with the Government of Zimbabwe.
MARULA
Tonnes milled decreased by 9.1% to 0.81 million and second quarter tonnes milled were in line with the new production target. Platinum production in concentrate was on plan at 36 000 ounces. The forecast for the year remains 70 000 ounces of platinum.
Total cash cost and platinum in concentrate production decreased by 5.9% and 12.4% respectively in line with the right-sizing of the operation. Unit cost per platinum ounce in concentrate, excluding share-based compensation, increased by 2.8% to R15 056 (7.4% to R15 752 before taking into account the change in capitalisation estimate).
TWO RIVERS*
Tonnes milled increased by 5.1% to 1.56 million which resulted in a corresponding increase in platinum production in concentrate to 77 000 ounces. Unit costs per platinum ounce in concentrate rose by 8.1% to R10 239.
IMPALA REFINING SERVICES (IRS)
Refined platinum production declined by 21.1% to 356 000 ounces due to a 47.6% decrease in third party and toll treatment volumes to 108 000 ounces. This was primarily due to the once-off toll treatment for Lonmin in the corresponding period a year ago coupled with operational challenges at Crocodile River and the closure of Blue Ridge.
MINERAL RESOURCES AND MINERAL RESERVES
There has been no material change to the technical information relating to the Group’s mineral reserves and resources, or legal title to its mining and exploration activities, as disclosed in the Integrated Annual Report for the financial year ended 30 June 2011.
*Comprises 100% of operational performance.
Financial review
Basic headline earnings improved by 66% to 573 cents per share from 345 cents. The weaker closing exchange rate of R8.09 at the end of December 2011 compared to the R6.77 at the end of June 2011 resulted in exchange gains of R608 million for the review period compared to a loss of R551 million for the comparable period. The revaluation of metal purchase creditors as a result of the decline in metal prices at half year end contributed R473 million.
Revenue was marginally higher at R15.4 billion. Sales volumes were down due to an inventory buildup at Impala Platinum giving rise to a negative volume variance of R1.3 billion. Achieved dollar metal prices were higher, platinum at $1 673 per ounce up 4.8%, palladium 28.0% higher with rhodium 20.8% and nickel 6.3% lower. The impact was a positive price variance of R663 million. The average rand/dollar exchange rate achieved during the period under review weakened from R7.16 to R7.55 which resulted in higher revenue of R732 million.
Cost of sales increased by 3.0% compared to the previous review period. This was positively impacted by a reduction in the share-based payment provision of R130 million (as a result of a lower share price at the end of December 2011) compared to an increase in the provision in the comparable period of R542 million. Metal purchases increased by R419 million mainly as a result of higher metal prices. Depreciation increased by R114 million as a result of a higher asset base and the change in accounting estimate (see below).
The group unit cost per platinum ounce produced, excluding share based payment costs, escalated by 9.9% to R11 283 per platinum ounce from the comparable period. The bulk of this increase was inflation related with wages escalating by 10.0%, consumables 7.4% and electricity by 25.8%. Zimplats’ rand inflation at 23.8% was aggravated by the weakening of the rand/dollar exchange rate. As indicated in the Integrated Annual Report for the financial year ended 30 June 2011, a change in accounting estimate for development costs resulted in certain development costs being capitalised and depreciated over the estimated useful life. For the year to date an amount of R196 million was capitalised. The impact of this was to reduce unit cost per platinum ounce from 12.8% to 9.9% as indicated above.
The above resulted in the gross margin decreasing marginally to 31.2%.
Capital expenditure for the half year totalled R4.3 billion, compared to R2.4 billion in the previous half year to December 2010. Of this, R3.0 billion was incurred at Impala. The forecast capital expenditure for the financial year 2012 will amount to approximately R7.7 billion, and is estimated to be R27 billion over the next four years. This will be managed in line with the Group’s profitability and cash flow.
Borrowings increased by R859 million from June 2011 mainly as a result of a R768 million property sale and leaseback transaction.
Cash from operating activities for the interim period totalled R3.0 billion (December 2010: R2.0 billion). Cash net of debt amounted to R633 million (December 2010: R 115 million).
Notwithstanding the ongoing uncertainty regarding the full financial impact of the current illegal strike, the Board has resolved to limit the interim dividend to 135 cents per share.
Prospects
The past six months would suggest that any sustained rally in the PGM markets is likely to be driven by an embryonic recovery in the US and a renewed growth focus in China, and would be balanced by the potential for a disorderly default in some EU countries. As a result we expect continued volatility in the commodity markets until a more definite growth environment can be established.
Subsequent to half year-end the majority of the Impala Rustenburg mining employees embarked on an illegal strike, resulting in the dismissal of approximately 17 000 employees. The impact of this business interruption is a loss of some 3 000 ounces of platinum production per day.
As at the 14th of February 2012 this had resulted in a loss of production of 60 000 ounces of platinum.
Declaration of interim cash dividend
An interim cash dividend of 135 cents per share has been declared in respect of the half year ended 31 December 2011. The last day to trade (“cum” the dividend) in order to participate in the dividend will be Friday, 02 March 2012. The share will commence trading “ex” the dividend from the commencement of business on Monday, 05 March 2012 and the record date will be Friday, 09 March 2012.
The dividend is declared in the currency of the Republic of South Africa. Payments from the United Kingdom transfer office will be made in United Kingdom currency at the rate of exchange ruling on Thursday, 08 March 2012, or on the first day thereafter on which a rate of exchange is available.
A further announcement stating the Rand/GBP conversion rate will be released through the relevant South African and UK news services on Friday, 09 March 2012.
The dividend will be paid on Monday, 12 March 2012. Share certificates may not be dematerialised/rematerialised during the period Monday, 05 March 2012 to Friday, 09 March 2012, both dates inclusive.
By order of the Board
A Parboosing
Group Company Secretary
Johannesburg, 16 February 2012
Approval of the interim financial statements
The directors of the Company are responsible for the maintenance of adequate accounting records and the preparation of the interim financial statements and related information in a manner that fairly presents the state of the affairs of the Company. These interim financial statements are prepared in accordance with International Financial Reporting Standards and incorporate full and responsible disclosure in line with the accounting policies of the Group which are supported by prudent judgements and estimates.
The interim financial statements have been prepared under the supervision of the Chief Financial Officer Ms B Berlin, CA(SA).
The directors are also responsible for the maintenance of effective systems of internal control which are based on established organisational structure and procedures. These systems are designed to provide reasonable assurance as to the reliability of the interim financial statements, and to prevent and detect material misstatement and loss.
The interim financial statements have therefore been prepared on a going-concern basis and the directors believe that the Company and the Group will continue to be in operation in the foreseeable future.
The interim financial statements have been approved by the Board of directors and are signed on their behalf by:
KDK Mokhele
DH Brown
Chairman
Chief Executive Officer
Johannesburg, 16 February 2012 |
