JOHANNESBURG (miningweekly.com) – Strong operational results and marginal cash cost increases during the quarter ended June 30 had kept Aquarius Platinum broadly cash neutral; however, the platinum group metals (PGM) price basket would need to rise for the dual-listed group to offset the agreed wage increases, research analysts from Liberum Capital commented on Thursday.

Earlier this week, Aquarius successfully concluded separate three-year wage agreements with the National Union of Mineworkers and Solidarity for employees at the company’s primary operation, Kroondal, in the North West, without any production interruptions.

“The successful [negotiation] … was very pleasing and testimony to good labour relations between Kroondal and its workforce, as well as represented unions,” CEO Jean Nel said in Aquarius’ fourth-quarter report on Thursday.

On a cost-to-company basis, the average agreed wage increase, which was effective July 1, slightly surpassed that of the increase in the cost of living as measured by the inflation rate.

The agreement had followed shortly after the conclusion of a five-month strike in South Africa’s platinum sector, throughout which platinum traded robustly, with the platinum price supported by the lost production.

“Relatively muted price appreciation has largely been attributed to the fact that market participants were able to partially negate the associated production disruption by the build-up in above-ground stocks, with the strike action being well flagged throughout 2013,” Nel noted.

During the three months ended June 30, the average platinum price increased by 1.3%, while the average palladium price increased by 9.4%. Platinum had closed the quarter up 4.8% at $1 486/oz, with palladium up 8.6% to $843/oz, Aquarius commented.

The PGM basket price at Kroondal increased 0.5% quarter-on-quarter to R12 822/oz and 12% compared with the comparative period the previous year.

The PGM basket price achieved at Aquarius’ Zimbabwe-based Mimosa mine reached $1 156/oz – a 4% rise on the preceding quarter, but down 6% when compared with the three months to June 2013.

Cash costs of R9 396/oz at Kroondal remained unchanged quarter-on-quarter but increased 9% on the prior year, while cash costs at Mimosa increased 2% quarter-on-quarter to $908/oz, following one-off voluntary retrenchment costs of $105/oz.

Excluding the impact of the one-off retrenchment initiative, which was expected to contribute to lower future costs, the cash cost would have decreased 10% to $803/oz.

“Aquarius Platinum provides good leverage to PGM prices as it currently stands, but [it remains] with too many unknowns and tails,” the Liberum analysts said.

They further stated that Aquarius’ liquidity was “a lot healthier” post a successful rights issue.

However, the $64-million disposal of two noncore assets – the Kruidfontein prospecting right and Sheba Ridge – during the first half of 2015, would be key to having sufficient cash to repay the remainder of the convertible bonds at the end of next year.

QUARTERLY OUTPUT
Aquarius said the group's fourth-quarter performance was “credible”, with both Kroondal and Mimosa delivering safety, production and cost performances ahead of guidance.

During the three months, Kroondal produced more than 105 000 oz for the sixth consecutive quarter, despite the interruptions from the public holidays and South African national elections in May.

PGM production at Mimosa increased 17% quarter-on-quarter to 60 818 oz, owing to improved stability of the plant.

However, the five-month platinum strike resulted in zero production from Aquarius’ Platinum Mile operation, which sourced feedstock from Anglo American Platinum’s concentrator plant, in Rustenburg.

“The strike has since ended and, although significant uncertainty in relation to the date and level of production recommencement prevail, Platinum Mile expects to commence receiving feed in late July,” Nel noted.