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Implats posts R318m in six months to December

WITHHOLDING DIVIDENDS Owing to Impala Platinum’s continued ‘cash conservation strategy’ its had resolved not to declare an interim dividend

BRENDA BERLIN Gross cash at the end of the period under review amounts to R5.4-billion, while debt (excluding leases and net of the cross currency interest rate swap) is R6.5-billion

3rd March 2017

By: Ilan Solomons

Creamer Media Staff Writer

     

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Platinum miner Impala Platinum (Implats) has recorded a gross loss of R318-million for the six months to December 31, a significant increase on the loss of R40-million recorded in the six months to December 31, 2015.

The group posted a headline loss of R508-million, compared with headline earnings of R347-million in the prior comparable period.

Cash generated from operations (before changes in working capital) improved from R1.2-billion to R1.8-billion, while Implats said that an increase in inventories, of R1.2-billion, and trade and other receivables, of R230-million, were largely responsible for the reduction in cash from operations (after changes in working capital) to R446-million from R1.4-billion in the prior comparable period.

The company also explained that the increase in inventories on the balance sheet was affected by an increased net realisable value adjustment of R660-million. Implats stated that, owing to its continued “cash conservation strategy”, the board had resolved not to declare an interim dividend.

Implats CFO Brenda Berlin noted during a presentation of the company’s interim results last week that the company’s R18.5-billion cost of sales had increased by R1.7-billion from the comparable six months. She said the increase of R546-million in operating costs to R11.5-billion was the main contributor to the increase in cost of sales.

“Nonetheless, this 5% operating costs increase was contained below mining inflation of 5.8%, comprising South African operations mining inflation of 7.2% and Zimplats rand inflation, which was at 0.9%,” she stated.

Berlin also pointed out that a share-based compensation expense of R79-million, compared with a credit of R138-million in the previous comparable period, and an increase of R717-million in the cost of metals purchased as a result of higher volumes bought by Impala Refining Services (IRS) and higher rand metal prices contributed to the company’s increased gross loss.

Further, she noted that the group had generated revenue of R18.2-billion during the period under review, which was R1.4-billion, or 8.3%, higher than the comparable six months. Berlin elaborated that this was attributable to a variety of factors, including a negative volume variance of R75-million.

She said the negative variance resulted from an inventory drawdown for the six months to December 2015, which was not repeated in the six months under
review, but which had been partially offset by higher production volumes.

Berlin added that the positive dollar metal price variance of R714-million resulted from the average dollar revenue basket per platinum ounce of about $1 775 sold, which was about $151, or 9.3%, higher than the comparable period. The average prices achieved for platinum and palladium were 4.8% and 6.6% higher respectively,
while rhodium and nickel dollar prices were 16.3% and 6.4% lower respectively.

Moreover, she pointed out that a positive R749-million exchange rate variance was the result of the average rand:dollar exchange rate of R14.04 to the US dollar being about 4.5% weaker than the R13.45 to the US dollar achieved during the prior comparable period.

Further, Berlin highlighted that the R411-million loss before tax was an improvement from the comparable period’s pretax loss of R552-million, which was largely due to an impairment charge of R257-million in the prior period. She commented that the pre-tax loss for both periods was not materially impacted on by exchange rate movements on the dollar bond, owing to the effectiveness of the group’s hedging practices.

Gross cash at the end of the period under review amounted to R5.4-billion, while debt (excluding leases and net of the cross currency interest rate swap) amounted to R6.5-billion, which resulted in net debt of R1.1-billion as at December 31.

However, Berlin emphasised that the balance sheet “remained strong”, with unused facilities of R4.75-billion, R4-billion of which is available until 2021. “This liquidity provides security and flexibility to address upcoming debt maturities and will service the ongoing needs of the business.”

Market and Operating Outlook
Implats acting CEO Gerhard Potgieter said that, looking ahead, the challenges and uncertainties confronting the Southern African platinum-group metals (PGMs) mining industry remained significant and would continue to constrain primary metal supply.

He said that, aligned with the forecasts for strong global demand for these metals, supported by growing vehicle sales, tightening emission standards and the growing unsustainable use of palladium in automotive catalytic systems, the group expected fundamental market deficits to persist.

“This, coupled with reduced above-ground stock liquidity, bodes well for much healthier future supply and demand fundamentals. However, near-term metal prices could remain muted, given persistent global political and economic factors impacting investor sentiment,” Potgieter cautioned.

He added that, against this outlook, the company’s board had recently approved the construction of the Mupani replacement mine, at Zimplats, along with modernisation and detailed rescheduling studies to restart the 17 Shaft replacement project at Impala Rustenburg within the next two years.

Potgieter said that, despite a more positive market outlook, the operating environment in Southern Africa remained “fluid and challenging”, particularly at the more labour-intensive South African mines where safety challenges and community disruptions continued to impede optimum performance.

Moreover, he highlighted that Implats would continue to prioritise the goal of zero harm, preserve cash, enhance productivity and increase profitability.

“We will, therefore, continue implementing our strategic response plan, which has already yielded significant improvements, realised material cost savings and secured the Implats balance sheet.

“Further, measures to bed down improvements and strengthen our response to the
challenging operating environment have been introduced, specifically at Impala Rustenburg, where external technical capacity has been secured to regain lost momentum after the recent safety incidents,” Potgieter said.

He emphasised that these interventions targeted safe production and mining efficiencies to ensure the transition to a more concentrated, low-cost operation producing at least 800 000 oz/y of platinum from 2020.

Potgieter highlighted that, given the severe impact of safety stoppages at Impala Rustenburg and the community disruptions at Marula in the first half of the financial year, the full-year production estimates for these operations had been revised to 650 000 oz of refined platinum and 80 000 oz of platinum in concentrate respectively.

The guidance for Zimplats, Two Rivers and Mimosa remained unchanged at 260 000 oz of platinum in matte and 175 000 oz of platinum in concentrate and 115 000 oz of platinum in concentrate
respectively. Potgieter said gross refined platinum ounces for the group were expected to reach 1.5-million ounces of platinum for the full financial year.

“Unit costs are expected to be approximately R22 200/oz of platinum for the full financial year, with group capital expenditure forecast at about R4-billion,” he concluded.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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