JOHANNESBURG (miningweekly.com) - The 40 000-employee Impala Platinum Mine in Rustenburg, which is 'harvesting' unprofitable shafts while studying additional investment opportunities in the many profit-making shafts within its well-endowed, long-life lease area, has set in motion a process to cut costs by R1-billion.
Harvesting, which involves halting investment in the development of shafts and mining out the remaining reserves, renders the shafts profitable in the short-term. (Also watch attached Creamer Media video).
The strategic review process that the JSE-listed mining company, headed by CEO Nico Muller, set in motion in September, is also focused on investment opportunities in profit-making shafts in addition to harvesting loss-makers to a point of closure.
The company, which spent R1.4-billion capital at Impala Rustenburg in the six months to December 31 mainly on providing flexibility through development, requires a basket price of about R27 000/oz to break even, on a production of 700 000 oz/y.
Another aim of the Implats strategy is also to improve profitability at the Marula mine on the eastern limb of the Bushveld Complex, or to suspend the operation.
Implats, which also has the cash-positive Zimplats and Mimosa platinum mines in Zimbabwe and Two Rivers in Mpumalanga, reported a gross profit of R733-million for the half-year, compared with a gross loss of R139-million for the prior comparable period.
In harvest mode are 1 Shaft, 9 Shaft and 12 Shaft, but the real measure of this resilient lease area are the large 11 Shaft and 14 Shaft and the new 16 Shaft and 20 Shaft.
"We're not just dialling back, but also looking at where we can continue to invest and continue to focus and grow production," Implats COO Gerhard Potgieter told at a media roundtable in which Creamer Media's Mining Weekly Online took part.
The big four shafts alone are able to continue pushing out 80% of the production at a rate of 700 000 oz/y, going well into the future, which leaves the remaining 20% of the production for harvesting.
Gross cash as at December 31 was R4.2-billion and committed but unutilised banking facilities until June 2021 another R4-billion.
"We've just scraped the tip of the iceberg", is how Muller described the extent of the strategic review process, which is taking place at a time of general consensus that the downturn in the hard-pressed platinum mining industry is at the point of bottoming out.
"On the assumption that the current price environment will persist, we need to go a lot further," he said.
4 Shaft has been suspended and a Section 189 restructuring process that could result in more job losses is under way.
Full-year guidance has been cut from 700 000 oz of platinum to between 650 000 oz and 670 000 oz of platinum for the financial year to June 30.
"There's no doubt that we currently have ounces that are unprofitable," said Potgieter.
A review process at each of the shafts involves firstly trying to optimise the shaft to see whether the unprofitable ounces can be made profitable.
If it is not possible to do so, the next step is to put the shaft into harvest mode, which involves halting investment in the development of the shaft and mining out the remaining reserves, which renders the shafts profitable in the short-term.
The shaft in harvest mode then makes its personnel available to growth shafts to minimise retrenchment costs from the shaft in harvest mode.
If that fails to help, the shaft is closed to cease wasting money on it.
4 Shaft was stopped at the end of the second quarter because the remaining 10 000 oz in it could not be mined profitably and 600 of the 800 personnel were moved to other shafts to lower the cost of retrenchment.
9 Shaft, the second shaft put into harvest mode, will remove another 3 000 oz out of the production profile when it is closed in 18 months.
The big 1 Shaft was put into harvest mode when a proposed transaction to acquire ground from neighbouring Sibanye-Stillwater fell through.
1 Shaft is coming to the end of its life, and it will be harvested over the next two years. Should the metal price change, it could continue as it does have the reserves to do so, but the Merensky reef will, at that stage, be mined out and upper group two reef alone is insufficient to render the shaft viable, which is why it was put into harvest mode.
Some of the teams that formerly worked at 4 Shaft have been transferred to 12 Shaft.
With those shafts falling out of the picture, excess infrastructure and service personnel are now coming under review.
The R1-billion saving so far only arises from the steps taken to date to end the production of unprofitable ounces at shafts and not through the elimination of excess infrastructure and excess service personnel, which could now mean more job loss.
The third review step is to review the review, re-examine the money invested in resized operations, which will take in 20 Shaft and 16 Shaft, to ensure that there is still a certain case for continued investment.
New Implats CE: Rustenburg operations Mark Munroe said in response to Mining Weekly Online that Impala Rustenburg was semi-mechanised in certain areas and that the company was planning to intensify its semi-mechanisation thrust.
"But the main approach is to get your leadership in front of the business and do the basics very well. Get your advanced blast. Get your basic drilling right. Get your supervision levels up. I see significant opportunity in those big few shafts that will make up 80% of our business going forward.
"In the last five, probably ten years, the South African mining industry has not invested in its leadership's ability to manage a new and transformed workforce. If you leverage the human element, you'll get significant value. Our modernisation will be of the human element. We're going to deploy more modern management techniques and planning to get a lot more value out of our business," Munroe said.
Muller concurred that there were opportunities to improve fundamentally with the current set of technology.
"If we could mine safer and just mine better, it would help," Muller said, adding that the company had exceedingly innovative and modern communication tools in use.
"Perhaps we haven't gone to diamond-wire cutting or non-explosive mining methods, but in areas where we've seen an opportunity to implement a technology to improve the business, the company has done so historically and will continue to do so going forward," he said.
Tragically, five employees at Impala Rustenburg and one at Marula suffered fatal injuries in the six months to December 31 - with a seventh fatal injury taking place after the reporting period.
Muller is upbeat about the Waterberg exploration project, which he sees as a means of balancing the company's asset portfolio with lower-cost, shallower ounces in the years ahead.
Implats entered into a transaction with TSX- and JSE-listed Platinum Group Metals (PTM) to acquire an initial 15% of its Waterberg platinum project with an option to acquire 51%.
"We do think that the approach has to be modified slightly. We're not necessarily supportive of the project position as it was communicated, we think a slower entry would be advantageous and would mitigate the peak funding required," said Muller.
Implats has suggested starting with 300 000 t/m rather than 600 000 t/m throughput and modularising the expansion.
Zimplats CEO Alex Mhembere said on Zimbabwe that the government was now more interested in an equivalent economic development provision as an alternative to the 51% local equity requirement.
The focus was now on job creation and to preserve foreign exchange loss through a process or re-indusrtrialisation of the economy and import substitution.
"We've had a number of discussions with the Minister and we're confident of being able to achieve what is wanted," Mhembere added.
Implats group executive: refining and marketing Paul Finney said the company was a strong supporter of platinum jewellery promotion through the Platinum Guild International (PGI), which had a model that worked well at retail level for the Chinese jewellers.
"Partners who use the PGI model are showing growth in China and need to propagate across China," Finney said in response to Mining Weekly Online.
Palladium was being renamed "unobtainium" because there was a struggle with the availability of palladium and it was likely that platinum would begin to replace palladium in gasoline systems.
"We're already seeing platinum replacing palladium in the diesel market, where there has been some substitution. But if we can achieve just a 10% penetration into the gasoline market with platinum, it would represent an 800 000 oz shift, which would bring the palladium market into closer balance and relieve the anxiety of the vehicle manufacturers and do wonders for the platinum price," Finney told Mining Weekly Online.
The company had a stationary fuel-cell at its refinery site, had secured a Department of Trade and Industry grant, had approached the Industrial Development Corporation and the Public Investment Corporation to come on board as funders and had invested R25-million in niche bus and load haul dumper applications as pilot projects locally.