JOHANNESBURG (miningweekly.com) – Royal Bafokeng Platinum CEO Steve Phiri said on Tuesday that he was “very encouraged” by the stance taken the day before by the National Union of Mineworkers (NUM) and the ruling African National Congress (ANC).
“We can only improve the situation if we work together and not against each other,” Phiri outlined to Mining Weekly Online in an interview after the company reported a R31.9-million loss in the first six months of this year. (Also watch attached Creamer Media video).
“We’re very encouraged by the statements released by ANC yesterday and this morning, which raises serious concern about the damage Mining Charter Three does to the mining industry and the economy of this county.
“We hope that we’ll see something different in a few days, few weeks, few months to come,” said the head of the 52% black-community-owned Johannesburg Stock Exchange-listed platinum mining company.
On Monday, NUM expressed fears that the South African mining sector, which had already shed more than 80 000 jobs over the past five years, would shed tens of thousands more jobs and called for the resignation of Mineral Resources Minister Mosebenzi Zwane, citing a complete breakdown in relations.
Phiri described as "very encouraging" the supportive comments of ANC Secretary General Gwede Mantashe, who in an interview with Radio 702 host Xolani Gwala referred to the private sector, the government and the ANC as being economic partners.
LOSSMAKING PLATINUM SECTOR
In the tough economic environment which has resulted in 70% “or more” of the platinum industry being lossmaking, Royal Bafokeng Platinum has been forced to respond by discontinuing mining upper group two (UG2) reef at the Bafokeng Rasimone Platinum Mine’s (BRPM’s) South Shaft, restructuring to match to the declining South Shaft resource, lowering unit costs to below the consumer price index, increasing tonnes milled by 14.3% and holding down year-on-year unit costs at BRPM.
Capital expenditure (capex) at the Styldrift 1 expansion, on which R7.23-billion has been invested to date, has been tailored to a 150 000 t a month ramp-up in the last quarter of 2018.
Company funding has been bolstered by the raising of a R1.2-billion convertible bond and the concluding of debt facilities totalling R2-billion.
Against this arduous backdrop, Phiri, who leads a 52% black-owned company, has refused to mince his words in condemning South Africa’s legislative and mining policy environment.
“We certainly can do better without the value-destructive Mining Charter Three. How the industry is supposed to understand and comply with it defies any stretch of the imagination,” said Phiri, 61, a former public prosecutor, who decried the document as “shabbily drafted, confused and ambiguous”.
He reminded the government that many still toiling in the mining industry had also helped to transform the sector by playing key roles in the formulation of the Mineral and Petroleum Resources Development Act in 2002 and 2003 – “from nothingness, where the industry gave up private ownership of mineral rights, and shareholders sacrificed equity without any compulsion”.
The first and second mining charters also came about by participants willingly shedding value through negotiation.
He condemned those latecomers who now condemned such trailblazing transformers as being anti-transformational.
As a crucial Constitutional imperative, transformation should come by way of a charter that was realistic, achievable and sustainable and not something that caused economic downfall.
“Transformation should not, as a matter of principle, be used as a populist football. We should not produce an unrealistic and unachievable piece of work and sugar-coat it as transformation, when it is so bitter and unpalatable to the core.
“It will implode on us, certainly. The industry will fall flat, capital will be chased away and so will growth remain a myth. Jobs will be lost.
“We hope that, in the end, wisdom will prevail and a realistic charter, with realistic targets, will be achieved through honest and meaningful engagement,” he said.
Royal Bafokeng Platinum reported a 70% increase in tonnes delivered from Styldrift, an 8.9% improvement in tonnes milled per employee, a 9.4% increase in four-element (4E) metals in concentrate and zero fatalities in the six months to June 30.
The low price environment resulted in a 9.8% reduction in average rand revenue basket price, earnings before interest, taxes, depreciation and amortisation being cut by two-thirds to R100.4-million from R305.3-million in the same period last year, and headline earnings per share collapsing to 15.3c a share from 77.8c in the corresponding period of last year.
But despite the stringency, the company remained steadfast in spending R15.9-million in the half-year on its social and labour plan commitments, which was up on last year’s R13.8-million.
Moreover, 86.3% of its total discretionary procurement spend was with historically disadvantaged companies.
The closure of the nonprofitable South Shaft UG2 production sections and redeploying 60% of the UG2 mining crews to superior-margin Merensky at South and North shafts and UG2 production at North Shaft has enabled the company to maintain current levels of platinum group metals production but with the enhanced effect of the base metals revenue that accompanies Merensky production and optimised processing arrangements equating to
R37-million a year.
Net revenue decreased by 3.2% from R1 646.9-million in the first half of 2016 to R1 593.9-million for the first half of 2017.
The company’s gross profit margin reduced from 11.4% for the first six months of last year to 0.7% for the six months ended June 30 this year on the 3.2% decrease in net revenue and the 8.5% increase in total cost of sales.
Total capex for the period under review increased by 63.8% to R847-million on the first half of last year.
Replacement capex fell by R33-million to R10-million and expansion capex increased by 86.1% to R778-million on the acceleration of construction at the Styldrift I project.
Stay-in-business capex increased by 5.4% to R59-million.
The total mining scope of the BRPM Phase III replacement project has been completed with only construction activities related to services, conveyor belts and associated bulkheads on 14 and 15 levels remaining.
A technical planning review of the Phase III extraction schedule has indicated that these levels will only be required to come on line during the second quarter of 2019, allowing capex to be deferred to 2018 without any negative impact on extraction.
During the reporting period, a total of 3 328 m of capital development was completed on 600 and 642 levels of Styldrift I, with 238 000 t of ore being delivered to the concentrator at a built-up head grade of 2.53 g/t 4E.
Key construction activities being undertaken include overland belt construction, services shaft equipping, ventilation shaft No 3 construction, silo No 3 and No 4 construction, 600 Level permanent trackless workshop and ancillary service bays construction, settler No 1 slipe and line activities and conveyor belt construction on 600 and 642 levels.
In line with project execution resource requirements, there are 23 mining and construction crews operational on site.
The platinum price started the year close to $900/oz, rose to above $1 000/oz in February, but subsequently weakened to end the first half not far above where it started the year. The rand remained relatively strong against the US dollar in the first half of 2017 at around R13.20. This led to platinum prices in rand terms dipping below R12 000/oz on a number of occasions during the first half of 2017, to lows not seen since November 2015.
Platinum production is forecast to be 2.5% lower this year as both primary and secondary supply ease. Primary supply is estimated to be down 2% year-on-year on lower output from Southern Africa. Secondary supply is expected to contract as lower recycling of jewellery in China is likely to more than offset a modest recovery in autocatalyst recycling.
However, lacklustre platinum prices are reflecting limited buying by end-users as overall demand, excluding investment, is forecast to soften year-on-year.
Western Europe remains the largest diesel market, but diesel market share continues to decrease, particularly in the small car segment.
Diesel share in larger cars remains relatively stable, while in heavy-duty vehicles, diesel is currently the only viable option.
Purchasing of platinum by Chinese jewellery fabricators in platinum’s largest market has not improved from a weak 2016. Platinum trading on the Shanghai Gold Exchange in the first half of 2017 was a third lower than in the first half of 2016, although this reflects industrial as well as jewellery demand.
Investment demand has been steady so far this year with platinum exchange traded funds (ETFs) adding 83 000 oz in the first six months, resulting in global ETF holdings increasing to about 2.6-million ounces. Platinum bar purchases were low in the first quarter owing to the high platinum price. However, weaker prices during the second quarter lifted buying.
Overall, the industrial market balance is projected to be in a modest surplus in 2017. If the platinum price remained weak in the second half of the year this would raise the risk of closures of unprofitable mining areas which could move the market closer to balance.
Palladium started the year trading at $676/oz and although volatile, the price continued to trend higher through the first six months of the year. Temporary tightness in palladium ingot availability resulted in the price briefly pushing through $900/oz in June before it eased back to end the month at $842/oz, up 25% for the year to date.
Palladium demand is expected to be little changed in 2017 as a slight increase in autocatalyst demand is offset by small declines in jewellery and industrial usage.
The rhodium price has continued its recovery in 2017, rising 35% to $1 040/oz during the first half of the year. However, while the price may have improved, the market still remains well supplied. Removal of unprofitable ounces from the market could move the market close to balance or into slight deficit.