JOHANNESBURG (miningweekly.com) – JSE-listed Royal Bafokeng Platinum (RBPlat) CEO Steve Phiri was in a cautionary mood at the company’s year-end results presentation on Tuesday, signalling the domestic platinum industry should take note of the increasing use of recycled platinum group metals (PGM) in the production of autocatalysts.

“It is worrying to see recycling taking the place of primary supply [of PGMs]. If we don’t get our house in order and ensure security of supply [for autocatalyst manufacturers] we will see an increase in the use of alternative metals, which is a worrying scenario,” he said, in reference to the sector’s enduring labour issues and resultant lost production.

According to the group, the overall primary supply of platinum to the market in 2013 decreased by 4.5% to 5.6-million ounces, as input by South Africa dropped to four-million ounces and recycling increased by 6% to 2.15-million ounces.

Similarly, the overall supply of palladium over the period declined to 6.3-million ounces, while recycling grew by about 8% to 2.1-million ounces.

FD Martin Prinsloo offered a more pragmatic outlook on the secondary platinum supply market, describing it as a “double-edged sword”, which, while competing with primary sources of platinum supply, was also an “important” contributor to demand.

“If a supply of recycled metal did not exist, this could create an imbalance of supply and demand in the larger platinum market. Recycled [PGMs] contribute between two-million and three-million ounces a year of the seven-million-ounce-a-year PGM market, so it plays an important role. It just needs to be kept at the right level,” he told Mining Weekly Online.

INCREASED EARNINGS

These comments came as the company declared a 66% increase in headline earnings a share to 173c for the year ended December 31, attributing the improvement to a 4% rise in production to 280 000 oz of PGMs, a weakened rand:dollar exchange rate over the period and a 2% drop in cash operating costs to R11 592/oz.

In addition, the company posted an 8% increase in built-up headgrade to 4.38 g/t, offsetting a 3% drop in total tonnes milled.

Stable relations between RBPlat and its organised labour representatives amid industry-wide labour tensions and protracted strikes at other platinum producers was also credited for the company’s good showing, with Phiri stating that the company viewed its labour complement as a partner rather than an adversary.

“We see the winds that are blowing through the industry and we don’t want to create [such an] adversarial relationship [with our workers],” he said.

Secure labour relations were observed despite the miner cutting 9% of its workforce over the 12 months, leaving it with an operational workforce of some 6 000.

Prinsloo attributed this to a successful productivity-linked wage structure, which benefitted both the company and its workers.

“In another challenging year for the mining industry, which saw the platinum price dip below $1 300/oz in June, RBPlat was fortunate to enjoy labour stability and was able to restructure the workforce and end the year with a stable operating environment.

“In July, the company entered the last year of a three-year wage agreement, which included a commitment to begin building homes for employees. Wage negotiations for the period beginning July will begin in the near future,” he noted.

Despite an increase in headgrade, RBPlat’s delivered tonnes reduced by 3% year-on-year to 2.3-million tonnes, largely owing to a shortfall in sweeping and vamping tonnes as a result of the labour reductions.

The decrease in total tonnes milled was also driven by the Pilansberg-based Bafokeng-Rasimone platinum mine (BRPM’s) concentrator being impacted by the replacement of the primary mill discharge at the end of August, following a “wear-related” failure, which resulted in a 15-day shutdown.

As a result, a 90 000 t Merensky reef stockpile, accumulated ahead of the shutdown, was depleted by year-end.

FINANCIAL REVIEW

Revenue of R3.2-billion for 2013 was 13.5% higher than that of 2012 and was largely attributed to a 9.3% increase in the group’s rand basket price and a 4% increase in production volumes.

Gross profit margin increased from 11.9% in 2012 to 18.5% in the year under review, owing largely to the 13.5% increase in revenue combined with a marginal increase in cost of sales as a result of a cost-management focus by the miner.

Consequently, net profit increased by 62.4%, from R275.7-million in the 2012 fiscal period to R447.8-million in the period under review.

Earnings before interest, tax, depreciation and amortisation as a percentage of revenue increased from 22.1% in 2012 to 31% in the 2013 fiscal period, as a result of increased revenue and improved cost management.

Capital expenditure for the year amounted to R1.06-billion.

OUTLOOK

RBPlat’s key operational challenges in 2014 would involve optimising volumes while retaining its existing flexibility, grades and operating cost focus and ensuring that the BRPM concentrator upgrade, which would start in 2014, did not disrupt operations.

“Our production estimate for 2014, based on the current operating platform, is a mill throughput of around 2.3-million tonnes at a built-up head grade of about 4.2 g/t.

“From 2015, our production will increase, in line with the ramp-up of the Styldrift 1 project. BRPM’s upper group two production is expected to make up about 18% of production in 2014, decreasing to around 10% in 2018 – in line with the increased Merensky contribution from Styldrift 1,” Phiri projected.

Looking to the overall market, the group expected platinum supply to remain largely flat, but anticipated further growth in recycling, for which it said it would “compensate”.

Demand was expected to increase from its current levels, particularly as a decline in automotive sales in Europe appeared to have “bottomed-out” and growth was expected.

“This, combined with higher metal loadings per vehicle associated with the promulgation of Euro 6 tailpipe emissions legislation, which aimed to reduce harmful exhaust emissions, will kick-start this automotive market recovery.

“There are also positive signs that platinum jewellery has gained a foothold in the Indian market and has the ability to prosper [in future]. However, the offtake of exchange-traded funds is not expected to be as strong as it was last year,” Phiri concluded.