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RBPlat’s Phiri staves off analysts’ labour cost queries

Royal Bafokeng Platinum CEO Steve Phiri outlines company's top priority to Mining Weekly Online’s Martin Creamer. Photographs: Duane Daws. Video and Video Editing: Nicholas Boyd.

1st August 2016

By: Martin Creamer

Creamer Media Editor

  

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JOHANNESBURG (miningweekly.com) – A premium has to be paid for labour stability, Royal Bafokeng Platinum (RBPlat) CEO Steve Phiri said on Monday in reply to analyst queries on the company’s rising wage bill.

Reporting a 67% improvement in earnings before interest, taxes, depreciation and amortisation in the six months to June 30, Phiri was answering questions on cost increases put by Citi Research MD Johann Steyn and Nedbank platinum analyst Leon Esterhuizen. (Also watch attached Creamer Media video).

Steyn queried RBPlat's labour and contractor costs that each rose about 14% and Esterhuizen queried the unit cost rise from R13 000/oz to R16 000/oz.

In answer to Steyn, Phiri said that as a result of the increases the company had given its enrolled labour, a pay gap had opened up between the company’s own employees and contractor workers.

Pay to contractor workers was increased to the level of the company’s own enrolled labour.

“We brought forward the increases ahead of the first of July in order to get some stability, because that’s our number one priority.

“You don’t want people working in the same area, one panel next to the other, earning different salaries,” said Phiri, who added that the medical aid of contractor workers was also brought into line, which increased the overall wages of contractor workers.

Steyn made the additional point that it was not only contractor wages that had risen but that RBPlat's own labour costs had also risen by 13.7%, against the background of overall labour costs representing 62% of total company costs.

“You do sit with a very good orebody, but your costs are surprisingly high,” Steyn commented.

Executive head of operations Neil Carr pointed out the five-year wage agreement was front-end loaded, with the percentage increase in the first two years higher that in the following three years to 2019, and that the benefits would be seen from this year onwards.

“Our philosophy and indeed my philosophy is that there’s a premium to labour stability. You’ve got to pay a premium for labour stability. And it’s all across the industry. They were front-end loaded and from now on they will be tapering down, but that has given us stability,” said Phiri, to which Steyn replied that it was unsustainable.

“You can’t give these kinds of increases at the end of the day to get stability because the margins will close up at some stage,” Steyn added, with Phiri pointing out that the wage negotiations had been done in 2014, a year of labour turmoil across the platinum belt.

RBPlat CFO Martin Prinsloo said that between now and 2019, wage increases would be between 9% and 11% and made the point that the company was currently the lowest cost conventional platinum producer in the industry.

On the horizon was also the coming on stream of the mechanised Styldrift platinum mine, which would take the company further down the cost curve and closer to opencast mine costs.

RBPlat’s overall cash operating cost per four element (4E) and platinum ounce was only 2% with the company’s balance sheet remaining ungeared with R1-billion cash on hand.

It reported a 229% increase in headline earnings a share for the half-year and delivered 10% more tonnage to the concentrators.

Seventeen per cent more tonnes were milled totalling 1 292 000 t and there was a 16% increase in both 4E ounces, to 142 000 oz, and platinum ounces, to 92 000 oz.
 
The company reported that higher value Merensky reef tonnes delivered to the concentrators increased by 16%, to 1 018 000 t, and that upper group two (UG2) tonnes delivered declined by 8% to 278 00 t.

The net impact of this change in the mining mix resulted in the delivered UG2 contribution percentage decreasing by 19%, from 26% to 21%, for the six months to June 30.

The company reported that the increase in the Merensky contribution was directly attributable to higher on-reef development volumes delivered from Styldrift I, where stoping would begin in January.

Net revenue increased by 15.8% to R1 646.9-million owing to a 9% increase in the average rand basket price to R19 680/oz, with 6% more platinum ounces sold.
 
Total capital expenditure (capex) for the period amounted to R517-million, which is 55%, or R624-million lower than in the first half of 2015.

Other cash preservation initiatives included reducing construction capex at Styldrift 1, deferring the 100 000 t/m concentrator module and overland conveyor belt from Styldrift to the  Bafokeng Rasimone Platinum Mine (BRPM) concentrator.

Further reductions were brought about with the deferment of the Styldrift II feasibility study and the associated exploration drilling.

Stay-in-business capital was maintained at between 4% and  5% of operating cost.

The BRPM Phase 111 replacement project remains ahead of schedule and under budget. This project entails the extension of the North shaft decline access infrastructure and associated reef infrastructure from level 10 to the mine boundary at level 15.

It remains set for completion in 2017 and expenditure for the period amounted to R43-million, bringing the total project expenditure to date to R1 035-million.

Edited by Creamer Media Reporter

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