|Dr Khotso Mokhele
This year we present to you our second integrated report which provides an overview of financial indicators and includes our material strategic non-financial performance indicators in each area of our reporting, thereby providing a holistic view of our performance for the year. The improved level of transparency enables our shareholders and other stakeholders to fairly evaluate the year under review as well as the future strategic risks and opportunities that are inherent in the Group. Inculcating a culture of sustainable practice is critical to the future success of our business. I believe that there is a fundamental link between sustainable business practice, ethics, governance and the creation of long-term shareholder value. Sustained financial success ultimately relates to the integration of all these aspects. Safeguarding the success of our business therefore requires us to not only show achievement on our short-term performance measures but to focus on identifying, influencing and overcoming strategic challenges, which are likely to impact our business over the long term. Never before has the imperative for sustainability been more important than now.
Global markets remained volatile during the period under review. However, signs of a tentative recovery in the developed world, together with strong demand from emerging economies, underpinned an overall improvement in platinum prices during the year.
Strengthening prices and increased production volumes resulted in a 30% rise in revenue. Furthermore our competitive position on the cost curve was maintained through both judicious management of absolute costs and an increase in production volumes, thereby containing the increase in the cost per platinum ounce to 8%. Headline earnings per share for the year rose 41% to R11.05. The balance sheet remained strong with net cash of R2.7 billion. Our gearing levels remained low due to our continued focus on cash conservation. The Board recommended a final dividend of 420 cents per share for the year, resulting in a total dividend of 570 cents per share, which represents a rise of 46% compared to the previous year.
The safety performance of the Group remains a disappointment to the Board, notwithstanding the world-class safety performance of the Zimbabwean operations (Zimplats and Mimosa) and improvements in many of the safety performance measurements in the South African operations. Notable amongst these improvements is the attainment of zero lost-time injury frequency rate (LTIFR) over a 12-month period at the 2 and 2A Shaft complex of our Rustenburg operations. As reported last year, the Group commissioned DuPont to assist us in understanding the impediments to embedding a culture in the Group that would make the workplace safe for all our employees and contractor employees. The DuPont report, which revealed weaknesses in some of the underlying assumptions that informed our safety strategy, served as the template for a better informed set of interventions which are designed to lead to significant improvement in our safety performance. I am saddened to report that, notwithstanding the new understanding of the mismatches between our strategic intent and our realities, the lost-time injury frequency rate in the Group still remains unacceptably high and that eight of our colleagues lost their lives while at work during the past year. On behalf of the Board, I express my sincere condolences to the relatives and friends of our deceased colleagues.
Critical to the long-term success of the Group is capital delivery on our growth projects which will ultimately bring us closer to achieving our target of over two million ounces of production per annum over the medium term.
The Board Health, Safety and Environment Committee (HSE), as well as the Board as a whole, remain steadfast in their determination to ensure that a zero harm workplace environment is attained in all Implats operations. All accidents are preventable and to this end the Board has reinforced its stance to management on achieving a zero harm workplace.
Critical to the long-term success of the Group is capital delivery on our growth projects which will ultimately bring us closer to achieving our target of over two million ounces of production per annum over the medium term. The Phase 1 expansion at Zimplats has been successfully completed and has delivered its first year of full production. This success was achieved at the time when Zimbabwe was experiencing grave economic and political challenges, revealing tenacity in the management and workforce of the operations that was nothing short of inspirational. The Phase 2 expansion that is underway remains on track.
The production and resource constraints that are being experienced at the Impala Rustenburg operations as the older shafts reach the end of their life will be alleviated by the three new shafts currently under construction (20, 16 and 17). Progress on the 16 and 17 shafts has been generally satisfactory but the delay in production ramp up at 20 Shaft, the first among these three shafts to get to production, has been a major disappointment to the Board and a setback in terms of the operation achieving its million ounce per annum production profile within our original timetable of 2014. Restricted reef access and logistical constraints that were encountered during the year resulted in the ramp up on 20 Shaft being slower than originally forecast. The CEO and his management team appreciate fully the Board’s anxieties and are committed to the challenge of delivering on all capital projects which are so crucial for the operations to reach the targeted production profile.
Another area of major disappointment to the Board has been performance at the Marula operation in terms of cost, safety and production. It became apparent during the course of the year under review that our original aspiration to ramp up production at this operation to 100 000 platinum ounces per annum by 2013 will not be attained due to the operation’s incomplete infrastructure. The production target has thus been reduced to a more sustained level of 70 000 platinum ounces per annum to enable greater focus on the completion of the infrastructure. It is the expectation of the Board that this reduced production profile will be accompanied by significantly improved operating costs and safety. The Board will review its position regarding the future of this operation after a 24-month period.
The long-term sustainability of the business will require the availability of various skills sets that are needed to underpin a mining operation. The South African and Zimbabwean education and training systems are currently failing to deliver the quality and quantity of suitably skilled persons for the Group to renew and refresh its labour force. The Group, like all other major employers in these two countries, is thus forced to be resourceful and innovative in ensuring it is able to meet its labour and skills needs sustainably. Strategies to ensure a pipeline of skills and talent pool to draw from will be a critical priority over the medium to longer term in order to enable the Group to deliver on its short-term production and strategic growth targets.
The Group’s skills challenges are further compounded by the high prevalence of HIV/AIDS within the economically active age group of 15 – 49 years in the South African population. The average infection rate for the mining industry according to the Chamber of Mines is estimated to be between 25% – 30%. The Group has already started to experience the economic impacts of HIV/AIDS through higher absenteeism and lower productivity at Impala Rustenburg. The worsening impact of HIV/AIDS will have to be managed by business in collaboration with government and other relevant stakeholders including employees and labour unions. More effective strategies will have to be developed to safeguard our human capital and ensure sustainable development of the business.
The Board and management of Implats remain excited by the challenge of building a sustainable business even at a time when investor sentiments are being adversely affected by the uncertain political and economic climate in Zimbabwe and increase in the nationalisation rhetoric in South Africa. We are quite conscious of the fact that both countries continue to grapple with serious socio-economic challenges whose origins are both historical and contemporary. A key feature in the modern understanding of the concept of sustainability is appreciation of the aspirations of the various stakeholders that affect or are affected by an entity. The leadership of the Group stands ready to engage with all relevant stakeholders in both Zimbabwe and South Africa to ensure that their legitimate aspirations are properly understood and, where appropriate and feasible, these aspirations are met. The significant capital investments that the Group is currently making in both the Zimbabwean and South African operations are to build a business that will be sustainable in the long term, enjoying full support from all of its major stakeholders. This conviction flows from our confidence that rational players engaged in what can at times be fairly emotive discourse will ensure an outcome that is in the best interests of the two nations in which the Group has major operations.
The Indigenisation Act in Zimbabwe that requires all foreign-owned businesses to meet a minimum indigenisation quota of 51% was gazetted during the year under review. The key objective of this policy is to enhance a greater level of economic participation amongst indigenous Zimbabweans. In this regard we have had ongoing discussions with the government of Zimbabwe. The cornerstone of our discussions have focused on encompassing broader and more sustainable principles of social upliftment, empowerment and equity in order to enhance the long-term wellbeing of the people of Zimbabwe. Our proposals to the government of Zimbabwe encompass previous agreements that we have reached with them and we remain confident that these agreements will be honoured. Social harmony and stability are the cornerstones of sustained economic growth and we are supportive of policies that will achieve this end.
Looking forward, we anticipate a rise in metal prices. Emerging markets are expected to continue to drive growth in platinum demand. The strong economic growth and rising incomes in these economies are expected to promote urbanisation and industrialisation. Projections indicate that potentially an additional two billion consumers are expected to be earning approximately $6 000 to $30 000 within the next two decades. As GDP per capita increases, so does an increase in demand for resources. Should this scenario unfold it will create very strong demand for production inputs such as base and precious metals. The improved metal pricing will serve as a strong fundamental underpin for the Group. Implats therefore remains well placed to continue to deliver long-term value for our shareholders.
The Board remains steadfast in ensuring that the highest level of governance is observed within the Group. During the year, the new Companies Act came into effect. The Board confirms its commitment to the implementation of and compliance with the new Act.
The Group is currently in the process of conducting a gap analysis to determine the requirements of the new Act and related regulations against current practices and will be in a position to report more fully on our compliance in the Integrated Annual Report for 2012. Good governance is vital to achieving sustainable growth and is a lead indicator of enhanced long-term shareholder value. As a Board we are therefore committed to fostering a culture of ethical values, integrity and governance within our Company.
I extend thanks and appreciation to my fellow Board members who have provided valuable guidance over the past year. During the year under review, pursuant to my previous communication to shareholders, Les Paton has retired and Dawn Earp has resigned as executive directors of the Board. I wish them well and thank them for their contribution to the Board. I also announce the retirement of Vivienne Mennell, who will not stand for re-election at the upcoming Annual General Meeting. Vivienne has served the Group as an executive and non-executive director over a total of 18 years. I extend my personal gratitude to her for her long-standing, exemplary years of service and dedication to the Group. On behalf of the Board I also welcome the appointments of Hugh Cameron, Mandla Gantsho, Babalwa Ngonyama and Brenda Berlin.
In closing, I would like to thank our CEO David Brown, his management team and all employees of the Group whose dedication and hard work throughout the year has enabled us to deliver a solid set of results. I look forward to a successful year ahead.
Dr Khotso Mokhele