The year under review has been a positive one for the Group and Implats delivered a solid operational and financial performance. Gross production increased by 5.5% to 1.836 million ounces of platinum supported by improved performances at the Impala Rustenburg and Zimplats operations. Revenue increased 30% to R33.1 billion compared to the previous financial year largely as a result of higher dollar metal prices and sales volumes which outweighed the impact of a stronger rand. Volume improvements and reasonable cost control benefitted unit cost which rose by 8% to R10 867 per platinum ounce, despite the significant ongoing inflationary pressures experienced during the year. The balance sheet remained strong with a net cash balance of R2.7 billion. A final dividend of 420 cents per share has been declared, resulting in the total dividend for FY2011 increasing by 46%.
Safety is Implats’ number one priority and we remain committed to achieving zero-harm in the workplace. To realise this vision we will, firstly, pay closer attention to addressing the supervision gap by focusing on leadership training and, secondly, ensuring compliance to Implats’ defined safety standards and procedures by changing the safety culture of our people, focusing on behaviour observation, reward and communication.
While Implats progressed in improving safety as shown by the 11% improvement in the total injury frequency rate to 13.5 (FY2010: 15.2) per million man hours worked, regrettably eight employees lost their lives at work during the year. The Board, Management and the entire Implats team extend their sincere condolences to the families and friends of our colleagues who died. The lost time injury frequency rate deteriorated by 7%. Regrettably, our objective of zero lost-time injuries by FY2012 will not be achieved but we will aim to increase the number of operations that achieve zero lost-time injuries.
The global economy showed tentative signs of recovery following the world economic crisis of 2008 and as a result the automotive industry improved during 2010. In addition, it was physical investment in the metals that pushed overall average prices to recent highs. The launch of the US platinum and palladium Exchange Traded Funds (ETFs) at the beginning of 2010 saw a significant uptake of physical metal into these products.
Prices for platinum climbed throughout the year from just over $1 500 per ounce to end at approximately $1 800 per ounce. Increased automotive and investment demand was balanced by a decline in Chinese jewellery offtake after a robust 2009, resulting in the platinum market remaining in balance for the year.
Palladium prices began the year at just above $400 per ounce and almost reached $800 per ounce, a level not seen since 2001. The average for the year was $525 per ounce, which is double the price achieved for 2009. The fundamental driver has been the recovery in vehicle production, along with increased investment demand. The possible end to Russian destocking has also benefitted sentiment in this market.
Fluctuations in the price of rhodium have been more modest as an increase in demand on the back of growing automotive production, has been met by adequate supplies of the metal. The average price for the year at just over $2 400, was some $800 higher than the previous period reflecting the rebound in vehicle demand.
Headline earnings improved by 41% from R7.86 to R11.05 per share. The biggest contributor to the increase in earnings was higher dollar metal prices experienced during the financial year. This contributed to a positive price variance of R6.9 billion. The average exchange rate for the year was R7.03/US$, compared to R7.58/US$ for FY2010. This resulted in a negative exchange rate variance of R2.6 billion. Sales volumes increased by R3.4 billion due to higher production levels, as well as the sale of the platinum inventory built up at the Impala operations during FY2010.
Cost of sales rose by R4.2 billion or 24% to R21.5 billion from R17.3 billion in the previous financial year. Metals purchased, including inventory movements, accounted for R2.4 billion – more than half of this change. The other key driver was inflation driven increases which included wages, consumables and utilities.
The Group’s margin improved to 35% from 32%.This was due to the net effect of revenue strengthening by 30% and cost of sales increasing by 24%.
Group unit costs per refined platinum ounce rose by 8% to R10 867. Group inflation of 7% accounted for the bulk of the increase. Unit costs were also affected by additional safety costs and higher employee levels required to deliver the additional development at Impala Rustenburg and Marula.
Group capital expenditure for FY2011 increased by 22% to R5.5 billion compared to R4.6 billion in FY2010. Of this, R4.2 billion was spent at Impala, primarily on the development of 20, 16 and 17 Shafts. The Zimbabwean operations spent R1 billion, largely on the completion of the Phase 1 expansion and the commencement of the Phase 2 expansion at Zimplats. The Group will spend an estimated R7.0 billion in FY2012 and R35 billion over the next five years. This will be funded from internally generated cash flow and borrowings, if needed.
Cash generated from operating activities for the year totalled R8.3 billion (June 2010: R5.9 billion) The Group’s cash position net of debt, improved by R970 million to R2.7 billion.
The Board declared a final dividend of 420 cents per share resulting in R2.5 billion returned to shareholders.
Safety remains a priority at Impala Rustenburg where regrettably, the mine experienced seven fatalities during the year. The lost time injury frequency rate was unsatisfactory, deteriorating 6% to 5.41 (FY2010: 5.09) per million man-hours worked. The operation remains committed to the realisation of a zero-harm workplace focusing on changing the culture and behaviour of all employees and through visible-felt leadership.
Operationally, the year under review can be termed one of recovery with tonnes milled increasing by 4% to 14.1 million. During FY2010 mining was impacted by a two-week industrial action and the fall of ground incident at 14 Shaft. Mining flexibility remains a key issue which will continue to place reliance on mining activities at older shafts resulting in reduced efficiencies and necessitating an ongoing high level of remnant mining. Merensky ore mined improved from 40% to 42%. This resulted in a 3% improvement in overall platinum yield. As a result refined platinum production rose by 8% to 941 200 ounces. The higher volumes positively influenced unit costs, which rose 8% to R10 801 per platinum ounce excluding share-based payments.
Despite 20 Shaft delivering first production during the year, it has become apparent that stopping would jeopardise the tight project completion schedule, and it has been decided to delay the production ramp-up by 12 months. This will allow the project team to focus on development of the incline and decline spines and associated infrastructure. As a consequence the 26 000 ounces of platinum previously planned for FY2012 have been deferred to FY2013.
Zimplats delivered an exceptional performance which marked the first year of full production following the commissioning of the Phase 1 expansion in FY2010. Tonnes milled increased by 3% to 4.2 million with the Bimha Mine achieving full throughput in May 2011. Good grade control maintained headgrades at 3.56g/t 6E and, together with improved concentrator recoveries of 82.4%, this resulted in platinum in matte production improving by 5% to 182 100 ounces. Unit costs rose by 16% to US$1 171 per platinum ounce in matte due to a combination of internal inflation, the strong rand and higher maintenance costs at the Ngezi concentrator.
The Phase 2 expansion commenced in August 2010 and is expected to cost in the region of US$460 million. Mupfuti Mine is scheduled to commence production in FY2013 while the new concentrator unit will reach full nameplate capacity in FY2014. Refined platinum production is expected to increase by 90 000 ounces to 270 000 ounces per annum.
The amendment to the Indigenisation and Economic Empowerment Act requiring all foreign-owned businesses to meet a minimum indigenisation quota of 51% was gazetted on 25 March 2011. The Group is engaged in ongoing discussions with the government of Zimbabwe in this regard and we believe this will achieve an acceptable outcome.
Tonnes milled and headgrade were virtually unchanged at 1.54 million and 4.39g/t 6E respectively, resulting in platinum production in concentrate remaining constant at 70 600 ounces despite an increase in financial, labour and equipment resources. This was below the ramp-up plan of 85 000 platinum ounces. Higher staffing levels without the requisite increase in production ounces resulted in a 19% rise in unit costs to R16 884 per platinum ounce in concentrate.
A detailed strategic review undertaken during the year evaluated mine planning parameters and the project status. Consequently it has been decided to maintain production at the current rate of 70 000 ounces of platinum per annum for the next two years to enable the completion of ancillary infrastructure on on-reef development. Marula is right-sizing its cost base to the current ounce profile, a process that was successfully completed in July. A further strategic review will be undertaken in FY2013.
Mimosa completed its second year of steady-state production. Tonnes milled, headgrade and concentrator recoveries each increased by 1% to 2.3 million, 3.91g/t 6E and 77% respectively. This resulted in record production of 104 900 ounces of platinum in concentrate. Unit costs were adversely impacted by higher than anticipated labour costs, increased material usage due to bad ground conditions, consumable costs as well as the influence of the stronger rand. As a result unit costs per platinum ounce in concentrate rose by 15% to US$1 377.
Tonnes milled improved slightly from the previous year to 2.9 million and a small stockpile was built as underground production marginally exceeded concentrator capacity. An improved milling rate, coupled with a 2% rise in recoveries boosted platinum production to 145 300 ounces in concentrate. Unit costs increased by 14% to R9 615 per platinum ounce in concentrate due to high consumable costs, additional spend on redevelopment, Merensky trial mining and the processing of stockpile material during FY2010.
The transaction whereby Implats will dispose of portions 4, 5 and 6 of the farm Kalkfontein, as well as the area covered by the Tweefontein prospecting rights to Two Rivers is awaiting approval from the Department of Mineral Resources, South Africa. This transaction, when completed, will increase Implats’ shareholding in the Two Rivers joint venture by 4% to 49%.
Refined platinum production from operations controlled or partially controlled increased by 8% to 487 000 ounces. This was primarily due to the first full year of steady-state production at Zimplats following the completion of the Phase 1 expansion project. Third party purchases and toll business declined by 3% to 408 000 ounces. Despite an 8% improvement in production from Aquarius Platinum following the restart of Everest, receipts were impacted by lower production from Smokey Hills and less recycling material. Overall IRS refined platinum production increased by 3% to 895 000 ounces.
Growth in the medium- to longer-term is expected to come from the completion of the Phase 2 expansion at Zimplats, the continued ramp-up at Everest and Smokey Hills as well as additional output from Eastern Platinum and growing autocatalyst deliveries.
Despite the welcome recovery in metal prices experienced during 2010, the current and future environment is not without its challenges — 2011 has seen the re-emergence of EU debt concerns, little sign of meaningful recovery in the US and the impact of the tragic earthquake and tsunami in Japan. These, together with persistently higher oil prices and the threat of inflation, will continue to exert a negative influence on the prospects of world economic recovery.
Notwithstanding the macro challenges faced by the developed economies, the resilience displayed in emerging markets should continue to drive demand for all commodities. Growing demand for vehicles in emerging economies, together with tighter emission legislation throughout the world, is likely to underpin strong fundamental demand for PGMs in the medium term. A challenging supply environment will result in tight market conditions going forward.
The Group is positioned to benefit from this environment. The key to this is a stable and long-lasting production platform. The delivery of the new mining projects at Impala Rustenburg will provide this base. In Zimbabwe the Phase 2 expansion at Zimplats will support our growth aspirations to over 2 million ounces of platinum per annum by 2014.
Khotso Mokhele |
David Brown |
Johannesburg
25 August 2011
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