Implats slashes its losses but still struggles with Rustenburg
● The second-biggest platinum miner in the world, Impala Platinum, is struggling with its troubled child — its Rustenburg operation, which accounts for over 40% of the group’s production but is yet to be profitable.
The Rustenburg mines, which were hit by a fire at its 14 Shaft two years ago, has also had fatalities, and operations have been under review since last year.
The company has cut 1 400 jobs in the first half of its financial year to end-December, from a workforce of 40 000 employees, and shut its 4 Shaft.
Although the business has managed to narrow its loss to R150-million compared to a loss of R508-million in the same period the previous year, it is undergoing an operational review where it’s also harvesting three shafts this year.
They are unprofitable at the current metal prices and rand price, so the company will have to shorten the shafts’ lifespan to mine out more profitable grades and then close the shafts.
Implats CEO Nico Muller said the harvested mines would not have any capital injection.
“So we will move from a long-term sustainable position to a short-term profit position,” he said.
However, René Carlo Hochreiter, an analyst at Noah Capital Markets, said Implats was not doing enough.
“In this sort of environment you have to do more than you’re doing.” A strategy that included an increase in prices would not work, he said.
Thanks to the low platinum price, which has been off its 2008 peak of $2 250.50 an ounce, and a strengthening rand, in the past five years Implats’s share price has dropped by 82%, Lonmin’s by 97% and Anglo American Platinum’s by 21.5%. In the same period the All Share index gained 44.5%.
Platinum miners are trying to mitigate a low platinum price by reducing costs, but Implats’s problems at its Rustenburg operations started during the global financial crisis in 2009, which halted investments in two shafts that were approved in 2003 with the aim of being in operation in 2009 — a target that was missed.
Most of Implats’s Rustenburg shafts are old and some are due for redevelopment or will shut down soon.
The business has four profitable shafts, which at full capacity would produce about 700 000 ounces, or 80% of Rustenburg’s production.
Implats is ramping up its new and potentially profitable shafts, 16 and 20, as well as optimising its 11 and 14 shafts. Currently Implats is producing 600 000 platinum ounces a year from Rustenburg.
Its 2018 full-year production guidance was for between 650 000 and 670 000 platinum ounces, from 700 000 last year. Hochreiter said he believed this would continue to come down to as low as 500 000.
He said the four shafts could take the group far and Implats would have to harvest the rest of its shafts at some point. He added that miners tended to not want to leave ounces behind even if they were unprofitable.
Muller said he could not provide more detail on the review of the company’s Rustenburg operations, but there would be a clear idea at the end of the second half.
“I don’t want to give a worst-case scenario because in order for us to conclude numbers there are a lot of things we need to work out with our employees and with our unions.”
But things at Implats are not looking good. Muller said if the current environment persisted, the company would need to “abandon certain business processes” at shaft level or services and infrastructure level. Muller said that just last week the business had shut down its underutilised mills. Rustenburg has about 27 mills.
He said: “We still have a long way to go from the cost-cutting exercise we have to do.”
Implats was not ruling out an asset sale. However, the business has a total of 11 shafts and closing down a shaft surrounded by others is not an easy decision to make.
The shafts are interconnected and built in such a way that it would be difficult to shut down or sell because they are not close to other neighbouring platinum miners.
“The minute they start losing money, even with reserves, they will have to face facts and mothball it [the unprofitable shafts] and leave it for better times, and unfortunately you can’t keep people on for nothing, so there will be lots of retrenchments,” Hochreiter said.
In the past few years the company was in talks with Sibanye over 1 Shaft, which is close to the boundary of Sibanye’s Rustenburg operations, but those discussions did not amount to anything.
The business in the next two years will save R1-billion from the restructuring done at certain shafts.
Implats had a net debt of R3.8-billion due to material valued at R2.5-billion that was mined but not sold.
The company said its actual net debt was R1.3-billion.
Hochreiter said Nico Muller was a man of his word and just needed time to revive the operations.
We will move from a long-term sustainable position to a short-term profit position Nico Muller Implats CEO