Impala Platinum (Implats) says the monetary effect of load curtailment on its business during the past year was about R2.8bn, affecting cash flows and profitability.
In addition to load curtailment at its SA operations during the period, Implats experienced “severe” load-shedding across the Zimbabwean national grid in March.
In total, Implats estimates 36,000oz of platinum group metal (PGM) production was forgone and another 101,000oz deferred because of power constraints at its smelting operations. A further 10,000oz was deferred due to cable theft at Impala Rustenburg.
According to CEO Nico Muller, Implats has seen reduced load curtailment requirements over the past few months, but it still had a “devastating” impact on the group’s ability to process all the ounces produced in concentrate.
Load curtailment, he said, has a direct impact on operations. When Implats is required to curtail electricity usage, it switches off one or two of its furnaces and takes a hit on the processing side. “We either defer processing to a later stage or, depending on the extent of the load curtailment, we lose production that we can’t make up later.”
However, Implats has seen an increase in furnace rebuilds. “In this year we had to rebuild two furnaces as a consequence of increased fatigue in infrastructure,” Muller said.
Implats profit for the year to end-June 2023 plunged by almost half due to the pullback in dollar prices for metals, lower sales and continued higher levels of inflation, which pushed up production costs.
The combination of lower revenue and higher cost of sales reduced gross profit for the year by 46% to R22bn, the group said on Thursday.
Muller said Implats is confident that there probably will not be a major decline in future, and believes the market fundamentals for PGMs are probably stronger than current pricing suggests. But if PGM prices fail to recover and continue trending downward, Implats will start looking at which capital programmes can be delayed.
If it has to, it will curtail the forecast or guided capital spend for the year, which is between R12.5bn and R13.5bn. “We have the ability to ramp that down to the extent that prices require us to do that,” he said.
The company will prioritise major capital projects that target strategic long-term benefits. That includes projects that will address key constraints in the company, such as smelting and base metal refining.
“For other projects we will look at the timing of the intended benefit. The shorter the realisation of the benefit, the higher its priority will be.”
Muller said that while Implats will not “support loss-making” it is unlikely to do major restructuring or suspension of operations in the very near term.
“We have a number of other options available to us and we also won’t stop an operation if it showed a loss for one month. We would have to see a direction that suggests the inevitability of continued negative cash flows in order for us to make such a decision,” he said.
Dollar revenue per ounce for PGMs produced by Implats decreased 18%, mostly due to lower rhodium and palladium prices, which were down 29% and 20%, respectively, from the previous year.
The sharp decrease in dollar prices was partially offset by a 13% weaker rand exchange rate, which meant revenue per 6E ounce was down 4% in rand terms, Implats said. The group’s unit costs for PGMs rose 14%.
The impact of a 4% decrease in refined PGM production, coupled with a 6% decrease in sales volumes, resulted in earnings before interest, taxation, depreciation and amortisation for the year decreasing by about 32% to R36bn. Headline earnings per share were down 43% to R2.21.
The year’s highlight, Muller said, was the successful completion of its acquisition of Royal Bafokeng Platinum (RBPlat).
However, he said, RBPlat will “require dedicated attention to get the cost of operation to the position that we aspired to when we made the offer of acquisition 18 months ago.
“The strategic purpose behind the acquisition was to gain a quality, shallow, mechanised, productive, safe, low-cost, low-capital intensity resource, but over the past year [the business experienced] constraints with processing throughput and recovery. As a consequence of that, the cost increases have been in the high double digits.”
Implats declared a final dividend of R1.65 a share, which brings the total payout to R5.85 a share compared with the previous year’s R15.75.
Updated: August 31 2023
This article has been updated with additional information.
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