Impala Platinum, the world’s second-biggest producer of the precious metal, has suffered a 74% drop in its headline earnings per share in the 12 months to the end of June, on account of the five-month wage strike at its South African operations in Rustenburg that cost the company 312 000 platinum ounces of production.

“It has been a challenging year for Implats. Lower than expected platinum group metal prices together with escalating cost pressures and the unprecedented five month industry strike at Impala Rustenburg severely impacted performance,” said Implats’ CEO, Terence Goodlace.

“Despite this, the operations outside the Rustenburg area, Zimplats, Mimosa, Marula and Two Rivers, all performed well and delivered good safety and operational results. Throughout the strike period, deliveries continued to key customers and, in particular, to the local South African market that remained adequately stocked during the strike.”

Financial review

Revenue per platinum ounce was 8.2% lower than the previous year at US$2 299 per ounce. The average rand dollar exchange rate achieved of R10.36 to the dollar was 17.6% weaker than the prior year. Consequently, although the dollar revenue per platinum ounce decreased by 8.2%, the rand revenue per platinum ounce increased by 7.9%.

Group production deteriorated from 1.582 million ounces of platinum to 1.178 million ounces primarily due to the industrial action at Impala Rustenburg. Group unit costs per platinum ounce rose by 18% to R19 430 per platinum ounce. On a normalised basis, unit costs would have been R17 308, an increase of 5% on the prior year.

Gross profit was down by R1.47 billion to R3.24 billion and the gross profit margin for the year declined to 11.2% from 15.8% in 2013.

“Given the length of the industrial action, the board has resolved not to declare a final dividend for the year as part of its ongoing strategy to preserve cash,” Implats said in a statement.

Employee relations

Despite good progress made in the first half of the year, employee relationships were challenged in the Rustenburg area with the breakdown of the wage negotiations with the Association of Mineworkers and Construction Union (AMCU) and the subsequent five-month wage strike.

Recent developments at Marula point to the possibility of an AMCU majority at the mine and formal structures have been established for the necessary engagement.

Implats will be implementing a range of activities over the short- and medium-term aimed at building better relationships across the organisation. These will include, improving direct engagement with employees and unions, enhancing the people leadership skills of our supervisors and developing a culture of shared corporate values across the group.

Market review

The platinum and palladium markets remained in deficit on a fundamental basis for a second year driven by reduced primary supplies from the South African producers. Demand growth, particularly in jewellery and investment, has outpaced supply. Despite this, available above-ground stocks continued to constrain any upward price movement.

The average price for platinum in 2013 was US$1 487 per ounce, while the average price achieved during the first six months of 2014 was US$50 per ounce lower at US$1 437 per ounce. The palladium price, on the other hand, which averaged US$725 per ounce in 2013, increased to US$780 per ounce for the first six months of 2014 indicating improved supply/demand fundamentals for this metal.

Rhodium averaged US$1 045 per ounce in 2013, which increased to US$1 069 per ounce in the first six months of 2014 reflecting a fundamentally balanced market. The rand depreciation that began in 2012 continued in 2013 and was supportive of rand prices for PGMs.

Looking ahead

“Looking forward, medium to long term demand fundamentals remain strong for PGM’s against the backdrop of increased automotive sales, tightening emissions legislation and constrained supply,” said Goodlace.

“Efforts to restart and rebuild Impala Rustenburg, increase the volumes at other operations, as well as successfully mitigate the effect of temporarily closing the Bimha mine at Zimplats are on-going.  Furthermore, Implats continues to invest in its capital projects, which are essential to restore the production profile and relative cost position into the future.”

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