South African platinum major Impala Platinum (Implats) has revealed an extensive strategic review of its operations in light of weak current PGM prices. The review includes consolidating and “repositioning” Impala Rustenburg shafts into fewer more modern operations, ramping up its new 16, 17 and 20 Shaft projects, deferring Afplats and selling Marula.

Implats’ CEO, Terence Goodlace, say: “Implats performance in the first six months of FY2015 was impacted by the ramp-up of the Rustenburg operations following industrial action across the platinum industry in early 2014 and safety stoppages at this operation. The suspension of operations at Zimplats’ Bimha mine as a result of a major ground collapse, as well as depressed PGM prices and industrial action at Marula, also impacted performance. Encouragingly, pre-strike production rates have been restored at Impala Rustenburg and the operation delivered planned production for the six months.

“Looking forward, we believe PGM market fundamentals are sound over the longer-term but, PGM dollar prices are likely to remain ‘lower for longer’. Within this context, we will position the Group to conserve cash while we restore and optimise operational performance and profitability. In doing this, Implats will maintain strategic optionality to safeguard the long-term value potential of our assets and plans to invest R30 billion across our operations over the next five years.”

A total of R20 billion will be spent at Impala Rustenburg over five years (2015 – 2019), including R6.6 billion at 17 Shaft. At a Group level, R30 billion will be invested over the same period. However, the strategic target for 2016 is to reduce the planned capital spend by R2.2 billion to R4.5 billion. This is in addition to a R1.3 billion capital reduction in 2015.

Impala Rustenburg – consolidation

Implats’ strategic response specifically aims to reposition and modernise Impala Rustenburg into a smaller, more concentrated mining operation with access to new, modern shaft complexes, with new Merensky ore reserves, producing 850 000 ozpa of platinum at much higher mining efficiency and lower unit cost.

To do this, the completion and ramp-up of 16 and 20 Shaft complexes and further ore reserve development will be prioritised. Full production from these shafts is expected from 2019, one year later than previously targeted and is due to the impact of the prolonged strike and cash conservation measures implemented during the strike and restart period.

Over the next two cash-constrained years a total of R1.5 billion will be spent on both shafts.

The benefits of these two new shafts are that they provide access to significant new concentrated Merensky ore, which allow Impala to attain mining mix of 49% Merensky to UG2 ore. Furthermore, there are investigations into mechanisation at 20 Shaft.

The old shafts (E/F, 4, 6, 7, 7A, 8 & 9 shafts) will be consolidated under one overhead structure to optimise costs and improve synergies. These shafts will be mined out and closed as quickly as possible as they are among the lowest-cost operations at the lease area due to their relatively shallower mining depth and low capital requirements.

The mid-life shafts (1, 10, 11, 12 & 14 shafts) are becoming more reliant on UG2 reef and require increased mineable face length to improve mining flexibility and efficiencies to optimise half-level and shaft capacities. The planned transition at these shafts is underpinned by a targeted operational excellence programme.

The collective benefit of all of the Impala initiatives will be to increase mining flexibility and efficiency and increased volume throughput without any increase in labour. The commissioning and ramping up of the new shaft complexes and the closure of old shaft infrastructure will result in mining teams being increased from 550 to 620 teams.

At the same time, there will be reduction in the support staff required for the mining operation.

17 Shaft – a priority

The 17 Shaft capital expenditure programme has been reduced to R415 million in 2015 and R537 million for 2016. A capital saving of R1.1 billion will be realised in 2015, and of R1.4 billion in 2016. The shaft remains essential to sustaining future production from Impala as it is designed to deliver 180 000 ozpa. To this end, the board of directors has prioritised the completion of the main shaft sinking programme with the optionality to review the project, the PGM market and the Group’s financial position on an ongoing basis. If the 17 Shaft project is not further slowed then it is expected to come into production in 2021. This will enable the Impala lease area to maintain production at 850 000 ozpa of platinum beyond 2020.

Zimplats up, Mimosa down

The strategy also aims to restore mining flexibility at Zimplats in Zimbabwe and to ultimately grow output to 260 000 ozpa of platinum at a milling throughput rate of 6 Mtpa by 2016 through initiating opencast mining and redeploying Bimha’s mining crews at the other operations, while redeveloping the mine. The sustainability of operations at these levels is contingent upon PGM market prices, power supply and regulatory certainty.

The Government of Zimbabwe has confirmed that Mimosa will be subject to the 15% export levy on platinum. This has a material impact on Mimosa’s profitability. As a consequence, the strategy for this asset is to maintain operations and shelve all potential expansions, which would have enhanced production, profitability and job creation possibilities.

Afplats – deferred

Afplats remains a quality resource with significant potential to develop a low-cost mechanised mine in the well-serviced western Bushveld Complex. Moreover, significant synergies can be realised through the use of Impala’s above-ground infrastructure. However, the project requires significant capital investment, and the board has resolved to defer the project for four years to conserve cash and protect the balance sheet.

The strategic review also brought into sharp focus the significant value still being delivered by the Group’s toll refining business (IRS), despite the impact of lower metal prices. The Group has spare capacity available that positions it well to benefit from new opportunities, especially given the anticipated shift over time from the Western Bushveld Complex to the base-metal-rich northern limb.

Marula – for sale

Marula is a relatively new, shallow, long-life ore body with good infrastructure and we have made progress in recent times in unlocking some of this asset’s potential. This progress was severely impacted in the first half of the 2015 financial year as a result of industrial action and safety stoppages at the operation. We remain confident that the lost momentum can be recovered and that output can be grown to 90 000 ozpa of platinum by 2020.

However, having critically assessed the fit of this asset into Implats’ South African portfolio, as well as the need for management’s focus on the large integrated Impala operations, the board believes that more shareholder value could be unlocked through disposal of the mine.

An additional advantage of selling the asset is the realisation of cash to strengthen the Implats balance sheet. The concentrate offtake agreement will remain with IRS and Implats will ensure that our existing business partners are consulted throughout.

Implats’ revenues for the six months to December, 31 is R15.9 billion, 3.6% lower than those achieved in the six months to December 2013, largely as a result of a reduction in sales volumes of platinum, palladium and nickel due to the lower Impala production.

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