Impala Platinum (Implats) on Thursday announced its intention to raise up to R4 billion through the sale of new ordinary shares in order to maintain its operational profitability while it implements a revised strategy to compensate for low PGM prices.
Implats’s new business strategy includes reducing its operating costs by R1.57 billion, substantially higher than the R930 million it originally planned for. It will also reduce its capital expenditure in 2016 by R1.3 billion from R5.5 million to R4.2 million.
Further to this the company also plans to close 8 and 12 shaft’s mechanised operations by December 2015.
As a result of the revised capital schedule and envisaged closures, Implats is expecting to reduce production by approximately 180 000 oz over the next five years.
This includes 145 000 oz from 8 shaft and 12 shaft’s mechanised operations that would not be profitable in the current price environment.
While “it is important to take swift and robust action to manage the business in line with the price environment, Implats continues to believe that the market fundamentals for PGMs remain attractive over the longer term,” the company said in an announcement on the JSE.
“There is limited incremental PGM supply anticipated beyond increased recycling of above ground stocks whilst demand is well positioned to benefit from the recovery of the global economy. Increased uptake is expected from higher catalytic converter usage with a combination of higher vehicle demand and more stringent emission standards as well as the evolution of the Chinese economy increasing demand for jewellery and other industrial uses of platinum.”
“In line with current market consensus forecasts, Implats therefore expects PGM prices to improve over time.”
New shaft strategy
Even though Implats’ principal focus is now being placed on cash preservation and profitability in a lower price environment, it has retained its priority to complete key capital projects that are expected to be value enhancing in the context of the current price outlook and are also important to the long term value of the Group.
The intention is therefore to complete the development of 16 and 20 shafts, which require a rescheduled capital and development expenditure budget of R3.9 billion across both shafts over the next three years.
Development at 17 shaft however will be curtailed with capital expenditure reduced by R235 million in 2016 and by R1.5 billion to R520 million over the next two years. The future development schedule will be kept under review, but at this reduced level of spending Implats will retain the flexibility to bring 17 shaft production on stream from 2021.
This represents an eighteen month delay from the previous plan announced in February 2015 and requires capital expenditure of approximately R8 billion from 2018 to 2020.
Capital expenditure will also be cut by approximately R45 million at Marula and US$50 million Zimbabwe’s Zimplats and $13 million at Mimosa.
Old shaft strategy
Consistent with the outcome of the strategic review announced earlier in 2015 it is critical that the Impala Lease Area in Rustenburg be transformed.
The intention is to create a more concentrated mining operation with access to new, modern shaft complexes making better use of the invested fixed cost base, with higher mining efficiencies and lower unit costs.
The old shafts (E/F, 4, 6, 7, 7A, 8 and 9 shafts) have therefore been consolidated to optimise costs and realise synergies. These shafts are among the lowest-cost operations at the Impala Lease Area due to their relatively shallow mining depth and low capital requirements and will be mined as quickly as possible.
The mid-life shafts (1, 10, 11, 12 and 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.
16 and 20 shaft complexes provide access to significant new concentrated ore from the Merensky Reef to offset the increase in UG2 and this is expected to allow Impala to attain a mix of 50% ore from the Merensky Reef to UG2 ore, which is important for efficient smelter operation.
Subsequently, production from the Impala Lease Area is expected to be between 815 000 and 830 000 platinum ounces by 2020, rather than the previous guidance of 850 000 platinum ounces by 2019.