Johannesburg - Impala Platinum declined to the lowest in more than a year after a five-month strike prompted a review of the second-biggest producer’s capital projects, raising scepticism over future returns.
The company will consider altering spending on three major shafts that would’ve accounted for more than a third of production from 2019 at its Rustenburg operation, the world’s biggest mine for the metal, chief executive Terence Goodlace said today.
The stoppage delayed work on the projects, which also suffered because contractors had to be redeployed and cash had to be preserved, he said.
“The market is questioning the sustainability of the Rustenburg operations,” Michael Kavanagh, a mining analyst at Noah Capital Markets in Cape Town, said by phone.
“If you’re delaying the capital, how are you going to bring on the new shafts that are going replace the old aging shafts?”
A walkout by more than 70,000 miners at the South African operations of Impala, Lonmin and Anglo American Platinum cost the companies about 24 billion rand of stalled output during the stoppage that ended June 24.
Amplats, as the largest producer is known, is seeking buyers for four mines and Lonmin warned of possible job cuts as it reviews operations in the wake of the strike.
South Africa accounts for more than two-thirds of the world’s mined platinum production.
Impala shares declined 5.3 percent, the biggest intraday drop since January 27, to 97 rand by the close in Johannesburg, the lowest since July 31 last year.
Impala was targeting annual production of 850,000 ounces at Rustenburg from 2019 from about 700,000 ounces before the strike by adding 310,000 ounces through the development of its 16 and 20 shafts.
The commissioning of the third new 17 shaft, would add an additional 180,000 platinum ounces to replace aging infrastructure.
The review will “factor in the effect of the strike on the time horizons of the capital projects” and the introduction of new technology to raise productivity, Goodlace said.
It will be completed by December, he said.
Impala won’t necessarily delay capital spending and has budgeted annual expenditure of about 6.5 billion rand for the next five years, Johan Theron, a spokesman for Impala, said by phone.
“After the strike we have to make sure that we’re spending money at the right places,” he said.
Impala shares may also have fallen because the company didn’t announce plans to cut costs by reducing jobs, said Adrian Williams, an analyst at Avior Capital Markets Ltd.
“The market is a little bit tough on them at the moment,” Williams said by phone.
“I’m sure people want to hear about massive cost cuts but reality is you’ve got to get the employees on board now.”
Output at Impala Rustenburg plunged 42 percent to 411,000 ounces in the year through June as the strike accounted for 312,000 ounces in lost production, Goodlace said.
“We are in a rebuild strategy,” he said at a presentation in Johannesburg.
“We’re not here to restructure and disappear down a hole.”
The Rustenburg operation has ramped up to about 65 percent of pre-strike production levels and will probably reach full capacity within two months, Goodlace said.
Output won’t exceed 575,000 platinum ounces in the 2015 fiscal year.
“We’ve got to position the mine for 2016 where we’ll get a more normalised cost basis,” he said.
“The costs in 2015 are not going to be pretty.”
The company, which also has mines elsewhere in South Africa and in Zimbabwe, will ship 80 percent of orders in September and 100 percent in October as it recovers from the strike, Sifiso Sibiya, head of marketing, told reporters in Johannesburg.
Impala’s annual earnings excluding one-time items declined 74 percent to 0.86 rand from a year earlier because of the strike and lower prices, it said in a statement.
Refined platinum output fell to 1.18 million ounces from 1.58 million ounces, it said.
Impala suspended its final dividend after waiving an interim payout in February for the first time since at least 1990, according to data compiled by Bloomberg.
Unit costs per platinum ounce rose 18 percent to 19,430 rand, Impala said.
The average spot price for the metal was $1,431.60 (R15,260) an ounce in the fiscal year, down 7.6 percent from the previous year.
“Demand growth, particularly in jewellry and investment, has outpaced supply,” the company said.
“Despite this, abundant above-ground stocks have constrained any upward price movement.” - Bloomberg News