Market worries over Impala production target

Ines Schumacher | Thu, 27 Aug 2009 10:24
[miningmx.com] -- PLATINUM producer Impala Platinum reported its forecast 11% drop in annual platinum production, but the continued wage strike at its million ounce per year Rustenburg operation is causing the market to worry.

Impala’s full year production fell to 1.7 million ounces from 1.9 million ounces in the 2008 financial year.

“Impala had indicated the drop in production and that it will take two years for them to recover back up to 1.9 million ounce,” Credit Suisse platinum analyst David Davis said.

Impala’s subsidiary Zimplats is continuing with its ramp-up to 180,000 ounces in 2010 and Two Rivers is expected to reach a production of 150,000 ounces by 2013, but Davis said market confidence depends on how quickly Impala can stop the strike at Rustenburg.

“The strike at Rustenburg is of concern. Impala’s future production target of 1.8 million ounces is on shaky ground, depending on how long the strike will last,” Davis said.

The National Union of Mineworkers is demanding a 14% wage increase plus transport and housing allowances.

This follows seemingly industry-wide strike actions at both Aquarius Platinum and Platmin while the gold sector is widely seen to have been unaffected.

If the problems they are experiencing persist they will have to revise their production guidance downwards

“I think the perception is that platinum miners enjoy better profits and that more money is available to them. The truth of the matter is that platinum group metals (PGM) prices are muted and we are not benefitting from any rand-dollar strength,” Impala CEO David Brown told Miningmx.

Senior portfolio manager at Sanlam Investment Management Barend Ritter said the company’s drop in production is disappointing. “If the problems they are experiencing persist for much longer then they will have to revise their production guidance downwards,” he said.

Ritter is concerned about unit costs which increased by 32% to R9,129 across the group. “I was expecting a figure in the early twenties. This is going to be an industry-wide problem and cost escalations need to be controlled carefully,” Ritter said.

Impala’s 14 shaft – where a fall of ground earlier this year killed nine mineworkers – has already lost 25,000 ounces of platinum production during its closure and will lose a further 25,000 ounces while its mine layout is converted to avoid future incidents.

This conversion will cause 14 Shaft to lose 20,000 ounces per annum due to reduced output and extraction rates.

Market outlook

Impala reported a 66% fall in profit to R6bn for the financial year from R17.7bn for the year to end-June 2008.

“FY2009 has been a challenging year with the second half being particularly difficult as the full impact of the economic crisis was felt. However, our operations weathered the storm and the group remained in a healthy position,” Brown said.

Impala is hopeful of an economic recovery over the next twelve months underpinned by a global upturn in the vehicle sector.

Impala said it is already seeing a slowdown in the decline of new vehicle sales. Coupled with government scrapping incentives, the company expects an increase in new-vehicle build.

“This is being underpinned by strong demand from the Chinese platinum jewellery industry as manufacturers restock on the back of renewed consumer appetite at lower price levels,” Impala said in its results statement.

The company forecasts the platinum price to trend upwards over the medium term in line with improved fundamentals. Impala made a price forecast of platinum to be between $1,175 and $1,275 per ounce for the foreseeable future.

Dividend policy

Impala declared a final cash dividend of R2.00 per share, bringing the full year dividend to R3.50.

“We are in a financially strong position with access to additional borrowings if needed. Our outlook for the medium terms is good so I don’t see a reason why we shouldn’t have paid out a dividend,” Brown said.

Impala has returned R24bn to shareholders over the past five years.

“The company’s balance sheet is in a good state with very little gearing. Looking forward, they can fund most of their capital expenditure through their cash flows,” Ritter said.

“However, I expect a further drop in earnings and dividends in the next financial year,” he added.