Impala plans Zimplats future

Brendan Ryan | Fri, 16 Oct 2009 17:09
[miningmx.com] -- IMPALA Platinum (Implats) will be “dusting off” plans for the second phase expansion of its Zimplats mine in Zimbabwe over the next few months, according to CEO David Brown.

This follows the recent completion of the Phase One expansion. This has raised Zimplats’ annual production rate to 180,000 ounces of platinum, which should be reached during the current Implats financial year to end-June.

Phase Two could add another 90,000oz to 100,000oz of platinum production, bringing Zimplats up to 280,000oz annually. However, in an interview with Miningmx Brown stressed that this project came with a “health warning”.

He said: “We have enough confidence over the situation in Zimbabwe to look seriously at Phase Two, but we need to see tangible improvements happening on the ground to back up the positive rhetoric coming from the Zimbabwean government.

“A good start would be to revise the mines bill and the indigenisation bill to terms that are acceptable to both investors and the government, and then enact them as legislation.”

Implats believes the Zimplats operation could eventually ramp up production to 1 million oz of platinum annually – making it the same size as its major mining operations near Rustenburg – but Brown stressed this was a “long-term vision”.

He said: “It could take close to 20 years to get to that level of output, and it’s important for the Zimbabwe government to understand that we have long-term ambitions here.

“There could be significant growth at Zimplats, but there are long lead times involved and it’s not going to happen overnight.”

Brown said a major issue to be dealt with in Zimbabwe to allow further expansion at Zimplats was repairing and improving the country’s infrastructure.

“That has deteriorated over the years. The future supply of power is a constraint on the business, as are the level of available skills in the country and the ability of local businesses to supply our needs. “

Brown said that the infrastructure needed for development of a greenfields project such as Zimplats was a major reason why a brownfields development, such as a new deep-level shaft system at Implats’ Rustenburg operations, still made more sense at this stage.

He said: “A lot of new infrastructure is required for future expansions at Zimplats, compared with our Rustenburg operations where the infrastructure already exists to support a new shaft development.

“Harsh reality is that the constraints in Zimbabwe pose a considerable risk factor and, in terms of risk adjusted returns to shareholders, the brownfields development at Rustenburg wins out at present.”

He said that long-term planning for Zimbabwe included the construction of base metal and precious metal refineries there, but this would only take place once mining operations had reached certain benchmark levels.

He said: “At a production level of around 500,000oz of platinum annually it becomes worthwhile to build a base metals refinery in Zimbabwe instead of shipping the material to South Africa for refining.”

Brown indicated that Implats’ Zimbabwean production from Zimplats and the Mimosa mine, which the group jointly owns with Aquarius Platinum, was growing in importance because of the adverse impact of the strong rand on South African revenues.

Zimbabwe is now a “dollarised” economy, meaning the mines get the full benefit of increases in the dollar price for their platinum group metals (PGMs), whereas the rand price received by the South African producers is being held down by the strong rand.

Brown said: “By June 2010 we will produce in total about 1,7m oz of platinum annually, of which about 280,000oz will be coming from Zimbabwe at rising profitability.”

While PGM grades on Zimbabwean mines are generally lower than those at South African ones, the Zimbabwe operations at this point are still more profitable than the UG2 reef mining operations in South Africa.

Brown said: “The Merensky reef mining operations in South Africa generate the most revenues, followed by Zimplats and Mimosa which are both more profitable than UG2 operations.”

Brown said: “The rand basket price is sitting at round R13,000 per platinum equivalent ounce, while our costs are around R10,000 to R11,000 per platinum equivalent ounce.

“That means we have a positive margin at the operating level, but we need higher returns to pay for new capital investments.

“A number of projects have already been curtailed and more will have to be curtailed if this situation continues.

“That has implications for future market conditions because supply cannot be turned on and off in the short term. You could get a future situation where demand will outstrip supply which will have a positive impact on prices, but whether that will happen in 2010 or 2011 is hard to call.”