[miningmx.com] – REGULATORY uncertainty in Zimbabwe was negatively affecting the ability of Aquarius Platinum to plan production and deploy capital at its Mimosa mine, said company CEO, Jean Nel.
Commenting on the company’s second quarter production figures, in which Aquarius produced 84,528 ounces of attributable platinum representing a 7% increase over the corresponding quarter in the previous financial year, Nel said that Zimbabwe was of “particular concern”.
“The continued regulatory uncertainty in Zimbabwe is of particular concern to us as it impacts Mimosa’s ability to plan future production levels and capital allocation efficiently,” Nel said.
“Discussions with the Government of Zimbabwe continue and, seeing as we share in the Government of Zimbabwe’s for a healthy, growing Zimbabwean platinum mining sector, we remain hopeful the matters could be agreed in due course,” he added.
Amendments to Zimbabwe’s national budget for 2014 include making mining royalties non-deductible for income tax purposes. In addition, an export tax on unbeneficiated platinum – aimed at encouraging building of refining facilities in the country – would also be levied.
“The implementation of further taxes will have a significant negative impact on the profitability and cash flows of the entire Zimbabwean platinum sector, particularly in the current low price environment,” said Nel.
“Mimosa management in consultation with the Zimbabwe Chamber of Mines will continue to engage with the Government of Zimbabwe in an effort to clarify the proposed changes to the fiscal regime,” said Nel.
The long-term health of Mimosa, which is held in joint venture with Impala Platinum, is critical to Aquarius Platinum which last year put its Marikana and Everest mines on care and maintenance.
It’s only other operating mine, Kroondal, produced in excess of any level achieved in its 10-year existence, but it’s cash margin of 7% in the second quarter compared to an 18% cash margin at Mimosa.
It’s the high efficiencies achieved at Mimosa that has Aquarius pondering sinking a second shaft at Mimosa – hence Nel’s worry about whether to deploy capital to the asset.
A third asset, the platinum retreatment operation known as Platinum Mile, produced a 20% cash margin but output constituted less than 2% of attributable production in the quarter.
Nel did not comment on the $300m convertible bond, due in December 2015, that is Aquarius’s elephant in the room. Although this will create an enormous overhang in the stock, Standard Bank Group Securities platinum analyst, Justin Froneman, said the company was still over-sold.
“Aquarius remains a deep value PGM [platinum group metal] investment, in our opinion, and we still consider the stock to be in an oversold position relative to its peer group,” he said in a note published today.
“Aquarius has gone a long way in addressing legacy operating and financial issues, and we contend that further upside to our current company outlook is possible,” he said.
Another analyst observed that a potential problem for Aquarius Platinum was that its Kroondal mine was situated close to mines currently experiencing strike action which could present risks to the company.
Aquarius Platinum, however, concluded a highly competitive wage agreement at its Kroondal mine with the National Union of Mineworkers thought to be up to 9%.
