Eastplats hits Q4 wall, impairs for $46.3m

[miningmx.com] – SHARES in Eastern Platinum Ltd (Eastplats) fell 7% in
Johannesburg following the company’s full-year results announcement. It
unveiled a near-disastrous slip in fourth-quarter production; enough to require a
$46.3m impairment charge and for the company to declare it needed additional funds
to complete two of its Eastern Limb development projects.

The outcome was a $76.5m loss for the 2011 financial year; equal to a $0.08c loss
per share and compared to a $13.4m profit in the 2010 financial year. Eastplats
blamed the performance on industrial action and Section 54 work stoppages that were
mostly incurred during the fourth quarter.

Eastplats reported an operating loss in each of the four quarters of 2011, but the
fourth-quarter performance was a horror show. With an operating loss of $76.5m, it
was easily more than double the combined operating loss of the first nine months,
which totalled nearly $28m.

Eastplats has one operating mine, Crocodile River Mine (CRM), which is situated on
the western side of the Bushveld Complex. In addition, it has several development
projects all located on the eastern Bushveld, which include Kennedy’s Vale mine and
concentrator, the Mareesberg Platinum Project and the Spitzkop PGM Project. It is
also expanding CMR through its Crocette expansion project.

Said Eastplats of its operating performance: “Mining and production for the year was
negatively impacted by labour issues related to the illegal sit-in and unprotected
strike and damage to underground infrastructure at CRM in May, followed by strike
action by employees of CRM’s main mining contractor, JIC Mining Services, in
October, and a Section 54 shut-down of operations following the fatality at CRM in

On November 15, Miningmx quoted a report by JP Morgan Cazenove analysts
Steve Shepherd and Allan Cooke, in which they expressed concerns regarding recent
top management changes at Eastplats.

This followed the resignation of Eastplats Chief Operating Officer Wayne Robinson,
and the fact that CRM had been without a general manager since the beginning of
2011. “Eastplats is currently at an important juncture with two growth projects being
developed concurrently, while its current operations are struggling to recover from
serious labour issues,’ the analysts had said.

“Without experienced and effective senior management, the chances of under-delivery
increase substantially,’ they added.

Sales of PGMs fell 30% to 92,724 ounces during the year, which saw Eastplats fail to
capitalise on an 8% improvement in the dollar price of the PGM basket and a higher
rand price of R7,726/oz for the basket.

Operating cash costs spiralled out of control, increasing 46% in rand terms and 50%
higher in dollar terms.

Eastplats raised $100m with UniCredit Bank during the year. Although this facility
was undrawn as of December 31, the company said that a near-$100m decline in its
cash and near-cash equivalents – owing to development costs at CRM, the Kennedy’s
Vale concentrator, general costs and administration fees – meant that it would have
to put the further development of Crocette expansion, and the Kennedy’s Vale and
Mareesberg mine on hold.

“If adequate funds are not available, including funds generated from producing
operations, the company may be required to delay or reduce the scope of these
development projects,’ Eastplats said in its results announcement.

First, however, the company would seek a joint venture or third-party participation to
further develop the projects. A public or private equity placement or further debt
funding was also being considered, it said.

The funding and development problems at Eastplats are similar to those experienced
by Anooraq Resources. The difference for Eastplats, however, is that it doesn’t have a
major shareholder in the form of Anglo American, which earlier this year unveiled a
plan to restructure Anooraq’s ailing Bokoni Platinum Mines, including a rescope of its
production ramp-up.

To add insult to injury, Eastplats said that three of its directors had been served with
court papers from a law firm in Ontario, Canada, representing a class action for
breaches in disclosure. Eastplats said there was “no merit’ in the class action.

Shares in Eastplats are down about 28% since November when it was trading at a
high of R560/share.