Ominous for Aquarius as axe is sharpened

[] – HIGHER production from Kroondal mine helped
maintain overall output at Aquarius Platinum in the June quarter, despite a decision
to put Marikana and Everest operations on care and maintenance.

However, there was no masking the prospect that Kroondal was also in danger of
closure as it recorded a negative 24% cash margin in the period.

It was a performance that was ominously overshadowed by comments from
Aquarius’ 50% joint venture partner in the mine, Anglo American Platinum
(Amplats), which said Kroondal would fall under the gaze of its restructuring efforts.

Asked whether Amplats had a veto over any decision to shut Kroondal, Amplats
interim CEO, Bongani Nqwababa, commented at Amplats’ interim results
presentation: “If the numbers don’t add up there’s no reason to keep the mine

The numbers are not, in fact, stacking up. Kroondal raised production in the quarter
7% to 82,212 (non-attributable) ounces, but total revenue fell a fifth quarter-on-
quarter to R605m. On a per PGM oz basis, revenue averaged R9,160 against costs of
R9,890 per PGM oz.

The outcome was that Kroondal’s cash margin had fallen from a positive 9% to -24%
owing to poor platinum fundamentals.

Aquarius has announced plans to shift to an owner-operator model at its Kroondal
mine, and there were plans in place to take over management of the mines from
contractor Murray & Roberts by the end of 2012. “The owner-operator model will be
rolled out at AQPSAs [Aquarius Platinum South Africa’s] other mines as they are
brought back into production,’ the company said in its June-quarter announcement
to the JSE.

Outside of its surface retreatment (chromite) activities, Aquarius’ only other
operating mine is its Zimbabwean asset, Mimosa Platinum Mines, which is owns with
Impala Platinum. It recorded an increase in cash margin to 50% from 30%

Currently discussions were ongoing to sell half of the mine to the Zimbabwean
government in terms of its indigenisation programme.

Aquarius said it had enough cash – approximately $180m as of end-June – to keep
its finance for its mines for the next 12 months. The funding of the Everest
extension, known as Buttonshope, would be considered as and when conditions
precedent on the transaction were completed.

However, it pointed to further disruption related to wage negotiations, which would
be exacerbated by union rivalry, in the current quarter. Acts of intimidation among
rival unions on members had been an industry-wide phenomenon recently.
“Aquarius is by no means immune to this threat, and intermittant unlawful industrial
action has occurred at one of Kroondal’s four shafts [Kwezi] in July,’ it said.


Nqwababa said that Amplats would engage with Aquarius and would make an
announcement if there was “a common position’.

While, the possible closure of Kroondal is only speculation, it comes at a time when
Amplats is examining the viability of all its unprofitable ounces. “We won’t tolerate
unprofitable ounces,’ said Nqwababa. He added that 400,000 oz was not
unprofitable as suggested by top platinum analyst, Johann Steyn, of Citi. “I can
assure you, we’re not at that level,’ Nqwababa said.

Aquarius Platinum CEO, Stuart Murray, said sentiment in the platinum market was
not helped by the fact investors were sceptical South Africa’s major mining
companies would make serious inroads into production to help reduce the platinum

“These macroeconomic factors are exacerbated by the markets’ well-placed doubt
that the major platinum producers will cut supply meaningfully,’ Murray said.

“Prices continued to be set largely by ETF inflows and outflows rather than
fundamental industrial demand, and surpluses across the entire suite of metals
remain in the system at present,’ he added.