Impala defends tardy expansion, risks

[] — IMPALA Platinum CEO, David Brown, fended off criticisms the group’s expansion strategy in South Africa and Zimbabwe was behind schedule and laboured under high political risks.

Responding to questions following the R111bn group’s full year results announcement in Johannesburg on Thursday, Brown said fresh deadlines for three expansion projects in South Africa were now “cast in concrete”.

Impala Platinum has targeted 2.1 million ounces in platinum production by 2014, a 20% uplift, and the prospect that additional output would be more efficient than mining in the current old areas where some of the activity is remnant mining.

However, the company has fallen behind previously committed deadlines for the sinking of its developments 20 shaft and 16 shaft, which carry a combined capital outlay of R14bn, where there had been an eight and six month delay respectively.

Brown said first production from 20 shaft, which is located on Impala’s Rustenburg-based lease area, itself the historic mainstay of group output, was due in the current 2011 financial year, while 16 shaft would deliver production in 2013 compared to the previous 2012 deadline.

“The delivery dates are cast in concrete,” said Brown. “I won’t be looking at people in the audience responsible for this,” he added, suggesting the pressure was on his management team to deliver the expansion on time.

A third new development, the R11.1bn, 17 shaft, was still in the sinking mode and it was, therefore, too early to say when exactly it would yield production, he said.

During the 12 months to end-June, Impala also committed $450m to the construction of a second phase expansion at its Zimbabwe mine, Zimplats. Analysts asked if Impala was comfortable with financial and political risks there.

“We’ve given the go-ahead to expansion in Zimbabwe,” he said. “We have got no concrete information that would lead to stopping it.” Zimplats currently produces about 180,000 ounces/year with a second phase expansion taking output to a proposed 270,000 oz.

Zimbabwe’s government has been feckless regarding its indigenisation or empowerment policy, saying repeatedly it required foreign investors operating in the country to part with 51% of the assets to a local partner, only to retract the intention to impose such a policy.

Impala negotiated the sale of mineral reserves to the Zimbabwean government several years ago, committed to certain social and development work in Zimbabwe, and parted with 15% in equity in its local operations in return for acknowledgment it had complied with law on indigenisation.

“We will see how this stacks up with the 51% principle of indigenisation,” said Brown. “We’re going ahead on the basis that we have legal agreements the Zimbabwean government will honour.”

SA country risk

Brown said he didn’t believe South Africa’s political risk profile had deteriorated, but he acknowledged the company was negotiating on two fronts with the government to win the right to sell associated minerals – such as base metals – from areas over which it had apparently only applied for a platinum group metals prospecting permits.

This situation, described as overlapping mineral rights, is akin to rival platinum firm Lonmin’s predicament last month in which it discovered another company, Keysha Investments 220, had the right to sell base metals from Lonmin’s lease area because Lonmin only owned the prospect for platinum group metals.

This is notwithstanding the fact that the minerals, geologically-speaking, frequently occur together, the simultaneous mining of which was provided for in the now superceded minerals legislation of 1991.

Brown said one of Impala’s cases of overlapping mineral rights also involved Keysha Investments, which is ultimately controlled by Sivi Gounden, a former non-executive director of Lonmin.

“We are encouraged the mines minister [Susan Shabangu] sees the ambiguity of this law. The overlapping right is small in the overall picture of Impala. We believe it is an administrative issue and we are in discussion,” he said.

Commenting on risk in the South African mining milieu, Brown said: “The risk around lead times in South Africa is really about cost escalation, not political. I find South Africa a stable place.”


Interestingly, Brown resuscitated the possibility the group could add the development of Afplats to its expansion strategy beyond 2014, a 91 million oz platinum resource for which it paid R3.5bn in 2007, but never developed.

“We are looking at the possibility of feasibility studies around Afplats and 8 shaft, (in the Rustenburg lease area),” said Brown.

The platinum reserves at Afplats descend to a depth of 1,200 metres and 2,000 metres for 18 shaft, which is still relatively deep compared to operating platinum mines (but less so compared to new prospects).

The board would consider the development of Afplats at its November meeting, Brown said, who commented earlier that Afplats was “a significant reserve” and that there were “a number of potential plans to bring it to account”, without providing further details.