[miningmx.com] – SHARES in Impala Platinum (Implats) sank through R100 per share last month, an emotional threshold – meaningless in itself – but it’s the kind of milestone that raises eyebrows.
The concern is that the immediate future doesn’t seem particularly bright for Implats: only headwinds seem to exist for an industry due for restructuring in an increasingly agitated labour environment.
In other words, is the slurry about to hit the fan? As it turns out, it depends how close you are to the fan. Taken over time, exposure to Implats is no bad thing.
“We were quite pleased when we saw the share falling through R100,’ said Linda Eedes, an investment manager at ReCm in Cape Town. “It’s a quality business and over time represents huge value.’ (The share ran up to R105 on Monday before the Lonmin shootings helped depress it to about R101/share).
ReCm’s time horizon is between three to five years and to support its confidence it has up to four percent of its local funds in the stock. Its global fund has 1.5% exposure. Overall, ReCM’s local funds have some 16% exposure to South Africa’s platinum sector in Implats, Lonmin and Anglo American Platinum (Amplats).
In the short-term, Implats has its problems. One is getting its Lease Area in Rustenburg, which supplies up to 900,000 ounces of platinum production in the past – about 60% of managed platinum production – up to scratch. The mine recorded a 50% increase in costs in the six months ended December owing to a loss of “production discipline’, according to Terence Goodlace, Implats CEO.
As a result, there are questions as to whether the Lease Area can provide the bulwark of Implats’ production as it used to. Perhaps output of 600,000 to 750,000 ounces would be more appropriate. Certainly, the platinum market would welcome lower production.
“It’s about getting over the short-term problems at Rustenburg,’ says Andrew Joannou, chief investment officer at Afena Capital. He raises a potential risk should Implats’ new mining shafts now in development – 16, 17 and 20 shafts – face delays. Were this to be the case, Implats might suffer temporary production declines as the Lease Area slows down.
“But I don’t think Implats is in the same situation as Amplats,’ he says. “It’s in a different place in the cost curve,’ says Joannou.
“Implats sits on healthy platinum reserves,’ says Eedes whereas the smaller platinum plays run the risk of “going bust’ in the current price environment, she adds.
Goodlace has raised the prospect of restructuring, however, the likelihood of which is likely to increase if wage negotiations result in labour costs that significantly raise the cost of prodution. He also won’t be thanking Amplats’ which earlier this month revised its restructuring plans under Government pressure.
