IMPALA Platinum (Implats) raised the prospect of additional restructuring if current economic conditions in the platinum group metals (PGM) industry persisted, described by the group’s CEO Nico Muller on Thursday as “anaemic”.
Commenting in the miner’s interim results announcement, Muller said there was a “lack of conviction in the underlying demand outlook” for PGMs. This was despite robust sales inquiries in the spot market and forecast supply deficits this year in each of the key PGMs platinum, palladium and rhodium.
“The majority of our operations delivered well in the period under review, but the challenges at some may require additional interventions and adjustments to future operating parameters,” said Muller.
Asked for details, Muller told media Impala Canada and Marula mines were vulnerable to restructuring as well as certain Rustenburg shafts – some ageing operations – which were “sailing quite close to the wind as far as operating margins goes”.
The likelihood is that Lac des Iles would be run down over a period of time while Marula, which has 24 years of reserves, must be able to support a phase two expansion with positive cash flow. A decision on that phase two expansion is required in two years’ time.
Implats announced R19.8bn in impairments in its previous financial year, shelved projects (Merensky Project at Two Rivers among them), and cut 4,200 jobs (though no forced retrenchments). This followed a major cash outflow in the first half of that year.
For the six months of the current financial year (ended December), Implats performed far better announcing today an adjusted free cash inflow of R639m after net cash capital outflows of R3.8bn. It ended the period with adjusted net cash of R6.7bn and liquidity of R17.8bn.
This was after pullling multiple operational levers including an 18% reduction in stay-in-business capital spend of R2.7bn, a 73% cut in replacement capital which came in at R379m, and expansion capital of R905m, representing a 58% year-on-year reduction.
But pressure continues. “Weak rand PGM pricing for much of the past year has resulted in pressure on operating margins and free cash flow potential,” said Muller.
As a result, the company decided not to pay an interim dividend although it added that it would assess a dividend declaration at the year-end.
The company is also contending with a working capital build after encountering furnace constraints. It decided to expedite a rebuild of Furnace 3 at its Rustenburg operations and started repairs in February at Furnace 5 following a tap leak. While Implats had expanded processing capacity at its Zimplats operations it warned that “processing constraints” will slow the rate of excess inventory release this financial year.
Inventory stood at 375,000 6E ounces compared to 330,000 oz at the interim stage last year and 390,000 oz at the close of the 2024 financial year. Excess inventory of 310,000 oz was targeted by year-end with the balance released over the next three years (130,000 oz in each of 2026 and 2027 and the balance in 2028 financial years), said Muller.
As guided in a February 11 trading statement, Implats reported lower headline earnings year-on-year, falling 43% to R1.8bn while headline share earnings came in at R2.06/share, a decline of 44%. Owing to the absence of impairments in the period under review, basic earnings increased to R1.9bn (2024: R1.6bn) or R2.08c/share (R1,80/share).
Group refined production and sales increased 2% to 1.79 million oz for the six months.
Margin pressure
Implats last year adjusted mining at its Lac des Illes mine (Impala Canada) to target higher margin ore. While this has kept the mine cash positive in the period under review, it also makes the operation vulnerable to restructuring. This is because its life of mine may not be able to justify further capital spending, said Muller.
“We are evaluating the path going forward and the life of Impala Canada in three years,” he said. “There is a high probability it has contracted depending on your views of the palladium price going forward,” he said. Impala Canada was primarily a palladium producer which gives it “the biggest challenge”, Muller said.
“Marula is the second asset under the greatest threat owing to a declining performance. We have seen a reduction in its ounces contirbution,” said Muller.
Marula had hit geological complexity which had reduced the operating panels open to its teams. “They are looking to get to the right level of operational flexibility and performance, but it is an asset which has the second highest list exposure,” he said.
