Declining metal prices see Implats profit drop

NZINGA QUNTA: Impala Platinum or Implats is one of the world’s largest producers of platinum and associated platinum group metals. It delivered strong earnings for the year ended 30 June, 2022. Nico Muller, the CEO of Implats, joins me now. A very good evening. Thanks so much for your time on the SAfm Market Update with Moneyweb.

Lots of uncertainty and challenges in the past year in terms of, among other things, geopolitics and local challenges. How did that affect your operations and performance?

NICO MULLER: I think the key features of our performance last year are the fact that we reduced our production by 4%, and that metal prices softened by 4%. That resulted in a 9% reduction in revenue, down to R118 billion. But, as you said, these variances are by less than 5%.

It has been our second-strongest year of the last 10 years. So although there is uncertainty about the global economy, and although it has a negative impact on commodity prices, we entered the year with zero debt. We are in a very strong position to finance all of our projects, all of our operations and still provide shareholders with a 9% yield. We paid a dividend of R15.75 per share. So, if you measure it against a record year, it may appear to have been a challenging year, but I think through the cycle it has actually been a strong year and the company is still in a very strong position.

NZINGA QUNTA: Okay. Nico, we saw that production at managed operations decreased by 4%. Just talk us through that.

NICO MULLER: Yes. The two main areas of concern are Impala Rustenburg, which reduced by 9%, and Impala Canada. At Impala Rustenburg [among] the key drivers of the weaker production was firstly the impact of the intermittent Eskom load shedding. Regrettably we also had a number of fatalities, and that resulted in safety stoppages. And then, lastly, we had a very aggressive attempt by Numsa to invade the representation of, in particular, our contractors. Those factors impacted negatively.

On the positive, though, we were able to increase the available mining face length by two kilometres, and so I think that we are able to counter the labour relations concerns and, when we do, we are in a structurally very sound position to leverage that to improve production.

At Impala Canada the two main outstanding drivers of performance were firstly the fact that we had a critical winter storm that took out the Ontario province provincial power grid, and that resulted in an eight-day stoppage and, probably as a consequence, the loss of a half a month of production. Secondly, skills availability in North America in general and in Canada specifically, has been a massive concern. And so skills availability and retention was a key driver off performance. I think that we have successfully upgraded our recruitment-retention remuneration strategies, and we offer people far more flexibility. I think that’s going to put our asset in a much stronger position as well.

NZINGA QUNTA: How much did you generate in free cash flow?

NICO MULLER: Free cash flow for the year was R28.8 billion.

NZINGA QUNTA: And from a demand perspective, how did you do?

NICO MULLER: We are seeing very strong demand for all the major metals. You may find that contrarian, because we’ve seen a decline in the platinum price. We attribute that to excess surface stock that is available, and so we don’t see the strong demand for platinum reflected in the pricing. So we have a fairly strong, bullish view on the PGM prices going forward.

On top of that, we’ve seen a really strong performance with the minor metals, with refining and [inaudible] specifically, and that’s related to increased industrial demand for those minor metals.

NZINGA QUNTA: Let’s go back to that operating environment. What kind of inflationary pressures were you facing, and how did that impact on your business?

NICO MULLER: The unit operating cost increased by 17%, which is probably the highest that I have ever experienced in my mining career. That is attributable firstly to the 4% reduction in production. Lower volumes often reflect high unit cost. But then we have seen hyperinflation in areas, specifically such as energy, and in Canada we use propane for heating. That has escalated significantly.

So we see energy costs, chemicals, explosives, steel, wood support. So it is that combined with, in some cases, supply-chain constraints that have also resulted in us having to increase our stock levels of critical spares, which has also resulted in an increase in expenditure during the year.

NZINGA QUNTA: Nico, what risk do you see in terms of prospects for 2023?

NICO MULLER: I think from a company point of view the key risk for us is a security of energy supply, given the recent history of Eskom.

I think we do have to continue investing in our relationships with our communities. We have seen a significant increase in poverty, and therefore criminal actions in terms of illegal mining, and that’s been much, much publicised. But not only illegal mining, but also theft of mine equipment and material – copper cables as an example.

And then they have something that’s not often spoken to, but I think the resilience of operations to counter any extreme weather is something that we are currently focusing on quite strongly. We’ve seen the floods in Pakistan and perhaps closer to home we witnessed the result of the flooding in KZN, part of the material consequences as a result of insufficient preparation to mitigate the impact of extreme weather.

NZINGA QUNTA: Right. Nico Muller, the CEO of Implats, joined me there, speaking about their results and the risks they foresee in the future. Thanks so much for your time.