Implats, a prominent player in the platinum group metals (PGMs) mining and marketing sector, recently disclosed a potential phased reduction in its group output. This forecasted decline, primarily attributed to anticipated decreases in production from its operations at Impala Canada and Mimosa in Zimbabwe, could represent a significant 8% deviation from the company’s projected production guidance for the fiscal year ending June 30, 2024. This revelation came alongside the announcement of decreased group profitability, despite the implementation of disciplined cost control measures and the achievement of solid production figures across several of its operations.
The company, which celebrated its 50th anniversary and employs approximately 67,900 individuals across eight sites in three countries, now anticipates its six-element (6E) refined and saleable production to range between 3.30 million and 3.45 million ounces. This projection is shadowed by concerns over the previously planned expansion, which aimed to increase output by 210,000 ounces, now potentially being sidelined. According to Implats CEO Nico Muller, these combined factors could result in a reduction of approximately 14% from the company’s internally planned production.
During a recent presentation, covered by Mining Weekly, Muller shared financial outcomes indicating an earnings before interest, taxes, depreciation, and amortisation (EBITDA) of R8.4 billion, headline earnings of R3.3 billion, or 365 cents per share, and a free cash outflow of R4.8 billion after funding capital expenditures (capex) of R6.8 billion. Notably, the company has revised its capex guidance downwards from between R12.5 billion and R13.5 billion to between R11 billion and R12 billion, a decision reflective of the current PGM pricing environment, which, according to Muller, does not align with market fundamentals and is heavily influenced by marginal buyers in a saturated market.
The global economic landscape, characterized by super inflation and heightened interest rates, has exerted additional pressure on the PGM market. Muller pointed out the implications of a bearish outlook on global economic growth rates, evidenced by marginal Purchasing Managers’ Index (PMI) figures, and the impact of geopolitical uncertainties, including elections in 64 countries and conflicts in regions such as Ukraine, Palestine, and potentially Taiwan. These factors contribute to a trend of destocking among manufacturers, further dampening PGM prices despite relatively positive automotive sales.
Implats has observed a 32% decline in its basket price, significantly influenced by a 41% fall in palladium prices and a decrease in rhodium prices. This price retracement necessitates a strategic response from the company beyond mere productivity enhancements and cost optimizations. Muller emphasized the importance of all operations contributing to the group’s sustainability and indicated a considerable contraction in the company’s investment appetite. Projects like the Waterberg venture are on hold, pending a substantial improvement in PGM prices.
Operational adjustments are underway, with Impala Canada undergoing restructuring to operate at a higher grade, leading to reduced operating costs and labor. The company is also exploring corporate restructuring and assessing the viability of each operation within the group.
The broader PGM market is experiencing significant challenges, with a notable decline in prices exerting pressure on producers in South Africa and North America. This has led to a scaling back of capex, mine closures, and project deferrals. Implats maintains that its previously planned capex was aimed at enhancing asset integrity and environmental performance, rather than expanding its asset base. The current market conditions are expected to drive further supply rationalization, with a medium-term decline in primary supply anticipated.
Looking ahead, Implats predicts a challenging year in 2024, marked by weak consumer and investor sentiment towards precious metals amid ongoing economic and geopolitical uncertainties. Despite some relief from input price retracement, inflationary pressures on operating and capital costs persist. The company is actively reviewing its medium-term capex and production profiles, taking measures to preserve cash balances and ensure positive free cash flow. Projected increases in group stock-adjusted unit costs are expected to range between 6% and 10%, reaching between R21,000/oz and R22,000/oz, as individual operational strategies continue to evolve in response to the dynamic market environment.
Source: Mining Weekly
