Aquarius Platinum announced on Thursday that it was placing its Everest operations on care and maintenance. This comes 10 days after announcing the same for its Marikana operations.
“The ramp-up at Everest has encountered challenges resulting from poor ground conditions and on-going disruptive industrial relations over an extended period and these issues, coupled with the present low PGM price environment, have rendered the mine uneconomic,” the miner said in an announcement to the Johannesburg Stock Exchange.
What makes the latest announcement even more difficult to swallow is that Everest made a profit last year and US$43 million in capital expenditure (the largest expenditure in any one segment in the group) was pumped into the mine in the last financial year and US$32 million in the year before.
The SENS announcement went on to strike a dire note when it said “It is incumbent on the board to monitor trading conditions and safeguard the business and assets of the company”. The company’s share price plunged 10 percent on the news to trade at just over R7 a share.
Bearing in mind that the January-March quarter is traditionally a difficult one due to the slow post-festive season start-up, Aquarius’ Everest operations posted the lowest cash margin of all the segments (-27 percent) with production of PGM’s costing US$1 726 per ounce on a cash cost basis.
The solely owned Everest operation, on the eastern limb of the Bushveld Complex in the Mpumalanga province, reported a daunting margin figure for the nine months of -23 percent. Everest made up over 20 percent of total PGM production for Aquarius.
Some of the problems highlighted by the company in its last report on Everest included absenteeism and “go-slows” at the hands of labour and the AMCU union as well as the lengthy wait for the Department of Mineral Resources (DMR) to issue a mining licence for the Hoogland open pit.
In addition, with mining approaching surface, the ground conditions were deteriorating due to weathering and this was having a knock-on effect on head grade.
With all these suspensions, Mineweb decided to have a look at what is left in the company.
Attributable production of platinum group metals (PGMs) for the miner for the third quarter ending March 2012 was reported as 97 803 PGM ounces.
Everest and Marikana made up 15 926 and 13 203 PGM ounces of that production on an attributable basis.
That effectively means 30 percent of production, or 29 129 PGM ounces, has been lost with the latest moves leaving a quarterly production of approximately 68 674 PGM ounces.
If an estimate is calculated using the nine months attributable ounces achieved to date and then add this to the third quarter’s PGM ounces (both excluding Marikana and Everest), one can expect 285 000 PGM ounces of production on an annual basis going forward until conditions improve.
Aquarius will effectively have its biggest mine, Kroondal, and its Zimbabwe operation, Mimosa, as the two main operations left producing.
The Chromite Tailings Retreatment Plant (CTRP) and the Platinum Mile segments operate as tailings retreatment facilities and contribute small amounts to the overall production.
Aquarius Platinum’s business development and communications executive Gavin Mackay had the following to say in response to a question on how the miner would look after Thursday’s announcement:
“The running operations will now consist of two mines, Kroondal and Mimosa, and two tailings operations, CTRP and Platinum Mile. We will have Marikana, Everest and Blue
Ridge on care and maintenance, ready to restart when the PGM market warrants it.
“Investors can, therefore, expect a company which has taken the steps necessary to become cash flow positive in the current extremely tough PGM environment, and which is not wasting the shareholders’ scarce PGM resources by mining them at a loss. As we said in our announcement, we anticipate no further closures, so the current operating
configuration will remain until economic conditions improve”.
Kroondal, which is a 50/50 joint venture with Anglo Platinum, much like Marikana and also in close proximity, reported a positive 9 percent gross cash margin for the quarter but is at a cumulative negative 1 percent gross cash margin for the nine-month period ending March 31, 2012.
The operations are marginal with cash costs for PGM’s at US$1 148 per ounce compared to a basket price of US$1 321 received for the quarter.
Operating conditions at Kroondal are also vexing with hanging wall support improvements proving problematic. Five additional support drill rigs were delivered during the quarter to bring the total number of rigs at Kroondal to nine to assist in the rollout of cable anchors.
Fortunately, the Mimosa operations are trading at a good operating cash margin of over 40 percent for the nine months and the cash cost for 4E PGMs after deducting by-product credits is at a low level of US$398 per ounce.
However, the Zimbabwe operation has its own operational problems to grapple with: power interruptions, increasing taxes and royalties as well as the impact of indigenisation hanging like a sword over its head.
The group does not split up results on a quarterly basis for profit numbers, but if one looks at the segment results for the year ended June 2011, the remaining operations would have reported a gross profit of US$158 million compared to the US$175 million reported.
Net profit for the year, excluding the loss on a contractor settlement, the impairment of Blue Ridge and the Marikana and Everest operations, would have amounted to $145 million.
Headline earnings per share of 30,85 cents, which excludes impairments, would have dropped to 28 cents on the exclusion of Marikana and Everest.
RBC Capital Markets said after the announcement of the Marikana suspension that it was not expecting earnings per share to be positive until the 2014 financial year — this is likely to extend this forecast.
With Marikana and Everest now being classified as uneconomical, auditors are also likely to insist on an impairment of the assets of the operations which will further hurt results going forward, although if conditions improve, this will be reversible.
Segment assets for Marikana at the end of June 2011 were US$171 million and Everest US$219 million totaling US$390 million.
The impairment reversal will in all likelihood, however, not occur in a hurry with the current environment suffering under the overhang of inventory in the market and until the surplus in the market recedes, this could take a number of years to rebalance.
With the on-going capital expenditure at Marikana and Everest amounting to R43 million for the quarter, the suspension of operations will assist in conserving cash.
Group cash remained strong at US$207 million at the end of the quarter. Net operating cash outflow for the same period was US$17,5 million. Net investing cash flows for development and plant and equipment expenditure at the South African operations and Mimosa drained a further US$14 million from the operations for the quarter.
This means that Aquarius saw over US$30 million flow from the business during the quarter excluding interest payments.
Total non-current liabilities of US$450 million made up over 60 percent of total equity of US$727 million at the end of the March quarter. — Mineweb.