Implats shares fall on R4bn equity raising plans

JOHANNESBURG (miningweekly.com) – The share price of mining company Impala Platinum (Implats) first fell heavily and then recovered considerably after the company announced plans to raise R4-billion equity capital in an accelerated bookbuild.

Reporting 58% lower earnings a share to 36c in the 12 months to June 30, in spite of key operational metrics showing improvement, Implats initially saw more than 7% wiped off its share price in early trade, despite the equity raise already having 51.6% shareholder backing. The share later recovered to R45.15, reflecting a far smaller 2.99% loss.(Also watch attached Creamer Media video).

Implats needs the R4-billion to complete the major 16 Shaft and 20 Shaft projects in the Rustenburg lease area, on which R14-billion has already been spent. Earmarked for closure are 8 Shaft and the mechanised portion of 12 Shaft.

Investec Securities said in a note that, given the weak platinum group metals (PGM) market, it expected the Implats' equity raise to be followed by similar moves from other capital-short platinum mining companies.

“We believe PGM prices will remain depressed for longer than most in the market,” Invested added.

Implats' lower earnings were impacted by the ramp-up of the Rustenburg operations following last year’s five-month platinum strike, closure of the Bimha mine in Zimbabwe, power supply constraints in South Africa, safety stoppages and depressed PGM prices.

Implats CEO Terence Goodlace told journalists at a media roundtable attended by Creamer Media’s Mining Weekly Online that the company was taking steps to cut costs by R1.5-billion, reduce capital expenditure and close unprofitable shafts.

“Ultimately, if nothing changes, we need to make some decisions around closing those shafts. We do need, at this time, all shafts to contribute to the group,” Goodlace told Mining Weekly Online.

The mechanised section of 12 Shaft was off the productivity levels the company was achieving at its mechanised Two Rivers and Zimplats operations.

Eight Shaft, which no longer has much reserve left, is mining on its extremities, which prolongs travelling times.

“We would have depleted it over the next two years. Now, because of where it finds itself on its own cost curve, it’s no longer viable,” Goodlace explained.

Owing to the expectation of PGM prices remaining depressed in the short term, the company passed its dividend to focus on shorter-term cash preservation and profitability within a low-price environment to enable the operations to be cash-flow positive at current prices before replacement and development capital.

The company expects the restructuring of debt facilities and the R4-billion capital raise to help it to operate effectively and profitability going forward.

CHEAPER OUNCES

Even at this early stage, 20 Shaft is already the fourth cheapest cost producer within Implats’ Rustenburg lease.

“It just shows you how important it is to have concentrated mining very close to the shafts and focused in the right mining areas,” Goodlace said in response to Creamer Media’s Mining Weekly Online. (Also watch Creamer Media’s attached video interview).

The company told shareholders in a Stock Exchange News Service notice that it intended to raise the cash equity capital through the sale of new Implats ordinary shares in a move backed 49% by Coronation Fund Managers, Royal Bafokeng Holdings and the State-owned and Public Investment Corporation, with Allan Gray irrevocably committing 2.6% through client recommendation.

The raise requires the backing of 75% of the shareholding and should the additional 23.4% shareholder support be obtained on October 6, the bookbuild would be run by UBS for five days thereafter.

UBS has fully underwritten the capital raise at a discount to the share price still to be determined.

The international accelerated bookbuild process will be based on demand at the time.

“We already have 51.6% willing to stand in that corner,” Implats CFO Brenda Berlin reported.

Berlin said that the circular seeking shareholder approval for the issuing of shares for cash would be posted on Friday.

While the company was expected to be cash positive at current depressed platinum prices across its Impala lease area and refinery business, closure of 8 Shaft and the mechanised portion of 12 Shaft would put jobs at risk and require the issuing of a Section 186 notice.

The company currently employs 680 mining contractors at 8 Shaft, where there are 128 employees, and 928 employees within the 12 Shaft mechanised area.

The ramp-up of the new 16 Shaft and 20 Shaft is providing redeployment and retraining opportunities.
 
“What’s been very key for us is to keep our strategy intact. It’s important for us to transform the lease area and to bring to full production new shafts, where the shareholder has invested significantly over the last ten years,” Goodlace told Mining Weekly Online.

The two shafts that the company needed to bring into production had already benefited from huge investment over the last ten years and it was time to take them to full production.

“That’s what we need the cash for; we're just not there to fund the build-up in the current low price environment,” he added.

The new shafts, which are already producing PGMs, offer the advantage of concentrated mining areas and short travel distances.

They bring more Merensky to the fore and ultimately they will give Implats the opportunity going into 2020 to reduce the overhead costs associated with operating 14 shafts rather than ten shafts.

The company currently targeted a significantly reduced sub-R19 000-per-platinum-ounce cost base, compared with the R22 000 per platinum ounce in the 12 months to June 30.

Goodlace said social and labour plan expenditure would not be cut and the company’s plan to build 2 420 houses remained on track.

The company’s 557-house first phase of the programme to accommodate employees was completed and the board had approved the next phase involving another 550 houses.

“We have decided not to cut any social and labour plan spending and our total expenditure for this year will be some R200-million,” Goodlace told Mining Weekly Online.

PLATINUM MARKETING

Initiatives to increase the demand for platinum were also being taken across a broad front.

The company was backing the initiative of Platinum Guild International to increase platinum jewellery demand, against the background of jewellery making up 35% of total demand.

Several projects were being implemented to accelerate the sale of platinum jewellery into China in particular.

As a collective, the platinum-mining industry was also backing efforts by the World Platinum Investment Council to stimulate demand across the board to ensure that platinum won its rightful place within the global investment community.

In Zimbabwe, Implats has an opportunity to build a new smelter as its Zimplats smelter is operating at full capacity.

At the same time, this could create an opportunity to treat the platinum concentrates of other platinum mining companies in Zimbabwe and, thereby, add more value in Zimbabwe itself.