Royal Bafokeng Platinum’s interim results for the six months ended 31 June 2013 shows an operating performance consistent with the objectives and operating strategies of the company.Key Features – 8.4% reduction in Lost Time Injury Frequency Rate – 1.1% increase in production to 130 278 PGM ounces (4E) – 5.8% increase in built-up head grade to 4.28g/t – 1.3% increase in cash operating cost per platinum ounce to R11 756/Pt – 103% increase in earnings per share to 87 cents – R88 million surplus cash generated by operating activities after all capital expenditure – R992 million (1 January 2013: R910 million) cash position – balance sheet remains ungeared Operational performance: Overview Improving operational flexibility by increasing immediately stopable ore reserves (IMS) has been a consistent key focus at Bafokeng Rasimone Platinum Mine (BRPM). IMS face length increased by 46% from 4 163 metres at the end of the first half of 2012 to 6 084 metres at the end of the period under review resulting in an IMS panel ratio of 1.52 compared to the target ratio of 1.50 panels per stoping team. The increase in IMS has enabled the normalisation of development rates benefitting both grade and operating costs and has in addition contributed to improved safety performance and labour efficiencies. The success achieved in improving IMS has enabled a shift in strategic focus to cost management covering a number of key areas including labour, contractors and high cost consumables. This has contributed to a below inflation increase of 1.6% in unit cost per 4E ounce compared to the corresponding period in 2012. Working cost labour reduced by 11% from 6 744 to 5 984 and contributed to lower costs and improved efficiencies. One unintended consequence of the labour reduction was a significant reduction in sweepings which contributed to lower hoisted and milled tonnes despite a 10% increase in tonnes broken. Action plans to address the shortfall are being implemented. Production Ounce output increased by 1.1% compared to the first half of 2012 and ended at 130 278 4E ounces and 84 628 platinum ounces respectively. Overall tonnes milled reduced by 3.8% due to a shortfall in sweepings and lower reef development rates. This was offset by a 5.8% increase in built-up head grade resulting from lower reef development dilution, no processing of low grade surface stockpile and improved mining controls. A 4E built-up head grade of 4.28g/t was achieved during the first six months of 2013 compared to 4.04g/t for the first half of 2012. The UG2 contribution at BRPM increased from 13% to 18% in line with previous forecasts. The strategy at BRPM remains to maximise Merensky production and supplement with shallow UG2 reef to increase operational flexibility, subject to an evaluation of the UG2 General Facies being mined at BRPM South shaft. The impact of safety stoppages on operations reduced by 50% compared to the corresponding period in 2012 and amounted to a loss of 44 085 milled tonnes or 4 883 4E ounces, highlighting the importance of the continued improvements in safety performance.The increase in UG2 contribution resulted in an increase in toll concentrating volumes from 41 786 tonnes to 89 899 tonnes. The grade of UG2 toll treated improved by 10.5% from 3.35g/t 4E to 3.70g/t 4E. The BRPM concentrator recovery of 86.98% was in-line with expectations. A routine inspection on 11 June 2013 of the primary mill at BRPM revealed damage to the trunnion which necessitates replacement of the mill discharge end. The repair work has been scheduled for August and will result in a two to three week concentrator shutdown. Run of mine ore will be stockpiled ahead of the concentrator and will be processed during the remainder of the year. Operating costs Total cash operating costs increased by 2% from R969 million in the first half of 2012 to R988 million in the period under review. Cash operating costs per tonne milled increased by 7.8% from R851 to R917 per tonne due to the lower volumes. The 4E built-up head grade and consequent 4E ounces in concentrate had a positive impact on the cash operating cost per platinum ounce ending 1.3% higher at R11 756/Pt oz for the first six months of 2013 compared to R11 606/Pt oz in the first half of 2012. Capital expenditure Capital expenditure reduced by R75 million (m) or 14.3% from R521m in the first half of 2012 to R446m as a result of lower expenditure on stay-in-business (SIB) (R67.3m), lower expenditure on replacement projects (R70.7m) and higher expenditure on expansion projects and drilling (R63m). SIB expenditure decreased from R116.2m during the first half of 2012 to R48.9m as a number of large once-off projects representing 46% of SIB expenditure in 2012 were completed such as the ICT/Supply Chain migration and Tailings Evaporation and Tailings Line projects. The Chairlift at South shaft also remains on hold for 2013 yielding a R14.7m lower expenditure compared to the first six months of 2012. The reduction in replacement capital is attributed to a R58.8m reduction in BRPM Merensky Phase II expenditure due to project completion and a R11.7m reduction in BRPM Merensky Phase III expenditure due to rescheduled procurement of mechanical and electrical infrastructure. Expansion capital which is mainly represented by the Styldrift I project expenditure increased by R63m in line with the project execution schedule. Project expenditure remains significantly below budget. BRPM Phase III Merensky replacement project Phase III involves the extension of North shaft Merensky decline from 11 level down to 15 level at the mine boundary. At the end of June the project had progressed to 49% completion against a planned completion of 44% and is 66 days ahead of schedule. Development is 633 metres ahead of schedule with 5 004 metres completed against a plan 4 371 metres. Project completion is forecast at two months ahead of schedule in 2017. Project expenditure to date is at R489m against a budget of R603m with an estimated cost at completion of R1.17bn representing a saving of R102m. Styldrift I expansion project: Project scope, schedule and cost revision During the first half of 2013 we concluded the approval of the optimisation study completed in 2012, culminating in the project budget being reduced from the original R11.8bn to R11.39bn and the project schedule being extended by 13 months. The reduction in the overall project cost being achieved through a combination of R323m (million) project savings accrued to date and R93m reduction associated with the optimised design, deriving an estimate at completion variance of R416m. The extension in the project schedule is attributable to the ramp up to steady state being increased from 27 to 36 months, the inclusion of additional shaft and underground infrastructure. The overall project cash flow has been revised in accordance with the new project schedule.
ProgressThe Styldrift I expansion project has advanced to 32.2% completion against a planned completion of 31.2% based on the revised project schedule resulting from the project optimisation study and remains on schedule. Key activities during the first half of 2013 included sinking of the main and service shafts, lateral development on 600 level (Merensky reef), 642 level (top of silos) and 708 level (shaft ore loading level) and construction of the rock winder. At the end of June the main shaft had progressed to 708 level which was reached in April with completion to a final depth of 758 metres scheduled for June 2014. The services shaft progressed to 642 level with completion to 708 level scheduled for November 2013. A total of 603 metres of lateral development was completed during the period under review and includes station bulk excavations, ore handling infrastructure and access haulages. A total of 2 349 metres of development has been planned for 2013. The project remains on schedule with production ramp up commencing in July 2015 and steady state at 230 000 tonnes per month achieved in July 2018. Expenditure Total capital expenditure at the end of the first half of 2013 amounted to R2.1bn with total commitments to R2.8bn. Capital expenditure for the project on an earned value basis amounts to R2.2bn. The 2013 full year forecast expenditure is R728m. The forecast cost at completion remains at R1bn below the originally approved budget of R11.8bn. Financial review The net revenue increase of 18.6% is mainly due to a 17% increase in the average basket price to R18 294 per platinum ounce in the first half of 2013 compared to R15 638 in 2012. Revenue from production through the BRPM concentrator increased by 13.9% from R1 272.9m to R1 449.7m due to a three per cent decrease in ounces produced and a 17% increase in the rand basket price. This includes R8.7m from Styldrift ounces treated and sold. Revenue from toll concentrating of UG2 increased by 203% from R32.4m for the first six months of 2012 to R98.3m for the period under review as a result of a 157% increase in toll concentrating ounces and a 17% increase in the rand basket price. Gross profit margin improved by 68.0% from 12.5% to 21.0% for the period ended 30 June 2013. This was due to the 18.6% increase in net revenue offset by a 7% increase in cost of sales for the six months ended 30 June 2013. Depreciation charges increased by 40% from R113.1m to R158.5m mainly due to the depreciation of the R1bn BRPM Phase II Merensky replacement project capital that was commissioned in June 2012 and depreciated thereafter. Earnings before interest, tax, depreciation and amortisation (EBITDA) as a percentage of revenue increased to 31.2% from 20% in the first half of 2012 mainly as a result of the increase in the basket price adjusted by a marginal increase in cash operating costs at the operation. Other income increased by R10.5m from R21.2m in the first half of 2012 to R31.7m for the period under review. The increase is due mainly to an increase in the Impala royalties. Finance income reduced by R12.3m to R22.3m and relates to interest earned on cash on hand including dividends received on the Nedbank preference share investment. Administration expenditure decreased by 3% to R61.4m compared to the same period last year. The current income tax charge reduced to R7.4m mainly due to the reduction in finance income. Deferred tax increased from the prior year due to higher BRPM JV profits. During the six months ended 30 June 2013, the company increased its cash and cash equivalents by R88.4m after funding all capital expenditure of R446m. At 30 June 2013 the RBPlat Group’s balance sheet remained ungeared with cash and near cash investments of R992m. The R500m Nedbank revolving credit facility was increased to R1bn in July 2013 and the working capital facilities for the Group increased from R258m to R458m. To date the revolving credit facility remains undrawn. At 30 June 2013 the RBPlat Group provided a R200m guarantee for the 400 houses that are currently being built as part of the Group’s housing project. The increase in the working capital facility from R258m to R458m was utilised for this guarantee. Market review The platinum price declined by 13% in the first six months of 2013, reaching a low of US$1, 317/oz in late June. This is despite the growth in platinum investment demand as a result of the newly launched domestic platinum exchange traded fund (ETF) which now represents over 20% of total global platinum ETF holdings. Platinum Group Metals (PGM) supply from South Africa is expected to be lower than last year’s levels as the challenges facing the platinum sector are expected to continue until end of the year with the possibility of more industrial action in the second half of the year. This should lead to higher PGM prices but given weak industrial demand and the significant amount of above ground stocks, RBPlat is of the view that PGM prices will remain relatively flat for the remainder of the year. Changes to the board of directors We are pleased to announce the appointment of Lucas Ndala as a non-executive director to the board of directors (Board) with effect from 28 May 2013. Outlook We remain committed to keeping our employees safe from any harm and plan to build on the much improved safety record that we achieved in the first half of the year, notwithstanding, the fatal accident at South shaft. Full year production of approximately 2.3 million tonnes milled is anticipated with a UG2 contribution of up to 20%, subject to no material impact from unforeseen events. The mill end repair scheduled for August may impact on milled tonnes. We endeavour to invest every effort to process the majority of the Merensky ore to be stockpiled ahead of the concentrator during the shutdown by year end and will investigate means to increase toll treatment of excess UG2 ore. Cost containment will remain a core management focus for the remainder of the year. Even though we anticipate significant deficits in the palladium and platinum markets, we don’t expect prices to rise markedly from current levels due to the amount of above ground stocks. This does impact on the cash we generate from BRPM but we are confident that we are still on track to fund our Styldrift I project as previously envisaged. The increased facilities negotiated provide sufficient flexibility to access the capital markets at the most opportune time during 2014/15. Safety Royal Bafokeng Platinum is pleased to have recorded an improvement in most safety metrics during the first half of 2013. The total number of injuries reduced by 36% from the same period in 2012 with the Lost Time Injury Frequency Rate (LTIFR) and Serious Injury Frequency Rate (SIFR) reducing by 8.4% and 1.6% respectively over the same period. Two million fatality free shifts were achieved on 2 April 2013 and the total number of injury-free days increased from 116 days in the first half of 2012 to 130 days during the period under review. Notwithstanding the improvement in overall safety performance the Company regrettably recorded a fatal injury at its BRPM on 8 May 2013 during which Mr Mohoanyane, working for BRPM support services lost his life during the collapse of a temporary platform at South shaft level 9. Community projects The socio-economic development of the local communities is underpinned by our ambition of more than mining. Key focus areas in which various projects and initiatives have been embarked upon include basic infrastructure, health, poverty alleviation, job creation, education and community skills development. These projects have been identified and executed as a result of regular stakeholder engagements with the local communities, Government authorities and the Royal Bafokeng Nation. A number of projects were initiated and others concluded during the period under review to uplift the socio-economic condition of local communities. These include the construction of a Light Industry Centre which aims to promote entrepreneurship and capacity development of SMMEs, support for Mathematics and Science learners in high school by providing additional educators, refurbishing the Science laboratories and the building of Grade R classes at Chaneng Primary school to enable foundational learning. Further projects being executed and on schedule include the upgrading and extension of the Phokeng forensic pathology centre which at completion will be able to cater for extra capacity to conduct forensic pathology activities and the construction of internal community road networks. Thirty four community members completed a community skills development programme in mechanised mobile machinery operators which aims to make the local youth employable while creating the necessary skills locally to support future skills requirements of the Styldrift I project. The BRPM and Styldrift socio-economic development projects are being implemented jointly to enhance their impact considering the needs in the surrounding communities. RBPlat’s stakeholder engagement activities are focused on engagement with the local communities and relevant authorities to identify sustainable initiatives that will provide a foundation for long-term empowerment, whilst balancing the commercial needs of the business. Environmental stewardship RBPlat’s Sustainable Development initiatives are well on track in achieving its strategic intent of “more than mining” with a number of intervention strategies maturing. The first United Nations Global Compact (UNGC) Communication of Progress (COP) was completed to reflect progress on implementation of the 10 UNGC principles which will be shared with all stakeholders in the second half of 2013. A review of RBPlat’s Sustainability and Stakeholder Engagement Framework, in line with the UNGC, was started in May 2013 and will be completed within the 2013 financial year which will map out our sustainability strategy and plans for the next three years in line with the company’s strategic plan. In addition, the Climate Change Vulnerability Assessment was further enhanced by extending its scope across both RBPlat operations to identify potential impacts on its operations and to assist it with future planning. Key vulnerability risks that were identified include potential future water and electricity shortage in the region which is mitigated by a number of energy conservation and water resource interventions. These include a water retreatment plant to treat 4Ml/day (two thirds of our allocated potable water from Magalies Water) which will be reused within our operations. However, the Environmental Impact Assessment process is still in progress. Two other environmental related key projects were initiated and completed, namely a Water Disclosure Project as well as Carbon Disclosure Project as part of our commitment to be a responsible company.