Drastic steps needed to stop Implats rot
September 25, 2009
By Justin Brown
Impala Platinum (Implats) has taken its eye off the ball. The world's second-largest platinum producer is on a slippery slope where all its key performance metrics are rapidly worsening.
First of all Implats, under chief executive David Brown, is bucking the trend of slowly improving safety in the industry.
When Brown took over the reins, the group had reported two succesive financial years when it recorded just seven fatalities, which at the time it heralded as a "record".
In the first year that Brown was in charge, which ended in June 2007, fatal accidents rose for the first time in five years and deaths almost doubled to 13. This was followed by a year when 12 miners died and 11 fatalities in the next year.
Then in July, safety problems at Implats came to a head with a rockburst in which nine people died at its Impala Lease mine near Rustenburg. This disaster was one of the three worst mining accidents in the past seven years in South Africa.
As it stands, Implats has reported 17 mine deaths this year. This gives the group the worst safety record in the platinum mining industry, and one of the worst in the mining sector.
Safety performance does not exist in isolation. The platinum mining company's operating performance is declining, with production tumbling and costs spiralling, especially at its key Impala Lease mine.
And the group's ailing Marula platinum mine in Limpopo continues to struggle.
Since reaching peak platinum output in June 2007 of 2.026 million ounces, Implats's output has declined 16 percent to 1.7 million ounces in the latest year to June.
Not long ago, the company used to boast that the Impala Lease mine would produce 1 million ounces or more of platinum annually for at least 30 years. That boast is no more.
In the year to June Impala Lease produced just 950 000 ounces of platinum and in the coming year another 950 000 ounces is on the cards. It is going to take five years to get back to 1 million ounces again.
As a result of the recent wage strike, as well as the safety shutdowns at Impala Lease, the mining group will be under pressure to meet even the 950 000 ounces target. And with production falling, costs at Impala Lease have been rocketing.
Over the past three financial years, Implats's cost per platinum ounce has risen each year on average by 29 percent.
In the latest year to June, Implats's unit costs rocketed 32 percent to R9 129 a platinum ounce, a poor comparison with headline consumer inflation of 6.9 percent in the year to June.
What makes this increase particularly concerning is that it happened during a time of recession.
Brown and Implats chairman Fred Roux both acknowledge that performance at the group is below par.
However, what is really concerning is that neither of them has announced anything drastic to reverse the company's deteriorating safety and operational trend.
Like Roux, Royal Bafokeng Resources, Implats's largest shareholder, has not demonstrated any backbone.
After such a safety reversal, as well as a decline in production and an increase in costs, Brown must be glad that he has such an understanding chairman and major shareholder.
He must be thanking his lucky stars that he is not part of Cynthia Carroll's Anglo American team.
As a result of a fall apart in safety, with deaths at Anglo Platinum's Rustenburg mine reaching 12 in the first seven months of 2007, Carroll gave Anglo Platinum chief executive Ralph Havenstein the shove. In the corresponding period last year, deaths fell to two.
What is it going to take Implats to get back on track? The rot has got be reversed.
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