JOHANNESBURG (miningweekly.com) – Royal Bafokeng Platinum (RBPlat) plans to scale back on construction at its Styldrift 1 expansion project, telling investors on Tuesday that a sustained depression in the platinum group metals (PGMs) market – which is expected to continue over the medium term – was behind the imperative to reduce capital expenditure (capex) on the project to such an extent that development funding be serviced from excess cash flows rather than the balance sheet.

“It is not deemed appropriate to ramp up these high-quality Merensky reef ounces into a currently depressed market at the prevailing market prices and neither is it deemed prudent to burden the balance sheet by raising further funding with the excessively restrictive and dilutive terms and conditions that would apply in the current market,” RBPlat CEO Steve Phiri commented during a presentation of the company’s results for the six months ended June 30.

The black-owned company outlined that it would reduce the level of activities at Styldrift 1 to such an extent that all construction could be funded by excess cash flows generated by the Bafokeng Rasimone platinum mine (BRPM) joint venture (JV), in the North West, as well as from revenue generated from on-reef development at Styldrift 1.

“The board will continuously monitor the situation and necessary adaptive decisions will be taken as market conditions change or improve,” Phiri held.

RBPlat’s decision to pull back on development of the project, which looked to boost the group’s production by 230 000 t/m, followed a period in which the principal shaft and sinking contractor was unable to perform the work required as a result of financial constraints. 

As a result, the platinum miner, in January, issued the contractor a notice of termination and, to limit the impact of the termination, simultaneously engaged a replacement contractor to take over the balance of the work as of mid-March.

By the end of the six months under review, the project was 55.8% completed, while capex for the period amounted to R980-million, bringing the total project expenditure to date to R4.79-billion.

First rock was hoisted from the newly commissioned main shaft on June 29, while surface silos, offices, change houses and the lamp room had been commissioned and were operational.

“Construction activities during the second half of the year, as stated earlier, will be limited to activities that can be funded from excess operational cash flows from BRPM,” reiterated CFO Martin Prinsloo.

He added that BRPM’s Phase III, which would extend the North shaft Merensky decline system and associated infrastructure from 10 level to the mine boundary at 15 level, was due to be completed two months ahead of schedule in 2017, with project expenditure remaining within budget.

RECORD HEADWINDS
Describing the first six months of the year as the company’s most challenging since it took over control of the BRPM JV, Phiri said the company’s earnings, safety and operational performance were battered by a decline in the price of PGMs, a suite of safety stoppages and softening demand.

Production of platinum and PGMs declined to 788 000 oz and 122 000 oz respectively – a year-on-year decline of 9% – reflecting a drop of 5.2% in the built-up headgrade, combined with lower tonnages milled.

The 3% drop in mill throughput was the result of a failure, in June, of the primary mill drive gearboxes and the discharge trunnion at the concentrator plant – a “disappointing” occurrence, given that the tons delivered to the plant were 1.6% higher in the period.

“This has, however, resulted in a stockpile of 10 000 oz, which will be treated during the second half of the year,” he explained.

Several safety stoppages, meanwhile, accounted for 14 000 oz of lost production.

The reduction in milled tons, combined with a 10.7% increase in total cash operating costs, resulted in the unit cost increasing by 13.8% a ton milled year-on-year.

The built-up headgrade of 4.03 g/t achieved for the reporting period was 5% lower than the comparable period, owing mainly to significantly increased contributions of lower-grade on-reef Merensky development in the first quarter, the impact of safety stoppages on stoping production and higher volumes of UG2 production to mitigate the impact of the stoppages.

“During the second quarter, the built-up headgrade improved to 4.18 g/t . . . and with the normalisation of Merensky stoping production, the built-up grade should remain at levels between 4.15 g/t and 4.20 g/t.

EMBATTLED BALANCE SHEET
Looking to the group’s balance sheet, RBPlat major subsidiary director Neil Carr reported that the group’s headline loss of 60.4c a share reflected the effect of the decline in the basket price – including the revaluation of the pipeline – from R21 148/oz to R18 062/oz.

“The lower grades and mill throughput had an adverse effect on costs. This, as well as the front-end loading of the wage increases and above-inflation utility increases, accounted for cash operating costs for platinum increasing 21.2% to R15 615/oz and cash operating costs for PGMs increasing 21.6% to R10 080/oz,” he noted.

PLATINUM GROWTH
RBPlat told investors on Tuesday to expect yearly production towards the bottom range of the previously stated guidance of 2.4-million tons to 2.5-million tons, while grade was likely to be around 4.15 g/t, yielding between 275 000 oz and 285 000 oz.

It further expected demand growth of some 4%, with increases in autocatalyst and industrial uses.

However, the group cautioned that the platinum price, together with the prices for the other PGMs, was expected to remain depressed for the remainder of the year and into the foreseeable future.

“With the persisting weak PGM markets, we will be closely monitoring business expenditure and expenditure patterns to maintain a healthy balance sheet and preserve cash in the business.

This will be done through an even more enhanced focus on operational cost savings; capital deferment; improving efficiencies and productivity; reviewing our Merensky and Upper Group 2 mix; and rescheduling and restructuring of mining operations,” Phiri concluded.