Impala Platinum results: David Brown: CEO, Impala Platinum
ALEC HOGG: Hello, good evening and welcome to the SAfm Market Update with Moneyweb. I'm Alec Hogg.
It's been another difficult day on the JSE, as we are going to hear in a while from David Shapiro. The all-share index dropped by about 1%, the Top 40 was down by 1% as well today, and it seemed to lose momentum towards the close. Some big losses: African Bank nearly 4% lower, Bidvest over 3% down, Standard Bank similarly and Truworths extending yesterday’s losses, losing another 3% today. Sanlam down 3%, Tiger Brands 3% – not a good day at all.
Impala Platinum’s financial results were out today. Down by 2.5%, and chief executive David Brown is with us in the studio. David, that’s a bit of a reverse, which would suggest that not everybody was terribly happy with your full-year results to the end of June.
DAVID BROWN: I don’t think the share price dropped necessarily heading into the results. We obviously had our results presentation to the analysts and shareholders today, and generally the feedback was very positive.
ALEC HOGG: So the people who are selling obviously weren't at that presentation. They might have been elsewhere in the world. Just generally speaking, looking at the numbers, the only big question that came out going into the future was the challenges on costs. As you say, your cost of production in this past financial year went up 24% – not too bad, because your revenues went up 30%, so the profits grew. But if you keep rising costs to 24% you are not going to be in business for terribly much longer.
DAVID BROWN: I think if you look at the unit costs, they only rose by 8%, and that was obviously positively impacted by the growth in the volumes that came through from Impala Rustenburg and Zimplats in terms of ramping up its Phase 1. If one looks at that 24% cost rise in cost of sales, about half of it was due to metals purchased. As you know, we have the dual business models, so half of it came through from inventory movements and…
ALEC HOGG: So not something to worry about?
DAVID BROWN: Look, as I say, the 24% number that you state sounds quite stark. The reality is that the underlying increase was probably about 12 to 13%, and if you take the positive mitigation of volumes, you are looking at about an 8% unit cost…
ALEC HOGG: Still…to 13%. David Shapiro, wouldn’t you start worrying if you were running a business generating cost increases 12 to 13% when inflation is supposed to be only 4%.
DAVID SHAPIRO: Ja, look, they’ve had a whole lot of cost increases that they couldn’t help. As David says, what mitigated it is increasing production. So you are spreading it across a larger…
ALEC HOGG: Cost per ounce of platinum, David, only up 8%.
DAVID BROWN: Yes.
ALEC HOGG: But how much longer can you keep increasing production? You’ve got your target of two million ounces by 2014, but thereafter?
DAVID BROWN: Well, I think the reality is that we obviously need to make sure that wage increases, which obviously have exceeded inflation for a number of years now, we need to make sure that we can offset those through productivity gains. We have seen productivity slip in the last couple of years. But certainly the outlook for us over the next two to three years is we’ll see productivity improve again and that will help to mitigate some of those real wage increases.
ALEC HOGG: You guys have always been better at that kind of thing – at productivity. You’ve always run a tight ship. People invest in Impala because they say it's well managed. Anglo Platinum has had its difficulties. And yet, if you are slipping on that side, productivity not rising as well, where did the eyes lose the ball?
DAVID BROWN: I think it's not necessarily losing the ball. I think it's a question that we are obviously as an industry battling with a lot of headwinds. The headwinds obviously are the overall cost increases coming through from wages and from Eskom. As you know, we've had two rather significant increases in the last two years for power. We also have seen issues around rises in absenteeism, and I think the mining industry as a whole has been suffering with that; obviously the underlying issue with that is the general health of the workforce and HIV/Aids and the impact it's having on our workforce and the industry workforce as a whole.
ALEC HOGG: The big question with Impala, given what's happened in the past week or so, is Zimbabwe. It's not a huge part of your business, but it is a significant part. You’ve just finished your big investment there. First full year where the new production comes on stream, and then we hear that Robert Mugabe is now fighting with Aquarius – and perhaps it is to come elsewhere. How are you reading that situation?
DAVID BROWN: Well, I think the way we are reading it is quite clearly that there is a need to involve indigenous people from Zimbabwe into the business. As a principle, we are certainly fully supportive of that. We just believe there needs to be a greater debate around the balance between risk and reward in this equation. And quite clearly, when one talks about mining, one is talking about long-term capital investment, capital investments of significant size, and one just needs to make sure that the providers of capital are getting a fair return.
ALEC HOGG: This sounds very logical, but we are not dealing with a logical man over there.
DAVID BROWN: Well, I think eventually logic will prevail. Without a doubt I think we have got a sensible argument to put forward. We are engaging currently with government, and I certainly to believe that they do understand some of the issues and points that we are raising. I think at the end of the day they do not want to retard investment. The last think Zimbabwe needs is to retard investment. It needs to actively encourage investment…
ALEC HOGG: They are going about it in a very strange way.
DAVID BROWN: Well, without a doubt there are some short-term issues and needs that they have. Certainly the country is very short of money and funds, and quite clearly there is a need to raise funds. But, having said that, the debate that we are having with them is to ensure that short-term actions don’t retard the business in the medium to long term, because we believe the returns can be significant over time.
ALEC HOGG: As a CEO, would you stake your job on Zimbabwe not indigenising, on not grabbing half of your company there?
DAVID BROWN: Well, I would certainly hope that that is not going to happen. Quite clearly we firmly believe we've been a model investor for the last 10 years in Zimbabwe. I think Zimbabwe has given shareholders a very positive return up to date, and certainly my outlook is that ja, I'm very confident we will get the thing resolved.
ALEC HOGG: Would you stake your job on it?
DAVID BROWN: [Laughs] Oh, absolutely.
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