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Impala share price hunts for bottom

Investors not yet convinced that turnaround plan is worth throwing money at.

Rumours of the Impala share price hitting bottom have been repeated throughout the year, all of them false calls.

But at some point it has to turn. There is a disconnect between the rand platinum price and Impala’s share price, as the chart below shows. The correlation between the two is fairly strong, with the share price being the more volatile.

Impala share price versus rand platinum price

Source: ShareMagic

Impala released its 2018 June year-end results on Thursday, and some of it shows the group is moving in the right direction, despite posting losses of nearly R19 billion over the last two years, R10.8 billion of this coming in 2018. There are some glimmers of hope, particularly at the Marula mine which delivered 25% more platinum.

The share price, however, is yet to rally. Until further proof is forthcoming, investors are clearly unconvinced that the restructuring programme – involving the closure of five uneconomic shafts and the loss of 13 000 jobs – is going to deliver. When complete, this will reduce the staff complement to 27 000. Implats reported a R13.6 billion impairment for the 2018 financial year as a result of the restructuring programme.

One of the biggest threats it faces is possible disruption to production arising from a potential strike over the job cuts. The Association of Mineworkers and Construction Union (Amcu) last month threatened to stop a single ounce of platinum from being extracted should Impala proceed with plans to shed 13 000 jobs. In 2014 the union waged a five-month strike over pay, which contributed to a nearly 20% drop in the international metal price in that year. Another prolonged strike would be devastating for Impala, but at a presentation to analysts on Thursday, CEO Nico Muller said the job losses were an unintended consequence of restructuring, which had to be undertaken for the sustainability of the group.

Impala’s announcement of job losses drew fire from mines minister Gwede Mantashe, coming as it did on top of Lonmin’s plans to shed 12 600 jobs. Anglo Platinum’s mining licence was threatened in 2014 when it announced extensive job cuts that year, which never materialised. The glory days of platinum mining are waning, and the hunt is on for shallower, cheaper deposits requiring less labour. The problem is reflected in the latest Impala results, which show a 15% deterioration to R27 183 in costs per ounce. It is this figure that is the key target in the turnaround strategy. 

Outlining the priority areas for group restructuring, Impala says it aims to save about R1 billion a year through the closure of its Number 4 shaft in Rustenburg and by reducing the headcount by 1 500 in the 2019 year. Production at the lower cost Marula mine is being ramped up, with new production earmarked in Zimbabwe and at the Waterberg project.

An issue that management concedes is weighing down on the share price is the cost of funding the restructuring. The group has a war chest of about R6.2 billion, comprising cash of R3.7 billion and undrawn facilities of R2.5 billion. It has also secured a further R2 billion in forward sales, and received a R820 million dividend from its shareholding in Zimplats.

Tonnes milled improved 6%, and platinum produced was up 1% despite the closure of old shafts at the Impala mine and complications arising from a split reef at the Two Rivers mine.  However, refined production costs worsened by 9% to R24 660 per ounce due largely to a temporary stock build-up.

Capex for the year increased 34% to R4.6 billion, most of it going to a furnace rebuild at Implats and mine development at Zimplats. The reduction of the number of shafts from 11 to six over the next few years is aimed at reducing costs to around R24 800 per ounce.

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