Impala Platinum decided to take it on the chin and absorb a massive impairment relating to the prepayment of royalties in its annual results for the year ending June. This, and the poor underlying operational performance, sent investors scurrying for the woods with more than R2 billion wiped off of the company’s value yesterday.
The R10.2 billion impairment relates to a prepayment Impala made in 2007 to the Royal Bafokeng for royalties it anticipated to pay in the future in exchange for mining on land the tribe owns.
The Bafokeng took the prepayment, which was raised as an asset on the balance sheet of Impala, and used the money to subscribe in shares of the company so as to get exposure to the entire pool of assets in the group’s portfolio.
Owing to lower production and lower commodity prices than what was the norm in 2007, Impala has now taken the decision to impair the full amount outstanding on the balance sheet, which after tax credits, will amount to R7.3 billion.
Thankfully the prepayment was made ten years ago, which probably removes some of the sting given the magnitude of the write-off.
But it was not just the impairment that was worrying. The company’s operational performance left much to be desired, despite gross refined platinum production rising by 6.4% to 1.53 million ounces for the year ending June. This comprised 1.28 million ounces originating from the company’s own mines, and a further 246 700 ounces sourced from third parties and refined by the group.
The red ink was really spilt at the company’s Impala operations, which contributed 654 600 ounces of platinum (42% of the total) and which posted a headline loss after tax of R2.68 billion. “This was largely a result of sustained low rand basket prices, a cost base that is structured for a higher level of production and persistently low operational efficiencies. It is clear that we cannot accept it being business as usual for Impala,” said the company in a statement accompanying the results.
In its defence, the group faced contracting margins despite limiting unit cost inflation to 4.4%. But revenue only increased by 2.5%. This transformed the gross profit into a loss of some R529 million.
The market did not like the results. The Implats share price closed 7% lower at R36.60 per share.