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Zimbabwe: Platinum Mines Back in Business

ZIMBABWE’s largest platinum miner, Zimplats Holdings Limited, last week reported a six percent rise in output for the half year ended December 31, 2016, after ramping up production to offset the effects of weak prices on the global market.

Zimplats, which said tonnes mined during the review period rose six percent to 3,47 million compared to the same period the previous year, reaffirmed sector-wide optimism that after a difficult 2016, platinum mines were creeping back to stability, although prospects were still unclear due to prevailing price volatilities.

Zimplats, which controlled 60 percent of total platinum output in Zimbabwe last year, said it expanded production at Mupfuti and Bimha mines and grew revenue by 16 percent to US$237,7 million compared to the prior comparative period the previous year.

Chief executive officer (CEO), Alex Mhembere, said revenues were bolstered by higher metal prices and sales volumes.

Platinum ounces sold increased by four percent to 133 937 ounces compared to the prior comparative period, while gross revenue per platinum ounce, at US$1 745, was 10 percent above US$1 591 registered during the prior comparative period in 2015.

“Consequently, profit before income tax for the period at US$37,2 million was significantly higher than US$0,6 million loss recorded in the same period last year,” said Mhembere.

“Income tax for the half year at US$21 million (2015: US$1,2 million) resulted in a profit after tax for the period of US$16,2 million compared to a loss of US$0,6 million incurred in the same period last year,” Mhembere said.

Analysts agree that the move to improve output by the industry has been driving both revenue increases and profitability.

Still, they are worried that prices could remain subpar, given the trends that have already taken place in the first two months of the year.

And this strategy, going forward, could be unsustainable.

“Platinum mines are managing costs and increasing production,” said Tapiwa Sibanda, analyst at Trade Winds.

“Prices have not improved significantly, so revenues are being driven by higher output,” he said.

Last week, platinum prices slipped back below US$1 000 per ounce, after spending the final quarter of 2016 above US$1 200, triggering fears of a return to difficult times.

But operators project that they will see their firms through the rough waters.

“Despite the pressures from soft commodity prices on the world market and the challenging Zimbabwean operating environment, the future of the company remains bright,” said the Zimplats CEO.

Platinum mine bosses have rolled back their sleeves in the past year, implementing strongost cutting measures to mitigate the effects of the global commodity price slump, in order to keep operations afloat.

Optimism is not only shared by Zimplats, which has stocks trading on the Australian Stock Exchange.

In South Africa, the biggest producer in the region followed by Zimbabwe, operators predict that they will ride over the storms, according to data from the London based World Platinum Investment Council (WPIC) and recent financial results.

Anglo American Corporation, which has a presence in Zimbabwe through the Shurugwi-based Unki Mine, gave a more positive outlook after remarkable results across its commodity driven group, including Anglo Platinum (Angloplats).

Angloplats came to the market in the second week of February, announcing that 2016 fourth quarter output at Unki had increased by 12 percent to 75 000 ounces.

Unki has a mineral resource of 10,5 4E million ounces and ore reserve of 4,7 4E million ounces.

Angloplats CEO, Chris Griffith, said production for the year at 2,38 million ounces was above target.

“The business has made significant strides in the last twelve months, despite the continued weak price environment for platinum group metals,” he said.

On the day that Zimplats released the half year report last week, South African resources giant, Sibanye, said its Zimbabwe based recent acquisition, Mimosa Mining Company, which controlled 25 percent of total platinum output in Zimbabwe last year, had contributed a further R186 million profit to the company.

Sibanye acquired the 50 percent shareholding that was previously controlled by Aquarius, the platinum miner, last year.

“It is pleasing to report such solid financial results and again be able to deliver an industry leading dividend yield of over five percent to our shareholders,” Sibanye CEO, Neal Froneman,said, adding that the positive contribution from the platinum division was notable.

He said the Aquarius assets continued to operate well, while the Rustenburg platinum operations in South Africa were showing a solid turnaround and returning to profitability.

Before the Sibanye transaction was concluded, Mimosa had reported a 32 percent fall in revenue for the half year to December 31, 2015.

The fall was on the back of weak commodity prices.

It posted a net loss before tax.

Until prices started heading north last year, Zimbabwe’s platinum mining sector had plunged into a precarious position during most of 2015 and 2016.

The anxiety was also felt in South Africa, where platinum mines were rattled by working stoppages after workers were frustrated by low wages.

Operators said they were living on the margins as they tried to respond to a commodity price rout on the global market that clobbered profits.

The decline in the international price of platinum placed local platinum miners under pressure, with restructuring of businesses that entailed shutting some shafts.

The measures come against the background of increasing cost of production in the platinum sector, which surged by over 85 percent in some cases.

Over the years, platinum mining has become more difficult and more risky because the ore bodies have become deeper.

However, most of Zimbabwe’s new shafts have not gone deeper than two kilometres as is the case in South Africa where the miners have gone down to five kilometres or more.

The country, home to the world’s second biggest known deposits of platinum after South Africa, estimated at 2,8 billion tonnes of the platinum group metals (PGMs), has three platinum-producing mines.

These are Zimplats, a subsidiary of Impala Platinum, Mimosa Mining Company, and Anglo American’s Unki Platinum Mine.

The price rebound has boosted the firms’ ambitions to expand their Zimbabwean operations after some of them had considered putting on hold plans to build more mines, according to the Chamber of Mines of Zimbabwe (CoMZ).

“Going forward, all respondents indicated that they have plans to carry out mine development projects over the next five years at an estimated cost exceeding US$300 million, with positive impacts on platinum output and life of mines,” the CoMZ said in a survey released in December last year.

“With regard to expansion projects, all producers indicated that they will spend on expansion projects in 2017 at estimated costs exceeding US$50 million. These projects are expected to lead to increased platinum output,” the report added.

The price of the commodity, currently Zimbabwe’s biggest foreign currency earner accounting for about 45 percent of the country’s export earnings, tumbled by big margins from a high of over US$1 800 per ounce during boom times in 2011, sinking to less than US$1 000 at one time in 2015, before regaining ground in 2016.

Until last week when prices briefly plunged to less than US$1 000, platinum prices were hovering above the US$1 230 per ounce mark.

Platinum is used in catalytic converters, laboratory equipment, electrical contacts and electrodes, platinum resistance thermometers, dentistry equipment and jewelry.

This market had been affected by slow demand for metals in China, the world’s biggest consumer.

Zimbabwe’s economy and political system are both struggling under the weight of uncertainty over the future if President Robert Mugabe leaves office.

The economy is also affected by anaemic economic growth that is wreaking havoc across all sectors.

Analysts said the recovery in commodity prices seen in the past year had been good news for the country.

In particular, the optimistic outlook for the Chinese economy, which was recently upgraded by the International Monetary Fund (IMF) in January to a growth forecast of 6,5 percent this year, is expected to open new avenues for growth in platinum mines.

The country ships the bulk of its mineral exports to China.

But despite the positive outlook by the industry, the WPIC said overall, Zimbabwe would record a six percent slide in the supply of refined platinum to the global markets this year.

It will be only one of five platinum mining regions to register a drop in platinum output, WPIC says.

South African and Russian producers are projected to report two and 10 percent growth respectively.

The report showed that Zimbabwe’s refined platinum output rose by 17 percent to 475 koz last year, and is now projected to fall to 445 koz by the end of this year.

This represents a six percent slide.

Growth will be flat in North America and other smaller producing regions, according to the report, which notes that overall global output will rise by two percent. Platinum mines have said they are in a precarious position, with operators living on the margins as they try to respond to a commodity price rout on the global market that has hit profits.

“With the exception of Zimbabwe, all regions are expected to sustain or increase production levels next year (2017). The processing of a one-off concentrate backlog for Zimbabwe earlier this year (2016), following a smelter outage in 2015, results in lower refined supply in 2017 (-six percent to 445 koz),” said the report.

“Zimbabwe maintained production at 115 koz both quarter-on-quarter and year-on-year in Q3 16 (third quarter of 2016). Refined output for the first nine months of 2016 increased by 26 percent year-on-year owing to a release of concentrate in Q1’16 that had built up during the 2015 smelter outage,” said WPIC, noting that global refined production would rise by two percent 6 070 koz this year. Zimbabwe has heavily depended on mining taxes and fees to fund its recurrent expenditure, the bulk of which goes towards salaries for a bloated civil service and an insatiably large executive.

An improvement of fortunes in the sector would improve State coffers.

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