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INTERIM RESULTS

Implats flags social and labour unrest, safety stoppages after earnings dip from record levels

Implats flags social and labour unrest, safety stoppages after earnings dip from record levels
Nico Muller, chief executive officer of Impala Platinum. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

Impala Platinum flagged social and labour unrest, linked to rising poverty, when it unveiled interim financial results on Tuesday, as well as safety-related stoppages. Earnings are down, but from record levels. Meanwhile, prices are rising because of Russia’s invasion of Ukraine – which bodes well for Implats’ bottom line for the full financial year.

For the second day running, a South African mining company has highlighted safety stoppages as one of the reasons for its performance in the second half of 2021. On Monday, it was Harmony Gold, followed on Tuesday by platinum group metals (PGMs) producer Impala Platinum (Implats), which had a catastrophic accident late last year at its Rustenburg operation. 

For the period under review, Implats’ gross profit was down almost 20% to R17.9-billion – its headline earnings 4.3% lower at R13.8-billion. But the comparable period in 2020 saw record earnings, and so the company is still generating plenty of cash and will pay out a dividend of 525 cents per share, 45% lower than last year. 

This comes after the group spent R9.2-billion to acquire 35.3% of the shares in mid-tier producer Royal Bafokeng Platinum, whose board has recommended that shareholders accept Implats’ offer to take that stake to a majority. Implats ended the period debt free and with net cash of R18.5-billion. 

Not all smooth sailing 

Implats said the six months to December were “impacted by extended safety stoppages, industrial action and intermittent power provision in South Africa” as well as “a shortage of critical skills in Canada”, which was news to this correspondent, who hails from the land of maple syrup. It seems South Africa is not the only major mining jurisdiction facing a dearth of skills.  

The Department of Mineral Resources and Energy has stepped up safety stoppages in the face of a worrying regression in mine safety. Implats suffered a terrible blow after years of improvement when five employees were killed in work accidents in the six months to the end of 2021, compared with no fatalities in the same period in 2020. 

The singling out of “industrial action” was unexpected, as labour relations on the platinum belt had appeared to have been on the upswing in recent years. 

But CEO Nico Muller said on a media call that there “has been a change in the labour climate. We had had some attempts by Numsa to try to recruit from our properties, and that has created a lot of turmoil amongst our employees, particularly among the contractors. That has created some disruption.” 

That recalls the rise of Amcu a decade ago, which sparked a violent unprotected strike and wave of riots around Implats that washed across the platinum belt like a tsunami. The levels of unrest do not appear to be in the same league that obtained 10 years ago, but something is clearly afoot. And a mining company making big profits is a red rag for militant unions.

Muller went on to say that “there has been extreme social as well as economic scarring that has emanated from Covid… It is evident in all of the jurisdictions in which we operate that there has been an increased need from society, particularly in areas where you have a failed state syndrome.

“There are two components of this. One is activism from communities, particularly around procurement and participating in the value chain in order to generate an income. On the other side, we have also seen a significant increase in theft, not only copper cable theft, but illegal mining activities. We had a security officer of ours shot and killed during this period.” 

Muller said he preferred not to use the term “procurement mafia”, but other mining executives don’t shy away from it to refer to a broad shakedown of the industry by often criminal elements seeking to literally muscle their way into procurement contracts. 

Muller said the consequences of the renewed union rivalry and community procurement demands – along with political tensions related to the local elections – included a “direct loss of shifts” and “physical stoppages to the shafts”. 

He added that even without operations grinding to a halt, the more menacing labour and social climate was hitting productivity and contributing to the safety setback.

On the theft side, Mark Munroe, who runs Implats’ Rustenburg operations, said the criminals were targeting the company’s pipeline that carries concentrate, and infiltrating shallow working mines to steal copper cable. 

Despite such challenges, Implats is clearly set to make stacks of cash for the second half of its financial year, which runs to the end of June. This is not least because of the Russian invasion of Ukraine, which has pushed prices higher for commodities such as PGMs. 

Muller was cautious on this front, though many analysts are bullish. While noting that Russia produced 2.7 million ounces of palladium per year, or 38% of global demand, Muller added that even with Western sanctions, “China consumes more metal than what Russia produces”. 

Palladium’s price is actually down slightly compared with where it was just before the Russian invasion. 

There’s plenty of grounds for optimism among South African PGM producers, including expectations of surging global demand for vehicles. 

Meanwhile, Implats has its work cut out as it strives to calm rising labour and social tensions, as well as find skilled miners for its operations in Canada. DM/BM 

 

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