Implats’ earnings are way down, but the company is still making money. Just a few years ago, most of South Africa’s PGM sector, Implats included, was against the wall as surging costs, depressed prices and outbursts of often violent labour unrest burnt up cash, leaving profits up in smoke. 

To wit, the company’s headline earnings for the financial year (FY) to the end of June 2023 fell 41% to R18.8 billion. On a per share basis, headline earnings were 43% lower at 2 ,211 cents.

“The combination of lower revenue and higher cost of sales reduced gross profit by 46% to R22.3 billion (FY2022: R41.3 billion,” the company said. 

Like its platinum peers, Implats is feeling the pinch of rising costs and falling prices. But with a five-year inflation-linked wage agreement secured last year, wages for a change are not the driving force behind cost pressures. 

“If you look at the key sources of inflation pressures, it is primarily driven by utilities. We have seen a 40% increase in the electricity tariff in Zimplats in Zimbabwe the past year. Granted they have not passed through any increases the past few years but in the past year that came through,” CEO Nico Muller told Daily Maverick in an interview. “But Eskom keeps having double-digit inflation, so energy costs are a major source.”

Muller went on to say that: “The other pressure is anything related to fuel such as chemicals and explosives. And then also the cost of steel, all our capital projects use steel. And you can look at all of the other consumables like timber.”

“Labour, not so much. Labour increases are governed by long-term wage agreements, so we’ve seen cost increases of 6%.” 

But overall, it is the second year running that Implats has seen double-digit cost increases, and that hurts when prices are toppling. Dollar revenue for the PGM basket price per ounce sold was down 18% to $2,035, while rand revenue on the same front fell 4% to R36,118 per ounce – the silver lining in the weaker domestic currency.

PGM prices have been undermined by slowing global economic growth and while the outlook is not as dim as it was a few months ago, concerns about China’s faltering recovery and its property woes have waylaid the market. 

And Eskom as always is a drain on production and profits, which “load curtailment” costing the company about R2.8-billion in lost profitability.

“Load curtailment has got two aspects to it … The one is a direct impact, so when you are required to load shed, the way we do it is we switch off one of our furnaces, or two. So we take the hit on the processing side. So then you either defer the processing – the refined ounces – to a latter date, or you  actually lose production,” Muller told journalists at a media roundtable. 

“But the other impact is that as a consequence of load curtailment, we have seen an increase in furnace rebuilds. And so in this year, we had the rebuild of our Number 3 and our Number 4 furnace as a consequence of increased fatigue in the infrastructure,” he said. 

So like household appliances, the rolling power cuts are having an impact in equipment. 

“We have seen a decreased level of load curtailment in the past six months, but it has still had a devastating impact,” Muller said.  

Indeed, the company said on its results statement that: “Circa 101,000 6E ounces were deferred due to power constraints at the Group’s smelting operations and the consequent delay to restart the refurbished Number 4 furnace in Q4 FY2023.”

Implats declared a final dividend of 165 cents per share, resulting in a total dividend for FY2023 of 585 cents per share. That’s about a third of what it was last year, but in 2020 it paid a dividend for the first time in six years. 

Like the wider sector, Implats is doing far better than it was a decade ago. But record rhodium and palladium prices two years ago have set a new benchmark that won’t be topped for a long time to come. DM