Implats to cut output as Platinum demand suffers
News - Latest
19 February 2009

JOHANNESBURG (Reuters) - South Africa's Impala Platinum, the world's No. 2 producer of the metal, is cutting production this year and will put off expansion plans as demand suffers from the global auto industry downturn. The market for platinum, used mainly to make catalysts that help clean car exhausts, has been hit as carmakers cut production in response to plummeting sales.

Impala Platinum's (Implats) Chief Executive David Brown said in an interview demand was unlikely to recover this year and the group would delay expansion, cut output and preserve cash. "With world economies and their financial systems still on life support, it is increasingly difficult to forecast the outcome for 2009," Brown told Reuters on Thursday. "Suffice to say we do not expect any major recovery in automotive demand."

The company said a weaker rand had lifted its first-half earnings despite lower production but said it would cut output by 200,000 ounces in its current financial year. The group will trim output to 1.7 million ounces in 2008-09 and plans to reduce output to 2.1 million ounces in 2012, also down 200,000 ounces from its previous plans. "Output in the first half fell by default rather than by design owing to problems in some of our mines. Going forward we will adjust our sights and tailor-make our output," Brown said.

Brown forecast platinum would trade at $950-$1,000 an ounce in 2009 and expected a recovery to $1,500 in three years. Platinum, now around $1,070, is less than half the record high of $2,290 an ounce seen last March when a power shortage in main producer South Africa disrupted mining and triggered supply worries. It bottomed at about $760 in November.

EARNINGS UP, OUTPUT FALLS

Implats said cash preservation is paramount and postponed its Leeuwkop expansion project indefinitely and reduced capital spending by two thirds to 10 billion rand. Implats, which last month walked away from its proposed $2.14 billion acquisition of rival Mvelaphanda Resources (Mvela) and Mvela's unit Northam Platinum, also slashed its interim dividend 60 percent to 1.20 rand.

Brown said the group could still make buys on merit. "If there is value in a deal we will look at it, but such a deal will be mostly share-based rather than cash-based," Brown later told a results presentation. Implats shares rose 0.4 percent to 138 rand at 1129 GMT, against a similar rise in the sector index.

Implats said first-half headline earnings rose to 8.77 rand per share, boosted mainly by a weaker rand. Headline EPS is the main profit gauge in South Africa and strips out certain one-off, financial and non-trading items. South Africa's miners, who pay costs in rand and earn revenue in dollars, have to an extent been cushioned against lower platinum prices by the rand's weakness.

Total platinum production for the group fell 14.8 percent to 878,000 ounces due to decreased output from Implats and reduced deliveries from third parties at its refinery. This lower output and inflation resulted in unit costs rising by 36.9 percent to 8,681 rand per platinum ounce.

"To use their (Implats') own words, production and cost have been extremely disappointing," Stephen Roelofse, a Cape Town-based mining analyst at Metropolitan Asset Managers said. Despite the intention to cut output, Brown said Implats did not plan to cut jobs if it met its production targets.

Bigger rival Anglo Platinum, a unit of global miner Anglo American Plc, last week flagged lower output and cost pressures as it announced plans to axe 10,000 mostly contract jobs to counter lower prices. - By James Macharia