Aquarius posts interim loss, production down

ASX-, LSE- and JSE-listed Aquarius Platinum on Thursday posted a loss of $113-million, or 24.31c a share, for the first half of its 2012 financial year.

Aquarius CEO Stuart Murray attributed the negative result for the six months to December 31 to a foreign exchange loss of $91-million arising from the revaluation of intercompany loans within the group, as well as to reduced platinum-group metals (PGMs) production.

“It has been a notably difficult period, with demand and supply dynamics out of balance. We find ourselves in a situation where ‘the tail is wagging the dog’.

“Profitability at mine level was down by 69% on mine earnings before interest, taxes, depreciation and amortisation, at $29-million, compared with $93-million in the previous corresponding period. This was due to challenging operating conditions experienced at the group’s South African operations, increased mining costs and lower PGMs prices.

“Decreasing metals prices resulted in a negative $25-million sales adjustment to be incurred,” Murray told a telephonic conference.

Poor market performance was further compounded by the group achieving 14% reduced production results for the period, producing only 215 453 oz, 35 519 oz less than in the same period in 2010. The weighted average on-mine unit cash costs in South Africa rose by 38% in rand terms, largely owing to the miner’s lower production figures.

The average rand basket price increased by 5%, while the rand on average weakened by 7% against the dollar.

However, the average dollar PGM basket price was stable compared with the previous corresponding period, despite dollar PGM prices weakening over the period, owing to deteriorating macroeconomic conditions.

This resulted in the miner’s revenue dropping 25% to $252-million, as result of lower production and weaker PGM prices. The average price achieved during the period was $1 171/oz, reducing the miner’s operating net cash flow by 53% to $25-million.

“The group had a cash balance of $230-million at the end of the period, and we will focus on cash preservation and optimising our operating assets to cash-generative operations,” Murray said.

The most significant negative factor was lower production at the Kroondal operation, as a result of both Section 54 safety stoppages and long-lead times for the mechanised equipment necessary to install the new underground safety systems.

This necessitated the manual installation of these systems, which slowed the mining cycle considerably. Marikana encountered similar challenges and Murray assured investors that both of the mines had by now largely overcome the issues relating to the support systems.

“By the end of the period many of the problems relating to the implementation of the new hanging wall support methodology at Kroondal and Marikana were resolved, but ongoing below-budget production performance, poor grade control, and poor cost control culminated in significant cost escalations at Kroondal, Marikana and Everest.

“This had lead Aquarius to start a thorough review of the current contractual arrangements with its primary mining contractor Murray & Roberts Cementation, and a solution to the labour contractor would be in place by the third quarter of this financial year,” Murray said.

Meanwhile, the planned ramp-up at the Everest operation was interrupted by a two-week strike. Industrial relations problems and ongoing poor ground conditions on the eastern side of the mine had hindered production, with Murray adding that the current economic outlook would probably see Aquarius curtailing production at Everest to 10 000 oz.

An application had also been submitted to buy a property to expand the Everest operation.

Aquarius’ Blue Ridge mine remained under care-and-maintenance during the period owing to the prevailing adverse economic conditions.

Meanwhile, Aquarius reported that its 50%-owned Zimbabwe joint venture with Impala Platinum, the Mimosa platinum mine, performed strongly, producing PGMs with a high gold content at nameplate capacity.

“Increased royalties and mineral lease/ground rent charges are damaging Mimosa. In addition, the indigenisation process remained ongoing and its outcome is uncertain,” Murray said.

Further, on November 28, Aquarius completed its transfer of its listing category from a standard listing, to a premium listing on the LSE. However, its ‘domestic’ listing in South Africa through an ‘inward-bound dual listing’, a status which historically signified that Aquarius' shares are to be treated as foreign assets for the purposes of exchange control was overturned on January 12, when the JSE announced that the shares of all companies with inward-bound dual listings, including Aquarius', would be treated as domestic with immediate effect.

As a result, there are no longer any restrictions on South Africans holding Aquarius shares, and subject to free float requirements, Aquarius will be eligible for inclusion in the JSE equity indices.

Aquarius also appointed Robert Schroder as an executive director of the company, responsible for capital and projects, with effect from January.

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