ROYAL BAFOKENG PLATINUM – PLATINUM CAUGHT IN METALS STORM

ROYAL Bafokeng Platinum (RBPlat) suffered a tough year after a one-fifth reduction in the basket price. Share earnings dipped but the downturn also led to a write down of R2,89m of assets following the price collapse of platinum group metals (PGMs).

 

The company says figures were also hit by production interruptions related to safety stoppages, a tax dispute with the South African Revenue Service and wage cost increases.
However, cash preservation continued to be a priority and RBPlat remains well capitalised with no debt and a strong balance sheet which positions it well for the continued weak pricing environment expected during 2016.

The weakening of the platinum market and continuing safety issues has proved a challenge for Royal Bafokeng Platinum.
The downturn in commodity markets and a trend towards recycling in automotive components has impacted on the businesses along with several fatal accidents which has frustrated the company’s attempts to achieve a zero rate.

As a result of tough market conditions RBPlat is to scale back its capital expenditure and ‘tighten its belt’. However, the business has no gearing and remains in a better position than many competitors. But the key remains a strong balance sheet and controlled spending.
Platinum prices are 30% down in US dollar terms and 18% down in rand over the year. Several fatalities in the mines also resulted in Safety 54 stoppages imposed by the Department of Mineral Resources, resulting in the loss of 14,000 oz of platinum Group Metals (PMGs) and R250m in lost revenue.
Despite this, over a half a billion rand of cash was generated. Chief executive Steve Phiri said: “The biggest elephant in the room is the weak PGM price. If the industry does not change, the market will force change upon us and that will be catastrophic for the industry and the country.”
JSE LisitingThe company’s biggest investment at the moment is in Styldrift where capital expenditure will be slowed down.
“If spot prices continue we will receive R7.5bn less over the next five years and this would put us at risk. However, we have always wanted to enhance flexibility through strategy and by doing this we will preserve cash and keep the balance sheet ungeared.”
So further development will only continue through using cash flow from existing operations.
RBPlat said it had delayed the timing of its Styldrift I project, as the depressed platinum market would prevail in the medium term.
It added that capital expenditure on Styldrift I had amounted to R5.19bn as of the end of the third quarter. Expenditure on underground infrastructure to be completed in 2016 would total R1bn.
RBPlat said that it would slow expenditure on Styldrift in an effort to protect the company’s balance sheet amid depressed platinum prices which it said would persist for the “foreseeable future”. The project will double RBPlat’s production to 600,000 ounces of PGMs

Platinum markets

Two of the biggest markets for platinum are the automotive and jewellery industries. Many modern vehicles are built on green credentials using technology like catalytic converters. Recent regulation upgrades mean manufacturers are duty-bound to produce eco-friendly vehicles. Although the market has flourished, some car makers are turning to recycling items rather than buying from primary sources. This means a demand problem for mining companies.
Similarly, the platinum demand for jewellery has increased, particularly for wedding gifts in countries like India as an alternative to gold. However, demand across Asia is reducing, putting a dampening effect on prices.
Platinum’s supply comes from two main sources: primary mining output, and recycling, which typically comes froPlatinum Jewellerym end of life auto catalysts and jewellery recycling. Over the last five years, between 72% and 77% of total annual platinum supply has come from primary mining output. That situation is starting to shift.
Platinum’s diverse other industrial uses account on average for a little over 20% of total global demand. Over the same period, global annual jewellery need has averaged 34% of total platinum demand. Investment is the smallest category of platinum requirement and also the most variable over the past five years, ranging between 2% and 11% of total demand.

 

 

Business Model

The model is based on the six capitals: financial, manufactured, human, social and relationship, natural and intellectual and RBPlat’s approach, which affects the quality and availability of our stock of capitals.

 
Supporting the strategy:
•    Merensky bias
•    Shallow depth mines
•    60 years life of mine
•    Prime location on Western Limb of Bushveld Complex
•    Strong cash flow
•    ungeared balance sheet

Aspirations:
Safety of staff and communities
•    Effective leadership
•    Technical strength and depth
•    Investment in training and development

 

 
Financial position:
•    Strong cash flow generation
•    Ungeared balance sheet

Risk management:
•    The enterprise risk management framework applied across the business

 
Governance:
•    Complying with and exceeding the requirements of the Mining Charter

 

•    Complying with the JSE Listings Requirements

 

 

•    Applying principles of King III
•    Complying with all other relevant legislation

 

 
Stakeholders:

 

 

•    Engaging with and responding to all stakeholders

 
Social responsibility:
•    Community investment

 

 

Environment and community responsibility

Royal Bafokeng Platinum’s modern outlook is underpinned by a commitment to the environment and its local communities.
It has already built over 400 homes, mainly for its workers, and has another 3,000 in the pipeline.
The company is also urging further efforts involving the international community, South African government, businesses and other stakeholders to embrace carbon reduction. A company spokesman explained: “We recognise that climate change is an important global and local issue that requires urgent attention from all members of society. As a platinum group metals producer, we realise that our activities have an impact on climate change through the production and release of greenhouse gas emissions which contribute to global climate change.
“Climate change has the potential to alter the environment in which we operate through increasing incidences of extreme events and slower changes to climate patterns that could impact on our ability to operate safely and continue to support our stakeholders.
“Royal Bafokeng Platinum therefore encourages all leaders of South Africa and other nations to take a stand and together build expertise, capacity and resilience strategies to ensure adaptation to climate change impacts for our benefit, and for future generations.2-lrg
“We therefore call upon all parties to reach an agreement on a global carbon price to provide clear direction in the interest of both local and international business stability and the transition to a low carbon economy.
Royal Bafokeng Platinum also called on developed countries to provide the technical and financial support required by developing countries, including South Africa, to respond appropriately to climate change. In doing so, it supports the need to increase rapidly the contribution to the Green Climate Fund and for there to be a transparent and efficient means of disbursement and allocation.”
Addressing the causes and adapting to the impacts of climate change is core to the company’s strategy which seeks to deliver “More than Mining” by creating economic value for all shareholders.

Royal Bafokeng Nation

The Royal Bafokeng tribe is justifiably proud of its claim to be the most successful community investment initiative in the world.
Since platinum was discovered on its land in 1925 it has waged a battle with industrialists and corporations eager to cash in. But this battle has been dubbed ‘lawfare not warfare’ as the Nation has used legal means and clever strategies to disarm the colonials and their Afrikaaner allies.
The result of decades of turmoil means the Nation receives royalties on all mining activities it doesn’t operate itself. It has established a trust to control its activities as well as administrative, operational and investment divisions.
In the past the emphasis was on relieving native peoples of their rights – now the Nation is regarded as a flagship example of how the indigenous population can retain power over its own destiny.
Around 150,000 people inhabit 29 villages spread over 1200 sq km of land in the northwest of South Africa and have assets valued at $4bn. Of course, since the rush for mining started in the 19th century many non-native Bafokeng have settled in the area.
During its turbulent recent history the father of the current king Kgosi Leruo Molottegi was exiled but when apartheid fell, the Nation took control of its natural assets.
It owns Royal Bafokeng Platinum and has a 13.16% stake in Impala platinum – the company that commandeered much of the Nation’s assets back in the 1980s.
The Royal Bafokeng Administration invests millions of dollars in schools and public services.
The vast majority of people now have access to clean piped water and electricity.
King Kgosi said: “As with many people in the age of colonialism, our history of land ownership is one of having to fight to regain and retain something that was already ours. We decided to use lawfare not warfare.
“We have by no means achieved our goals. This cannot be done by money alone. We are committed to ensure that our ownership of mineral resources enables us to walk this long and arduous journey.”

Black empowerment

RBplat is a black-owned and controlled producer which originated from a joint venture between Anglo American and the Royal Bafokeng Holdings. In 2010, via restructuring, RBPlat obtained a majority interest and listed on the JSE.


RBPlat mines PGMs in the Merensky and UG2 reefs on the Boschkoppie Styldrift and Frischgewaagd farms in the Rustenburg area, which have been identified as hosting the last undeveloped Merensky reef on the Western limb of the Bushveld Complex. RBPlat’s assets are the only significant shallow high grade Merensky resources and reserves still available for mining in South Africa.
Because the Royal Bafokeng Nation through its investment arm Royal Bafokeng Holdings (RBH) has a 52.53% investment in RBPlat, it not only complies with black economic empowerment requirements but exceeds them.

PGMs


Platinum group metals (PGMs) are found as a compound which includes six pure metals with high melting points: platinum, palladium, rhodium, iridium, osmium, and ruthenium as well as gold and base metals such as nickel, copper and cobalt. In addition to their oxidation and reduction properties, these metals have the ability to stay stable at high temperatures and are extremely resistant to corrosion.

Platinum is an excellent raw material and catalyst for manufacturing processes due to its distinctive chemical and physical properties. Platinum and other PGMs are used in a number of industrial processes and commercial applications – in flat panel monitors, glass fibre, medical tools, computer hard drives, nylon and razors, among others.

The largest users of PGMs are automotive catalytic converter applications that reduce pollution by treating exhaust gas before it leaves a car.