| Wed 4 Jul 2012, 8:20 | | Aquarius Platinum Ltd - Operational Update |
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AQP
Operational Update
Aquarius Platinum Limited
(Incorporated in Bermuda)
Registration Number: EC26290
Share Code JSE: AQP
ISIN Code: BMG0440M1284
OPERATIONAL UPDATE
Aquarius Platinum Limited (Aquarius or the Company) is pleased to provide the
following update on its business, ahead of an investor and equity analyst site visit to its
Kroondal mine to be conducted today.
The Board of Aquarius is endeavouring to pro-actively manage the business of the Company
to deal effectively and responsibly with the continuing difficult trading conditions facing the
platinum industry in South Africa. The Board has also recently approved the Companys
budget for the 2013 financial year. In keeping with the policies of the Company, the budget
is focused on cash conservation and the preservation of the Companys reserves and
resources until economic circumstances merit their extraction. As a result, several material
alterations have been made to the operating configuration of the Company to better enable
it to endure the current economic environment. Some of these changes have been disclosed
previously, while some are set out here for the first time. They are summarised as follows,
with further detail set out below:
Aquarius Platinum (South Africa) (Pty) Ltd (AQPSA) and Murray & Roberts
Cementation (M&RC) have mutually agreed to terminate their contract mining
agreement, and as a result AQPSA will become an Owner Operator, to ensure
maximum future cost control and flexibility;
Kroondal, Mimosa and the tailings operations will be optimised to maximise cash
flow generation;
Blue Ridge, Marikana and Everest have been placed on care and maintenance; and
All non-essential capital expenditure will be suspended.
Outlook and context
Material surpluses of PGMs and of platinum in particular are likely to persist in the short to
medium term and as a result PGM prices in both Rand and US Dollar terms are likely to
remain stagnant, while operating costs are expected to continue to rise at historical rates.
The Board believes that in this environment, the only defensible strategy is to cut all non-
essential capital expenditure, and place all non-contributing assets on care and maintenance
while optimising profitable operations for maximum contribution in the current low price
environment. This includes taking back control of operating costs.
Termination of Contract Mining Agreement
The Companys South African operating subsidiary, AQPSA, and M&RC have mutually agreed
to terminate their contract mining agreement. This decision has been prompted by several
factors including the recent downsizing of the business of AQPSA, the changing industrial
relations landscape in South Africa and the continuing margin pressure faced by the
platinum industry.
As a result, AQPSA will become an Owner Operator with effect from 21 September 2012,
with the full support and assistance of M&RC during a six month transition period which is
expected to be concluded by the end of December 2012. In anticipation of this change to its
business model, AQPSA appointed Partners in Performance (PIP) in April 2012 to assist it
in planning the transition to owner operated mining. AQPSA and PIP have completed an
eight week consultation and planning process, and PIP will support with implementation.
PIP is a global firm of operational improvement consultants focused on the resources
industry who have considerable experience in successful operations insourcing. PIP helps
clients increase throughput, lower costs and optimise capital projects.
The transition to owner operated mining is expected to incur once-off costs of
approximately R190 million relating principally to the purchase of mining equipment and
stores inventory from M&RC. AQPSA management further expects that this change will
result in significant ongoing operating cost savings such that the payback period for the
once-off costs will be approximately one year. This transition will initially only affect
Kroondal, as the only remaining operational South African mine, which reduces the
administrative burden to some degree. The transition to owner operated mining is not
expected to significantly impact production volumes.
Kroondal
Adjustments to the hangingwall support regime are expected to enable Kroondal to return
to its consistent cycle of 3 blasts per day, without compromising safety. This will enable
Kroondal to return to full production capacity, thereby improving unit costs and cashflow
generation.
Marikana
As disclosed previously, the last remaining shaft in operation at Marikana, 4 Shaft, has now
been placed on care and maintenance, together with the Marikana concentrator plant. As
ground conditions at Marikana are more complex than those at Kroondal, the additional
hangingwall support required in this mine relative to Kroondal is more costly, and as a result
it has proven difficult for 4 Shaft to contribute positively in the current low price
environment.
Aquarius is pleased to be able to inform the market that efforts to minimise job losses
associated with the closure of Marikana have been fruitful, with approximately 75% of
employees successfully placed in other organisations.
The attributable cost of closure is now estimated to be approximately R19 million, and
ongoing attributable care and maintenance costs are estimated to be approximately R12
million per quarter.
Everest
As disclosed previously, the ramp-up at Everest has encountered challenges resulting from
poor ground conditions and disruptive industrial relations, and as a result it is uneconomic
in the current low price environment. It has therefore been decided to place the mine on
care and maintenance, pending better prices. During the period that the mine remains on
care and maintenance, some limited drilling and design work will continue, in order to
facilitate the implementation of the Everest expansion project into the Buttonshope
(Booysendal South) property in due course.
The cost of closure is estimated to be approximately R157 million, and ongoing care and
maintenance costs are estimated to be approximately R23 million per quarter.
Mimosa
Despite government-administered cost increases and rising labour and electricity costs,
Mimosa continues to operate well, and remains significantly profitable.
Following the underground fire that occurred in May in which no injuries were recorded,
mining operations have recommenced ahead of schedule and PGM concentrate production
has remained on budget throughout.
The Indigenisation process continues to be negotiated. Aquarius currently continues to own
50% of Mimosa, and the asset continues to contribute meaningfully to the cash flows of
Aquarius, and it is expected to continue to do so. The relationship between Mimosa and the
Government of Zimbabwe is good, and negotiations continue with respect to a future sale
of a stake in Mimosa to indigenous Zimbabwean parties for fair value.
Tailings operations
Platinum Mile and CTRP are both operating well, and both are profitable. Certain expansions
are currently being implemented which will, upon commissioning, result in improved
efficiencies and increased production levels at little extra cost.
Current trading
Aquarius has produced 412,594 4E oz (subject to final assays) on an attributable basis in the
year to 30 June 2012. The Company has substantial cash on its balance sheet at present, and
the budget for the 2013 financial year and the actions described in this trading update have
been designed to conserve this cash balance and allow the Company to maximise cash
flows.
It is expected that Aquarius will produce approximately 327,500 4E oz on an attributable
basis in FY2013, and that the Company will remain EBITDA positive and be cash flow positive
after the expenditure of maintenance capital at Rand PGM prices of R10,300 per 4E oz and
above.
Stuart Murray, CEO of Aquarius, said:
The Board and management of Aquarius are acutely aware of the difficulties facing the
industry at present, and are monitoring the business and financial health of the Company as
closely as we have always done. We believe that the measures we have outlined today and
over the past few weeks once again demonstrate our commitment to controlling our own
destiny while carefully husbanding our assets on behalf of shareholders and thereby
ensuring the survival of the Company in these extremely difficult times.
Our partnership with M&RC has been a long one, but we are agreed that the contract mining
model has become difficult to make work in the context of the South African mining
environment. We are grateful to M&RC and to PIP for their assistance in what we expect to
be a smooth transition to Owner Operator.
I also note that we seem to be one of the few companies in the platinum industry that is
willing pro-actively to take the required tough decisions to close the mines that need to be
placed on care and maintenance. I would hope that the other industry players follow suit and
cut the unneeded production that is depressing the industry.
For further information please contact:
In the United Kingdom
Gavin Mackay
+44 7909 547 042
In Australia: In South Africa:
Willi Boehm Stuart Murray
Aquarius Platinum Corporate Services +27 (0) 11 656 1140
+61 8 9367 5211
4 July 2012
Sponsor
RAND MERCHANT BANK (A division of FirstRand Bank Limited)
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