Economic performance

Given the scale of its operations and location in the developing economy of South Africa and Zimbabwe, Implats can have and has had, a significant impact in respect of the economic, social and environmental spheres during the year.

Impala, RustenburgImpala, Rustenburg
Highlights Disappointments Opportunities
  • Group continues to be profitable – value-added in FY2009.
  • Progress on Impala maintenance projects – 16, 17 and 20 shafts.
  • Zimbabwean operations performing well, despite tough economic climate.
  • Continued progress with affirmative procurement – R4 billion spent with HDSA/BEE vendors during FY2009.
  • Mining rights conversions achieved for all South African operations.
  • Production declines to 1.7 million ounces of platinum.
  • Global financial crisis has significant negative impact on markets, and prices for metals and hence revenues decline.
  • Share price performance suffers in line with international markets, with impact for employees and shareholders.
  • Certain capital projects delayed.
  • Global markets expected to recover, with medium to longer term outlook for metals positive.
  • Implats consolidates dominant position in industry in South Africa and Zimbabwe.
  • Opportunities identified for the group in respect of climate change.
  • Group’s rapid response to global financial crisis will ensure continued sustainability of operations.

Management approach

To put into effect its vision to be the world’s best platinum producing company, by delivering superior returns to its shareholders relative to its peers, the Implats group has developed a significant set of assets and skills in South Africa and Zimbabwe. Strategic plans are in place to achieve medium and long-term goals. The objectives of the group and its operational and growth plans are discussed extensively in the Annual Report, particularly, in the Chairman’s letter and the CEO’s review of the year.

Given the scale and location of its operations in both South Africa and Zimbabwe, Implats has a significant economic impact on many of its stakeholders (investors, employees, local communities, government, etc), not least by providing employment, the payment of taxes and through the procurement of goods and services.

During the past year however, the extent of this impact was affected by external factors – the global financial crisis and economic downturn – the most telling features of which were the performance of:

PGM prices: Following the commodity boom in the first half of calendar year 2008 when the platinum and rhodium prices peaked at all time highs, the US sub-prime crisis triggered a collapse in global financial markets and the worst economic recession of recent times. This in turn had an immediate and adverse impact on vehicle sales in the United States and Europe especially, as a result of which demand for PGMs slumped. A positive consequence of the lower prices was that investors and Chinese jewellery manufacturers and retailers were enticed to re-enter the market, with the result that by year-end, PGM prices had regained some of the ground lost earlier in the financial year. See the Market Review section in the Annual Report for a more detailed overview of the PGM market in FY2009.

Rand/dollar exchange rate: The volatility of the rand on exchange rate markets in the first half of the financial year reflected prevailing economic conditions. The rand/dollar exchange rate reached a low of R11.93/$ in October 2008 but by financial year-end had strengthened to close the year at R7.76/$, as compared to R7.93/$ as at 30 June 2008. Overall, the rand was weaker year-on-year with an average exchange rate for the year of R8.63/$ (FY2008: R7.32/$). Revenue received per platinum ounce sold for FY2009 was $1 995/oz (FY2008: $2 941/oz), and in rand terms, R17 217/oz (FY2008: R21 528/oz), declines of 32% and 20% respectively, thus illustrating the cushioning effect to the company of the relatively weaker rand for much of the year.

Implats’ financial performance is vital to its sustainability and this too is reported in detail in the Annual Report. Its financial performance in turn determines the ability of Implats to contribute to the sustainability of local and national economies, both in Zimbabwe and in South Africa. A critical factor in determining the longer-term sustainability of the company is the balance between the company’s growth projects and capital expenditure (maintenance and growth) and cash.

Performance in 2009

Key areas of performance

Key operating parameters are indicated below, and depicted in the graphs.

  • Production was down on the year, largely as a result of operational constraints at Impala. Group platinum production fell by 10.6% and overall PGM production by 7.8%. Nickel production remained relatively steady at 14 500t as compared to 14 800t in FY2008.
  • In line with prevailing economic conditions, prices received for the year were down. Average PGM prices for the financial year were:
     FY2009 FY2008
    Platinum $1 219/oz$1 598/oz
    Palladium $263/oz$390/oz
    Rhodium $3 517/oz$6 963/oz
    Nickel $12 995/t$30 253/t
  • Sales revenue generated for the year totalled R26.1 billion, down by 31% year-on-year, while gross profit was 45% lower at R9.8 billion.
  • Unit cost increased by 32% to R9 129 per platinum ounce, a result of the reduced levels of production for the year and inflationary pressures. The cost of major consumables escalated sharply – coal costs rose by 65%, that of explosives by 23% and of mill balls by 53%.
  • Group capital expenditure for the year totalled R6.9 billion (FY2008: R5.4 billion), the bulk of this was spent at Impala (R5 billion) and at Zimplats (R1.4 billion).
  • Dividends paid declined for the year to 320 cents per share (FY2008: 1 475 cents per share).

Further details on the financial and operational performance of the company are presented in the Annual Report which also contains the audited annual financial statements. The Annual Report is available either on the corporate website, www.implats.co.za, or as a printed document. For a detailed discussion of Implats’ financial performance in the 2009 financial year, see the Financial Review section in the Annual Report 2009.

Analysis of customers

The PGMs and base metals produced by Implats are sold to various customers, both in South Africa and around the world. (See the section on Product responsibility for additional information on the forms in which Implats products are produced and sold, and on beneficiation).

Implats’ regular customers are to be found largely in Japan, Europe, the United States and South Africa. Occasional sales of product have been made to countries such as Korea and China.

In general, countries which the company chooses to trade with are selected so as to limit the credit risk to the company. Sales are made to both end users and intermediaries.

Implats sells to a range of customers in the automotive and automotive-related industries, the industrial, jewellery and chemical sectors as well as trading companies such as Heraeus Ag in Germany; Sojitz, Sumitomo and Mitsui in Japan. Sales by sector largely reflect the global split in end use of PGMs. Customers in South Africa and the United States are mostly in the automotive and related sectors while those in Japan and Europe are across the board.

Most of the platinum sold by Implats is in the form of sponge (a coarse powder) as is all of the palladium and rhodium sold. The balance of the platinum sold is in the form of ingots which are sold to jewellery manufacturers and trading houses. These 150 -160- ounce bars qualify for GLZD (Good London Zurich Delivery) status. Sponge does not qualify as GLZD as the containers in which it is sold are not tamper-proof, although every effort is made to ensure that the product sold is delivered exactly to specifications.

Nickel is mostly sold in the form of briquettes to the South African stainless steel industry as well as the Japanese battery industry for use in hybrid vehicles. The copper produced as a by-product is sold in the form of 1m² cathode sheets, with around half sold in South Africa and half in Europe, for use in blends and alloys in industrial-type applications.

Adding value

In mining, processing, refining and selling the PGMs it produces, Implats generates and creates value for many of its stakeholders as:

  • Salaries/wages are paid to employees.
  • Shareholders receive dividends and growth on the share price.
  • Governments receive taxes and royalty payments.
  • Suppliers and contractors are supported through the procurement of consumables, services and capital goods.
  • Communities benefit through employment, job creation - socio-economic development.

The value added statement below presents a breakdown of the economic value generated by Implats in FY2009. The current global economic downturn curtailed Implats’ ability to create value in FY2009 as compared to FY2008.

Platinum production (oz) Revenue per platinum ounce sold (R/oz) Revenues decline (Rm) Contibution to revenue by metal Gross profit margin (%) Cost per platinum ounce excluding share-based payments (R/oz)
Value-added statement for the year ending 30 June (R million)
  FY2009FY2008
Sales26 12137 619
Net cost of products and services(11 745)(14 067)
Value added by operations14 37623 552
Income from investments and interest1 0046 198
Total value added15 38029 750
Applied as follows to:  
Labour and other5 1434 077
Share based payments(717)1 060
The state as direct taxes3 3895 112
Royalty recipients442648
Providers of capital7 9466 299
Financing cost140 135
Non-controlling interest(16) 109
Dividends7 822 6 055
   
Total value distributed16 20317 196
Re-invested in the group(823)12 554
Amortisation979 1 013
Reserves retained (1 802)11 541
   
 15 38029 750

Payments to employees

In FY2009, a total of R4.4 billion was paid to employees in South Africa and Zimbabwe in the form of salaries, wages and fringe benefits (FY2008: R5.1 billion). In addition, many non-financial incentives and benefits are available to employees. A key feature of Implats’ socio-economic development programme is to ensure that benefits are felt in the communities around Implats’ operations and those from which the company draws its employees.

A key impetus for the group during the year under review has been to improve the living conditions of employees and, to this end, some R2.5 billion has been committed over a period of five years to provide and upgrade employee housing and living conditions. (See the Socio-economic development section for further information.) Around 91% of the group’s employees have a direct economic interest in the group through a share incentive scheme and through the group’s Employee Share Option Programme (ESOP).

Total value distribution (FY2008) Total value distribution (FY2009)

Distributions to shareholders

Shareholders have enjoyed significant economic benefit from the group. This continued in FY2009 when, despite the global financial crisis, Implats has continued to deliver a solid financial performance, albeit down on the prior year’s spectacular performance. Earnings per share and dividends per share (in South African rands) are shown in the graphs alongside, as well as the five-year and one-year share price graphs.

The group’s management participate in a share incentive programme. A further approximately 28 000 employees at Impala Platinum Limited (that is Impala Rustenburg and Impala Springs) and Marula Platinum participate in an ESOP that is designed to deliver long-term rewards to employees from the share price performance of the company, while at the same time minimising their risk. At year-end the value of the shares held by the ESOP showed 97% growth from the original price. This is compared with R3 billion at inception in 2006 and R5 billion as at the end of June 2009.

Political donations

Implats continued to abide by its policy of not making political donations, either directly or in-kind, and no donations were made during the year.

Significant legal issues

There were no significant legal issues either in progress or pending at year end.

Capital investment programme

Capital investment remains critical for the development and sustainability of the company. While Implats has been a significant investor in the PGMs industry in recent years, the current global economic downturn and market conditions have resulted in a reassessment of the capital expansion programme, given that demand for Implats’ products has declined in the past year. Nevertheless, processing capacity has been increased to 2.8 million ounces per annum at the current merensky to UG2 ratio and refining capacity to 2.3 million ounces of platinum per annum in line with the groups long-term plans, which will position the group to take full advantage of an economic upturn as and when this happens.

In FY2009, Implats spent R6.9 billion on capital programmes to maintain and increase production. These were:

  • Impala – maintenance expenditure of R2 billion at 16, 17 and 20 shafts and R900 million at existing operations (11,12 and 14 shafts).
  • Zimplats Phase 1 – expansion expenditure of R1 billion ($115 million).
  • Marula UG2 conversion – maintenance expenditure of R120 million.

The five-year programme to achieve platinum production of 2.1 million ounces by FY2014 has been revised in line with the group’s cash preservation programme. This will involve expenditure of R23 billion at all operations maintaining their production profiles.

The cash preservation programme involved reviewing the project pipeline, capital expenditure and operating costs. Given current market conditions it was deemed prudent to defer certain long-lead projects until market conditions improve. An in-depth analysis of the group’s five-year R30 billion capital expansion programme resulted in it being reduced by R7 billion. Development of the 16, 17 and 20 shafts at Impala Platinum will continue as will the Zimplats Phase 1 expansion. The latter is currently commissioning, with $39 million (R337 million) to be spent in FY2010, mainly on the concentrating facility and the provision of housing. Both the Marula Merensky programme and the Leeuwkop Project have been put on hold.

Headline earnings per share (SA cents) Dividend per share (cents) Group annual capital expenditure (Rbn)

Economic transformation

Implats remains committed to broad socio-economic transformation, both in South Africa and Zimbabwe. The Transformation Committee, a board sub-committee, is responsible for the targets and performance regarding transformation, which is actively monitored in three main areas, namely, ownership, procurement and internal transformation.

Black economic empowerment (BEE) ownership

Implats recognises that the transformation of the equity ownership of the company is a key strategic goal for the economic transformation of the societies in which it resides. In South Africa, the group has fully met the equity ownership objectives of the MPRDA. Implats’ BEE partners are drawn from a wide range of groups, from the significant stake in the group held by the Royal Bafokeng Holdings (RBH), to smaller BEE companies and community groups, to the 28 000 South African employees that hold a stake in the group’s ESOP. In Zimbabwe, Implats recognises that there is a local transformation imperative and remains in discussion with the Zimbabwean government on the optimal level of local ownership, without stifling investment.

Transforming the procurement base

In line with the requirements of the Mining Charter and in the interests of good business, Implats has in place a policy of preferential procurement which has as its basis the granting of preferential status to suppliers identified and accredited as being historically disadvantaged South African (HDSA) or qualifying as BEE candidates. The aim of this policy is to support and encourage the growth and business development of such suppliers.

Total group procurement for the year was R13 billion (FY2008: R10 billion), an increase of 32%. Total discretionary procurement* for the year was R9.1 billion, at 73% of total procurement (FY2008: R7 billion). Of the total discretionary spend, R4 billion or 45% was spent with vendors with BEE/HDSA ownership of greater than 25%, an increase of R1.3 billion on FY2008 (FY2008: R2.9 billion or 41%).

The group’s performance against the combined commitment of its SLPs continues to reflect a positive trend as reflected in the graph above. The SLP target in FY2008 was 34% and 36% in FY2009.

HDSA/BEE procurement (HDSA/BEE ownership > 25%) by commodity as a percentage of discretionary procurement (South Africa)
 FY2009FY2008FY2007
Capital22%19%13%
Consumables10%9%10%
Services13%13%14%
Total South Africa45%41%37%

* Discretionary procurement is defined as total procurement less procurement from public sector vendors (rates and taxes), utility service providers (electricity), academic institutions, pass-through payments (medical aid contributions, legal fees) and sponsorship vendors.

The group promotes the procurement from vendors within the province of operations (defined as local). See list of BEE/HDSA vendors on website at www.implats.co.za. Although the overall performance is constant, a special effort was made to increase the Marula local BEE/HDSA spend which resulted in an improvement year-on-year. Total local procurement in FY2009 was R5 billion (FY2008: R4 billion) or 43% of total procurement.

The most significant increase in BEE procurement was in the capital category which is attributed to a focused drive to increase the engagement of BEE contractors and suppliers in capital projects. This has been particularly effective in capital projects such as the housing and singles’ quarters upgrading programmes and BEE Housing Vendors (case study on website at www.implats.co.za). Of particular significance in the initiative has been the engagement of ten new BEE contractors for the housing projects, eight of which are locally-based. Expenditure with these companies rose from R15 million in FY2008 to R156 million in FY2009.

Local provincial procurement as a percentage of total procurement (all suppliers)
 FY2009FY2008FY2007
Impala Rustenburg42%42%43%
Impala Springs82%66%74%
Marula16%8%4%
Total South Africa43%42%44%

The number of preferred vendors with which Implats conducted business in FY2009 also continued to increase, rising by 12% to 733 (FY2008: 657). These increases contributed towards the improvement in total BEE/HDSA spend during the year.

Internal transformation

Internal transformation encompasses changing the demographic base of the group at all levels to more accurately reflect that of the regions in which it operates. This encompasses the recruitment, education and training and development of HDSAs and women in mining in particular. The targets set in terms of internal transformation (and procurement) align with those in the Mining Charter and its scorecard. Progress in this regard is reported in the Human Capital section of this document.

Corruption and fraud

In line with Implats’ values, employees, business partners, contractors and associates are expected to conduct themselves with the highest levels of integrity and in line with the company’s code of ethics. A zero tolerance approach is maintained against dishonesty, fraud, corruption, theft and misconduct. A detailed code of ethics underpins the group’s fraud policy, both of which are fully compliant with the Prevention and Combating of Corrupt Activities Act of 2004.

The executive and line management are responsible for the implementation of the fraud policy, code of ethics and the resultant procedures.

A number of allegations were reported through the Whistleblowers’ line, some were reported directly to senior management and Group Internal Audit. In line with the Fraud Policy, Group Internal Audit investigates all such cases and, for tracking purposes maintains a register. In FY2009, two allegations of tender fraud were investigated and confirmed resulting in the vendor contract being repudiated.

Allegations made and investigated by Group Internal Audit in FY2009
Allegations made ConfirmedDisciplinary
action taken
Tender fraud2*1
Sexual harassment1
Non-adherence to safety rules1
Conflict of interest1

*1 disciplinary hearing was still ongoing at the time of publication

Objectives

The group’s economic performance is a fundamental key towards sustainable development. Key strategic objectives include:

  • Increasing production to 2.1 million ounces by FY2014.
  • Ensuring that value continues to be added to a broad spectrum of stakeholders.
  • Continued roll-out of procurement programmes, with an emphasis on achieving both the Mining Charter targets and encouraging local entrepreneurial activity and transformation.
BEE consumables spend as a % of total consumable spend (South Africa) BEE services spend as a % of total services spend (South Africa) BEE capital spend as a % of total capital spend (South Africa) HDSA/BEE procurement spend >25% (South Africa) R million
Implats Sustainable Development Report 2009