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Dear shareholder, It is my pleasure to present to you this report on a fourth great year in a row for your company. Last year, in recording record earnings and dividends, I rather conservatively forecast "A well positioned group, operating strongly and growing well in a firmer market suggests even better results next year". While all the good presumptions about the company did come to pass, the "firmer market" which eventuated surprised even the most bullish among us. The extent to which the automotive industry, with its over-dependence on palladium, was hostage to Russian ability to manage this market struck home during the year, resulting in frantic activity to secure supplies (and to build stock) at almost any price. Palladium, which historically has traded at about one third of the price of platinum, overtook it first in January 2000, going on a year later to peak, in January of this year at $1 100 per ounce (a premium of 66% to the ruling platinum price). Parallel activities by autocatalyst manufacturers to move back from palladium rich to platinum (and rhodium)-based catalysis gathered momentum during the latter part of the year. Confidence in these developments and firmer forecasts of future palladium needs resulted in substantial consumption of their own palladium stocks by the automotive industry, with correspondingly reduced buying levels in the free market. Palladium has “come off the boil”, as the market searches for its new equilibrium, and is now trading at a small discount once again to platinum. The platinum market was caught up in the sentiment surrounding palladium, and while this was great on the way up, it is not so much fun on the way down. The realities of the platinum market in its own right should re-assert themselves in the next few months. These centre around rising autocatalyst demand, and increased jewellery demand in China (as the dollar price falls), offset by weaker jewellery demand in an economically depressed Japan and growth in supply from South Africa. We anticipate these fundamentals supporting higher long-term prices than those seen in the current market. Implats has often been characterised in the past as “resource constrained”. While the ability of our Impala operations at Rustenburg to produce at one million ounces of platinum per year for many years to come is well known, the group’s growth strategy, some years in the building, is now delivering tangible results as follows:
The successes of this strategy are:
Of the business structures outlined above, owning and managing a complete orebody has the highest profit margins, but it is also the highest risk and the most capital intensive. The other businesses, from their lower profit bases, are equally dynamic when viewed from other perspectives such as return on investment. The major disappointment of the year was our safety performance. I regret to record the accidental deaths of 13 of our number during the year, an increase of six on the previous year. After two years in a row where our fatality frequency rate (0.09 per million man hours) met the international benchmark of Ontario standards, this slippage to 0.16 has shaken the organisation. Most perplexing is the fact that the underlying trend of our Lost Time Injury Frequency Rate has shown huge improvement from more than 20 two years ago, to 12.6 last year and 8.5 this year. The search for answers and for safer working conditions continues. Our deepest sympathies are extended to the bereaved. The financial disappointment of the year was the cost escalation at our Rustenburg operations. Although total Rand costs per ounce of platinum sold increased by a respectable 7% (just about equal to inflation) on-mine costs increased by 13% per ton milled and 16% per ounce of refined platinum. Most of this is rooted:
We are dismayed that counter-efforts and productivity improvements have not done more to contain the effects of the negative developments (as was the case over the preceding years). A complete review is underway. Putting together the steady production from Impala, the new production from Crocodile River, the concentrate bought in from other miners, the buoyant market conditions, the sparkling performance of Lonplats and the 20% depreciation of the Rand, we had a year where;
The challenges facing the group are the ongoing and obvious one of optimising our current productive base and, from there, continuing to develop and deliver the growth potential of the group. All this must take place within the ever-changing dynamics of the new South Africa. We have much to be proud of in our recent history in terms of labour relations, employment equity, adult education and social upliftment, but more is required. In particular, the draft Minerals Development bill has evoked much debate. Our input thus far to the Department of Minerals and Energy has been aimed at the production of good law, rather than challenging the “use it or lose it” provisions, where we are considerably less threatened than our competitors. The Royal Bafokeng Nation has taken issue with perceived threats in the draft Bill to their historical rights. While we fully support the Bafokeng position, it should be noted that, technically, the Bafokeng’s mineral rights, and Implats’ right to mine are two completely separate matters. To face all these challenges I am delighted to welcome Keith Rumble, who joined the group as Chief Executive and Managing Director at the start of our new financial year. Keith has joined us after a dynamic career with Rio Tinto, which in recent times has seen him move from being the Managing Director and CEO of Richards Bay Minerals to being the President and CEO of its parent company, Rio Tinto Iron and Titanium in Canada. Keith’s technical background and his experience in metalliferous mining and marketing position him well for success with us. The only change that occurred to the Board during the financial year was the departure due to poor health of Steve Kearney as MD and CEO in September last year. Although Steve indicated some time previously that there were health problems, his departure was unexpected. Over a 10-year period with Implats Steve rose from Consulting Engineer to MD and latterly to Chief Executive. He was at the very centre of the resurgence of Implats, and the Board wishes to record its appreciation of his contribution. The company was fortunate to have John Smithies to step into the gap caused by Steve’s departure. John, then Operations Director, had previously indicated his wish to retire early in 2001, but agreed to continue until a long-term appointee was found. John has now retired, with the thanks of a grateful Board for the stability, energy and focus he brought to the position, and for the finalisation of so many of the growth prospects that took place during his tenure. With both the platinum and palladium markets adjusting to structural shifts against a background of global economic uncertainty we can be fairly certain that these results will not be repeated next year. In all probability we will produce results quite a bit better than the previous year, which at that time was an all-time record high for Implats. This is impressive enough in itself. Based on the performance reported and anticipated, and in line with the more generous end of the dividend policy the Board has declared a dividend for the year of 6 800 cents, including a final dividend of 2 380 cents, payable on 4 October 2001.
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