Implats Puts $2 Billion Platinum Chips Down in South Africa and Zimbabwe as Industry Roils About Royalties

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Researched by Industrialinfo.com (Industrial Information Resources, Incorporated; Houston, Texas). The world's second largest platinum miner, Impala Platinum (Implats) (LSE:458063 ) (Johannesburg, South Africa), has announced that it is planning to spend about $1.9 billion through 2012 on maintaining and boosting its production levels in Southern Africa. At its main Impala mine, 170 kilometers northwest of Johannesburg, it will spend $1.1 billion to sink two new shafts, as the ore body is depleted in older shafts. The new shafts will use the latest technology leading to increased profitability. In order to keep production from this main mine at over one million ounces of platinum a year, there is a commitment to continue digging new shafts for the next 33 years.

Part of the funding for the shafts would come from a portion of the $668 million Implats gained from the sale of stakes in South African mines to Lonmin (LSE:3119248 ) (London, U.K.). Up to $350 million may be borrowed from banks by 2007.

Implats will buy $400 million of its own shares over nine months, using 60% of the Lonmin sale proceeds. Lonmin purchased Implats' 21.7% stake in two South African mines. Implats provided $16.5 million loans to black investors who are forming a company to hold 18% of the Lonmin mines.

For all its politico-economic problems Zimbabwe is still a country with great people and resource potential. The country's platinum reserves are the world's second largest after those of close neighbor South Africa. Implats may launch a plan by May 2005 to spend $750 million to boost production in the country 600%, over a ten-year period.

Implats' Zimbabwean production would reach 610,000 ounces, or 22% of the company's total, by 2014, which will represent an increase in the total output share of 15%, based on estimates for the end of 2005. The project's first phase, projected to cost $106 million, will double output at the company's Ngezi mine in central Zimbabwe to 150,000 ounces a year. Implats is relying on Zimbabwean output to fuel growth as South African mines are depleted. Implats' land in Zimbabwe, including a 50% stake in the Mimosa mine, holds as much as 180 million ounces of platinum.

Operating with a dollar-denominated income for exports, Impala, like many South African exporters, has to cope with a doubling of the South African rand's value against a weaker dollar over two years. It is also looking at the prospect of shedding 30% ($70 million) of its assets in Zimbabwe to black investors to comply with government guidelines. "The ability to fund a deal will be a concern in a small country like Zimbabwe," said Chief Executive Keith Rumble. "It's a big ask, but it could be done with the support of the Implats balance sheet."

With South African mining companies currently coping, fairly successfully, with the demands of black empowerment financing, a vigorous debate is ongoing with the government plan to impose a royalty scheme on the platinum and diamond industries. When first mooted, these production royalties were going to be 8% on unpolished diamonds, 5% on other precious stones, and 4% on platinum group metals. Following strong protests from the industries, it is considered likely that these rates will be cut back by a percentage point or two.

But following the publication of a bank study on the implications of royalties, the battle has been renewed. Ralph Havenstein, chief executive of the world's largest producer, Anglo Platinum (JSE:AMS) (Johannesburg, South Africa), is warning that platinum projects could be killed off by the royalty. He was concerned that royalties would be imposed on revenue, not profits, which would be detrimental for marginal mines and for new development. He also said that the strong rand and uncertainty about the currency's future performance also affected decision making for new projects, as did the delay in resolving the government's policy. Like Implats, Angloplat, currently has new platinum development projects in South Africa and Zimbabwe.

"With the strong rand, projects are closer the cusp in terms of whether you approve them. Businessmen like things to be certain so they can plan," said Havenstein. He added that some projects had lives of 20-30 years, which meant that the right decision needed to be taken from the start about their viability.

Even with the current debate, hotpoints such as the premium on lending corporate cash to enable black empowerment, the strong rand, royalties, and fears about taxation levels, major and junior international mining companies are picking about energetically on the Southern African platinum reefs. Johannesburg, South Africa's energetic rough-glitz commercial capital, which the late Harry Oppenheimer of Anglo American liked to wryly characterize as a 'mining village', is seeing plenty of comings and goings from North American, European, Russian, Australasian, Indian, Chinese and Southeast Asian senior government office holders and industry movers and shakers. As the gnarled South African farmers fighting drought and pestilence used to say,"We'll make a plan."

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