Q4 2011 EASTERN PLATINUM LTD Earnings Conference Call
Mar 06, 2012 AM EST
Thomson Reuters StreetEvents Event Transcript
E D I T E D V E R S I O N
ELR.TO - Eastern Platinum Ltd
Q4 2011 EASTERN PLATINUM LTD Earnings Conference Call
Mar 06, 2012 / 06:00PM GMT
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Corporate Participants
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* Caroline Cook
Eastern Platinum Ltd - IR
* Ian Rozier
Eastern Platinum Ltd - President and CEO
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Conference Call Participants
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* Matt Murphy
UBS - Analyst
* Craig West
GMP Securities - Analyst
* Andrew Byron
Barclays Capital - Analyst
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Presentation
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Operator [1]
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Welcome to the Eastplats conference call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. (Operator Instructions) At this time, I would like to turn the conference call over to Caroline Cook, Investor Relations. Please go ahead.
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Caroline Cook, Eastern Platinum Ltd - IR [2]
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The information provided by Management on this conference call is derived from publicly available information filed under the Company's profile on SEDAR and may include forward-looking information. Forward-looking information is, by its nature, subject to risks and uncertainties. The Company's disclosure documents, including its AIF, should be referred to for a more detailed disclosure regarding the risks and uncertainties applicable to the Company and its operations. I would now like to turn the conference call over to President and CEO, Ian Rozier. Please go ahead, Ian.
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Ian Rozier, Eastern Platinum Ltd - President and CEO [3]
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Good day to you all, wherever you are. Thank you for attending Eastplat's conference call on Q4 2011and year 2011 financial results. I'll briefly go through these results and explain the salient points where I think necessary, then we'll put it open for questions. It goes without saying that it was a torrid year for ourselves, and indeed for the platinum sector as a whole. Our Q4 and financial results for the year 2011 basically reflect this. Just before I do go through those numbers, I should point out there was one error in the MD&A. Table 2 is actually incorrect. There was a transpositional error when that table got moved up over to our financial statement, so we'll be posting a revised Table 2. If any of you have picked up on that, I'm sure some of you will have done, please bear that in mind that there will be a new Table 2 put out. As I said before, the numbers reflect a poor year. One of the standout points, which I've had a lot of calls on this morning, has been the impairment charge of $46 million.
After delaying Crocette, and with our guidance for 2012 being lower, our NPV gets less than our book values, so we take a relatively small hit on that now. This is the same number for the quarter as for the year, as we only decided to do this write-down in Q4. I hope that explains that. As we look at those numbers, we interrogate as to why the financials look as they do. As outlined in the production updates throughout the year, this as a poor year that got progressively worse. The ounces sold decreased by 40% and that is the crux of it. As we look on quarter-on-quarter for 2010 and 2011 and we see a 40% reduction, that comes as a massive cost to us. The US dollar delivered price decreased by 12%. This is significant, but certainly by no means the whole story.
The Rand average delivered price is fairly negligible. The fact that, at total Rand operating cost decreased by 1%, in one sense, shows that we've taken care of some aspect of our business, but it really reflects the fact that production's down. So, the fixed costs stay the same. Rand operating cost net of byproduct credits increased by 93%, which is dramatic, and really emphasizes -- as with the dollar cost, it emphasizes the sensitivity of our business with respect to volume. It's volume-related.
We get our volume up, and all our unit costs come down quite dramatically. Certainly, between Q4 2010 and Q4 2011, this has been extremely well-illustrated with respect to the mining aspects of the business. In other aspects of operations, we were able to maintain constant mining width and keep add dilution under control, considering disruptions and new crews coming in and out, pre-post strike. We kept our grade control pretty -- I was happy with that. A concentrated recovery decreased in Q4. That's because it was very disruptive. We had the JIC strike as well, of course, the Section 54 because of the fatality, which I'll talk about in a little while.
With that goes the development meters decreased slightly, we're back up, but that was, again, part of being a very disruptive quarter. Talked about that in page 9 of the MD&A. When you look at the quarter, the stoping units decreased 40% and the run-of-mine hoists decreased by 38%, the run-of-mine process decreased by 41%. You can see there's a consistency there with respect to what we mined, what we hoisted, and what we processed. We basically pulled everything out that we mined, and we processed everything out that we hoisted.
The last note, in the quarter, after a lot of effort, the Lost Time Injury Rate improved to 2.61 compared to 3.88, and we're making constant efforts to work on this in conjunction with the DMR. But that good news partly reflects the reduction in operations for the year. So, I'm not going to take all of the credit for that as far as our operating goes, but of course this was all completely and utterly overshadowed by the fatality in November, again, discussed on page 9. There was exhaustive inquiry by the DMR and ourselves with respect to the culpability and liability for that. After that investigation, it all fell on the independent contractor. But, nevertheless, it was a bad event, and very regrettable, and we've taken steps, along with the DMR, to make sure there's more control and supervision over independent contractors, as qualified as they may be.
At the end of the year -- the end of the quarter and year, we earned up with $250 million, and a $100 million difference from a year ago, as explained in our financials. I just want to give you a breakup of the -- if you look quarter-to-quarter, and you look at our operating cash costs for Q4 2011 will account to $1,291, as discussed in the news bullets. Then you look at our operating cash costs from Q3 2011, quarter-on-quarter then, and we have a slight increase in Rand operating costs, we have an inflation number worth about $11 an ounce. We have other bits and pieces, but the big number that we estimate is that our 26.3% decrease in production ounces is worth approximately $380 an ounce.
So you look at the $1,291 number and you can see there's a dramatic difference between producing 30,000 ounces in a quarter and 20,000 ounces in a quarter, and would take our cash costs per ounce down below $900. Very dramatic and yes, there are other impacting factors on it -- decreases, increases in power costs throughout the year, appreciation of the dollar exchange rate, but the big factor is the decrease in production. We get our volume up, our costs come screaming down. The arithmetic is quite simple.
We go on to the year. The year numbers, again, I've explained my comments in the Q4 discussion with respect to the write-down, and the other financial numbers there are for everyone to see. We interrogate those numbers for year-on-year and see why, again, 30% decrease in production, a dramatic, very poor start to the year. We had -- with attendance within an extremely disruptive strike that effectively cost us 50% of our production for probably three months, or however you want to calculate it. It was extremely disruptive. We then incurred a second labor disruption for 50% of the mine's labor component when the contractor's labor union went on strike in the last quarter. Then, of course, we had a Section 54 shutdown and that is for over a week.
Unfortunately, with a small mine, we designate it as only being a one-shaft operation, because we only have one person with a 4.1 designation. When there's an accident in our mine or a fatality or any infraction serious enough for a Section 54, the entire operation gets shut down. The only issue we have with it is it's taken week to 10 days to investigate this and get a result back. I do note that other mining executives have been very critical of the length of time it's taken for this process to unwind. As opposed to shutting down a section, or one area, or one specific aspect of your mine. As I say, we have to shut the entire operation down, but it's the length of time it takes, and in this case, it was a 10-day loss of production for the entire mine, dramatic.
US dollar price per ounce increased 8%. This is not considered to be too significant considering the other issues we had to face in 2011 and similarly, the delivered price per PGM ounce increased 6%. This is fine, but all our issues come down to production volume. The Rand operating cost increase, again considering the drop in value production, we're able to keep a lid on costs, but not significant. We move on, and as in with the Q4 discussion, all of these number reflect effectively lost production volume. Whether it's quarter-on-quarter, or quarter-on-quarter from the previous year, or year-on-year, that's our main issue. Again, the stoping units decreased 28% year-on-year reflected these reduction losses reflected in the run-of-mine hoist at 29%, run-of-mine processed decreased by 29%. You can see that what we mined we hoisted, and what we hoisted, we processed, but none of it was good enough.
With respect to safety on the year 2011, again our efforts to improve on our Lost Time Injury Frequency Rate were pretty good. We improved to 1.46 compared to 3.32 in the 12 months of 2010, but again, the fatality as reported in November was a major blow for us. This came after 3.8 million fatality-free shifts. Not that we, certainly, have not been getting a pass by the DMR by any means and their lengthy investigation to this accident resulted in a lot of lost production. There's been a lot of comment in the press and by other execs about the DMR's push on safety, but it is what it is, and we're not going to change it. We've certain borne the brunt of that, and it cost us a lot of production. We will, let's say, continue to strive on that. We were doing well. We were happy, relatively so, with at least the rate of improvement, and like I said, one fatality knocked all that out of the air. I think that's it for the results.
I just do want to say that, with respect to other things that are not in the release, but were in the MD&A, certainly, our development's on track at Zandfontein. A lot of analysts went down in February and saw a lot of new underground ore and waste handling systems on 3 and 4 level, they've looked at the new conveyer deep line required to mine between 5 and 9 level that's making good progress. At Maroelabult section, the deep line development conveyer installation's proceeding and basically, that mine life's been extended. The mine development at Crocette, as you all know, was suspended. Basically in precedence to Mareesburg, where that project is coming along fine. Side catcher, earth work's done, mass earth work's done, silos are being poured, and people that went there in February I think were fairly impressed. They'll certainly be very impressed in two or three months time because it's already starting to come out of the ground at quite a rate of knots. We're optimistic on that one.
I know there's a lot of discussion about whether people should be pulling in their horns, and not developing, and not adding production in difficult markets. I'm sure this will come up in question time, but our point is that it enables to us double production fairly quickly, and by the time that's in production in 18 months' time going full belt. We'll start before then, but the time we start really seeing ounces out there, we think we'll be selling into a recovering market, and that's our philosophy on the development of the Mareesburg project. I'm going to throw it open for questions now. I'm sure there'll be other questions on general operating conditions in South Africa, et cetera. I'll just field those as they come up, rather than try and guess what those questions are going to be. I'd like to throw it open to questions now, please.
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Questions and Answers
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Operator [1]
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(Operator Instructions) Matt Murphy, UBS.
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Matt Murphy, UBS - Analyst [2]
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Ian, you made reference to your Q3 costs relative to this quarter. Just wondering where you think you can get to in 2012? Are you aiming for a Q3 2011 level, or do you think that you can beat that if production performs?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [3]
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We're certainly aiming for it. The arithmetic is actually -- is quite straightforward; it depends on ounces. If we get -- the difference between 130,000 ounces a year and 100,000 ounces a year is very dramatic as far as operating costs go. We can get our production costs up, we can get back down to $700 an ounce. That's why I use those numbers in that. You look at net back after chrome, we can get this down to below $700, if we were doing 130,000 ounces a year, or 30,000 ounces a quarter.
Yes, we are targeting, we are aiming for that, and we're going to try our best to get there. Every ounce we get out of the ground takes our unit costs down. But there are challenges, there's no doubt about it, and most of that's based on prices. Certainly, even in the last two weeks, we've seen dramatic prices come down from almost $1,800 to $1,600. Tough business to operate in when you've got those sort of fluctuations in costs, but we feel that on current prices, if we can get our production back up to an order of 125,000, 130,000 ounces this year, certainly our costs can come down in the net cost in the $700 range.
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Matt Murphy, UBS - Analyst [4]
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So far this year, have you seen much in the way of production impacts from power or from labor after Christmas holidays, or any ongoing inspections or anything?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [5]
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I can't speak for the quarter. I can say that we had a probably better Christmas period than we've ever had, and certainly, I was relatively happy with our January. Certainly relative to last year, when I was very unhappy with our January. However, the Impala issue has affected everyone. I'm certainly not putting excuses up, it's just a flat-out fact that when you fire 17,000 workers, everyone that was coming from Rustenburg went to work for Impala. Yes, they are only taking 15,000 back, and theoretically there should be 2,000 people on the market, but the question is -- are they the right people? They went on a very, very aggressive hiring binge after that, and it's affected everyone in the area.
So, again, February was difficult because of attendance, and again, it was fairly disruptive in the region. We didn't actually incur any direct industrial relations issues, but absenteeism went up as a result, and certainly we lost some people to that. Unfortunately, our good January will probably be affected by what went on in February with respect to some lost labor, with respect to sort of a general attitude in the workplace of uncertainty and possible disruption. It wasn't a good February for the industry. It's been very, very public out there what's been going on.
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Matt Murphy, UBS - Analyst [6]
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Definitely. Okay. Thanks for that.
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Operator [7]
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(Operator Instructions) Craig West, GMP Securities.
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Craig West, GMP Securities - Analyst [8]
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Ian, I may have missed it in your comments there, just wondering on the timing and quantity of production you expect to see coming out of Mareesburg, when do we get first ounces there?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [9]
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We're scheduled to start opening it at the end of Q4, but realistically it's going to be Q1 2013. We should see ounces, some contribution, at the end of the first quarter, but negligible. By the end of 2013, however, we hope to see approximately 50,000 or 60,000 ounces contributed from Mareesburg, and that's being realistic. As much as it's a quick ramp-up, we will not get a full year's production out of there.
We'll start mining this Summer, but we won't have a real contribution in ounces, because much of that will be stripping the waste at the end of sort of July/August time. We may see some contribution in the first quarter, but realistically I'm anticipating about 60,000 ounces next year, lifting to probably over 85,000 the year after.
I think, we'll get up to a 100,000 ounces at the mine, but with past guidance being a bit off track, I'm reluctant to say we're going to jump in and get a full year's production. But we will have, on start-up in the Q1, we'll probably have 100,000 tons on the stockpile, so we do want to get a little jump start, but nearer the time, I'll be able to be a bit more confident about that. I'm not doubting that we'll do that at all, I'm just trying to be a little bit conservative about my outlook.
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Craig West, GMP Securities - Analyst [10]
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We saw you guys spend about $80 million or $90 million this year on property, plant and equipment. Can you quantify for us how much of that was at Mareesburg? I'm assuming the bulk of it, and then, what do you see spending through 2012?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [11]
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As of the end of the year, there was about $35 million to $40 million spent on the Eastern limb all told.
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Craig West, GMP Securities - Analyst [12]
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Okay. Through 2011?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [13]
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Correct.
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Craig West, GMP Securities - Analyst [14]
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What do you expect to spend there this year? The rest of it? I mean, if it's going to be mostly done, and up and running by Q4 --?
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Ian Rozier, Eastern Platinum Ltd - President and CEO [15]
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You'll probably see about [$225 million to $240 million] probably in total, so that's the numbers we're looking at. We're on budget, and we're on schedule, but fingers and toes.
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Craig West, GMP Securities - Analyst [16]
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All right. Thank you, guys.
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Operator [17]
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(Operator Instructions) Andrew Byron, Barclays Capital.
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Andrew Byron, Barclays Capital - Analyst [18]
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Unfortunately, he's just beaten me to my question on CapEx, and just a confirmation of the split-off on that. But best of luck for the next 12 months.
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Ian Rozier, Eastern Platinum Ltd - President and CEO [19]
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Was that a question, or did you say I answered your question, Andrew?
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Andrew Byron, Barclays Capital - Analyst [20]
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Yes, exactly, it was the second question there, just on CapEx.
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Ian Rozier, Eastern Platinum Ltd - President and CEO [21]
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Yes, and thanks for your kind words there. Look, 2011, on all fronts -- for the sector, for the industry, and you know better than I do, there's a lot more press down in South Africa on the other companies that are having a torrid time. And as one senior analyst in South Africa said to me recently -- your glass is very much half full when compared to some of the other companies. I don't get any joy out of the situation, because I've got my own problems.
Whenever I speak to the other execs, we've all got the same issues basically, and we're all hoping for a more stable -- if we can get some stability in the workplace, we can push out the ounces. The exchange rate and the European car markets, et cetera, are beyond us, but some stability in the workplace to bring our costs down would help, and we're all hoping for a better year this year. Thank you.
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Operator [22]
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There are no more questions at this time. I will now turn the call back over to Ian Rozier for concluding remarks.
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Ian Rozier, Eastern Platinum Ltd - President and CEO [23]
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Thanks, everybody, for attending the call. If there are further questions, don't hesitate to e-mail me. As I said, there will be a revised table put out for those of you that spotted an error on that page.
As I've said a couple of times, we look forward to a better year. We've got money, we've got an insurance policy in our line of credit, if you'd like, for our projects. We've got no debt. We are growing. We're going full-steam ahead on Mareesburg. We're committed to doubling our production from 2011 by the end of 2013. We're probably the only company that's a lot smaller obviously, but we're looking at doubling our production. And we hope to come out of this, as we did -- we came and muscled our way through the 2008, 2009 period, and came back storming, and I'm confident we can get it back to where we should be this year.
As I've said before, if we get our production up and you see our production numbers coming back, the arithmetic's quite straightforward; it's not difficult to work out how the production numbers affect our costs. That is the prime issue, if you like, parameter, that we have to be judged by. We look forward to a good year, and I'll talk to you again at the Q1 2012 financials that should be out in mid-May. Thanks, everybody. Good day.
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Operator [24]
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Ladies and gentlemen, the conference is now concluded. You may disconnect your telephone. Thank you for joining, and have a pleasant day.
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