Aquarius in the red as output tumbles

published 30 April 2012

It is always a struggle for platinum producer Aquarius to lure the workers back on time after Christmas and 2012 has proved worse than usual.

Attributable production for the group's fiscal third quarter - January to March, inclusive - decreased by 7% quarter-on-quarter to 97,802 4E (platinum, palladium, rhodium and gold) ounces, as the group was hit by seasonal absenteeism, safety stoppages, industrial action and poor weather conditions.

Although average platinum group metals (PGMs) dollar prices increased in the quarter the group notched up a loss before tax of $11.4m, versus a profit before tax of $38.5m announced at the corresponding state of last year,

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Earnings before interest, tax, depreciation and amortisation slumped to $2.2m from $76.6m, while revenue tumbled to $124.8m from $183.0m the year before.

Average PGM basket price per ounce achieved by Aquarius during the quarter fell to $1,251 from $1,519 in the corresponding period of 2011.

The average platinum and palladium prices rose by 5% and 8% respectively during the quarter. Rhodium fell by 8%, reflecting oversupply and the lack of an investment market for the metal, Aquarius said. Gold remained flat on average. Platinum closed the quarter up 17% at $1,640 per ounce, while palladium fell by 2% to $651 per ounce over the same period. The rhodium price finished the period flat at $1,400 per ounce and gold rose 6% to $1,664 per

ounce.

The average rand-dollar exchange rate strengthened during the quarter, rising by 4% from R8.10 to R7.76 to the US dollar, largely offsetting rises in dollar metals prices. The average rand basket price remained broadly unchanged quarter-on-quarter, but rose by 6% over the period.

Total cash cost of production was 5% higher at $114.7m compared to the first three months of 2011 despite an 18% decrease in PGM production.

Group cash stood at $207m at the end of the quarter, down from $230.1m at the end of 2011.

Singing a tune familiar to one sung at the time of previous results announcements, Aquarius's Chief Executive Officer Stuart Murray complained of unnecessary operational and regulatory headwinds which are occurring "against a backdrop of a pricing environment that remains relentlessly tough, with unabated on-mine cost inflation, little fundamental demand recovery and continuing volatility in financial markets."

The result of all these pressures is that margins are under severe pressure throughout the industry, and in Murray's view labour unions and the government need to start co-operating constructively with mining companies immediately "if the very sustainability of the platinum industry and the thousands of jobs it provides is not to be threatened."

Happily for Murray's blood pressure, there does seem to have been a decline in "Section 54" safety stoppages, although it is too early to call it a trend, Murray said.

"We remain pragmatic about our business and the industry at large. Each asset in our portfolio is required to generate a return to shareholders and to the extent that they do not, we will take action as appropriate to ensure sustainability and a return to profitability," Murray pledged.