(2010: $837 m)
Share of group
(2010: $1,624 m)
Group strategy actions
Investing – in world class assets in the most attractive commodities
Platinum has a variety of new and stay-inbusiness projects designed to keep the company at the forefront of world primary platinum production. In December 2011, approval was given to Phase 5 of the Bathopele project, while during 2012, Phase 4 should reach its nameplate capacity of 65 kozpa of refined platinum. In Zimbawe, Unki is on track to produce 70 kozpa by the second quarter of 2013, about a year ahead of schedule.
Organising – efficiently and effectively
Comprehensive risk management, standards and mechanised mining reviews are being conducted across all of Platinum's managed operations in pursuit of the goal of 'safe profitable platinum'.
Operating – safely, sustainably and responsibly
Against a disappointing safety performance in 2011, we are redoubling our own efforts in the safety field, as well as continuing to work closely with the government and the trade unions, in the pursuit of zero harm.
Employing – the best people
Complementing the renewed thrust on safety training, Platinum is providing training to ensure that all project staff and contractors are steeped in the company's Projects Way of working.
|US$ million (unless otherwise stated)||2011||2010|
|Net operating assets||11,191||13,478|
|Share of Group operating profit||8%||9%|
|Share of Group net operating assets||25%||31%|
Our Platinum business, based in South Africa, is the world's leading primary producer of platinum, and accounts for approximately 40% of the world's newly mined production of the metal. Platinum mines, processes and refines the entire range of platinum group metals (PGMs): platinum, palladium, rhodium, ruthenium, iridium and osmium. Base metals such as nickel, copper and cobalt sulphate are important secondary products and are significant contributors to earnings.
Platinum's operations exploit the world's richest reserve of PGMs, known as the Bushveld Complex, which contains PGMbearing Merensky, UG2 and Platreef ores. Access to an excellent portfolio of ore reserves ensures Platinum is well placed to be the world's major platinum producer for many years to come.
Platinum wholly owns 10 mining operations currently in production, a tailings re-treatment facility, three smelters, a base metals refinery and a precious metals refinery. Concentrating, smelting and refining of the output are undertaken at Rustenburg Platinum Mines' (RPM) metallurgical facilities.
Platinum's 100% owned mining operations now consist of the five mines at Rustenburg Section – Khomanani, Bathopele, Siphumelele, Thembelani and Khuseleka; Amandelbult Section's two mines, Tumela and Dishaba; as well as Mogalakwena and Twickenham mines. Union Mine is 85% held, with a black economic empowerment (BEE) partner, the Bakgatla-Ba-Kgafela traditional community, holding the remainder. The Unki mine in Zimbabwe is currently wholly owned pending the outcome of negotiations with the Zimbabwean government in respect of Unki's compliance with the Indigenisation and Economic Empowerment Act.
Platinum also has 50:50 joint ventures with a BEE consortium, led by African Rainbow Minerals, at Modikwa platinum mine; and with XK Platinum Partnership in respect of the Mototolo mine. In addition, Platinum has 50:50 pooling and sharing agreements with Aquarius Platinum covering the shallow reserves of the Kroondal and Marikana mines. Platinum is in partnership with Royal Bafokeng Resources, and has a 33% shareholding in the combined Bafokeng- Rasimone platinum mine (BRPM) and Styldrift properties. Platinum, through RPM, holds 12.6% of RB Plats' issued share capital.
During 2011, Platinum announced a R3.5 billion ($430 million) community empowerment transaction aimed at providing equity ownership to mine host communities that had not previously benefited from other broad-based BEE transactions.
PGMs have a wide range of industrial and high technology applications. Demand for platinum is driven primarily by its use in autocatalysts to control emissions from both gasoline and diesel engine vehicles, and in jewellery. These uses are responsible for 70% of total net platinum consumption. PGMs, however, have a wide range of other applications, predominantly in the chemical, electronic, medical, glass and petroleum industries.
The platinum jewellery market requires constant promotion and development. Our Platinum business is the major funder and supporter of the Platinum Guild International (PGI), which plays a key role in encouraging demand for platinum and in establishing new platinum jewellery markets. Since 2000, China has been the leading platinum jewellery market, followed by Europe, Japan and North America.
Industrial applications for platinum are driven by technology and, especially in the case of autocatalysts, by legislation. With the rapid spread of exhaust emissions legislation, more than 94% of new vehicles now have autocatalysts fitted. The intensifying stringency of emissions legislation will drive growth in PGM demand.
Palladium's principal application, accounting for about 45% of demand, is in autocatalysts. The metal is also used in electronic components, dental alloys and, more recently, has become an emerging jewellery metal in markets such as China. Palladium demand is expected to continue to increase in 2012, particularly given the volume of gasoline vehicles being produced by emerging market countries such as China, India and Brazil.
Rhodium is an important metal in autocatalytic activity, which accounts for nearly 80% of net demand. Increased stocks of rhodium in the autocatalyst sector, coupled with increased supplies from South Africa, are likely to keep the market in surplus in the short to medium term.
Strategy and growth
Our objective is to maintain Platinum's position as the leading primary producer of platinum. We are doing so in two principal ways: first, through managing costs as a priority, by improving productivity, increasing efficiency and through the effective management of supply chain and procurement costs; secondly, through continuing to develop the market for PGMs and to expand production into that growth opportunity.
During 2011, unit cost management proved to be challenging, though costs were contained at R13,552 per equivalent refined platinum ounce. Unit costs are expected to increase with inflation in 2012. Productivity is expected to increase from 2011 levels of 6.32m2 to an average of 6.8m2.
Platinum's strategic plan, based on our current view that the market will be adequately supplied, should improve the company's cost position, taking it from the upper half to the lower half of the cost curve. Platinum is steadily improving the reliability of its production capability and continues to entrench cost management throughout the business as a long term and sustainable culture. This will help ensure that Platinum is well positioned to extract optimal value from its assets as the market recovery continues. At the same time, there will continue to be an unremitting focus on safety as Platinum pursues its zero harm objective.
Project capital spend is now directly related to long term ounce requirements. This has led to a reduction in the rate of spend, and all previously deferred projects have been reviewed and are now incorporated into the business's growth for value strategy. Platinum aims to spend R8.8 billion ($1.1 billion) of capital in 2012, excluding capitalised interest. Platinum is involved in developing mining activity for PGMs on the Great Dyke of Zimbabwe, the second largest repository of platinum after the Bushveld Complex. We are focusing exploration work in Zimbabwe on new projects in the Great Dyke, as well as establishing extensions to the Unki resource base for potential future projects.
Platinum recorded an operating profit of $890 million, a 6% increase, mainly due to an 8% rise in the average realised basket price. This was offset by above inflation labour and power costs.
Sales volumes of refined platinum were 3% higher than 2010 at 2.6 million ounces.
The average dollar realised price for platinum was $1,707/oz in 2011, a 6% increase compared with $1,611/oz in the prior year. The average realised prices for palladium and rhodium sales were $735/oz (2010: $507) and $2,015/oz (2010: $2,424), respectively. The average realised price on nickel sales was $10.50/lb (2010: $9.70). The overall average realised dollar basket price was 8.3% higher at $2,698 per platinum ounce sold.
The global platinum market displayed resilience in 2011, with muted growth in autocatalyst and jewellery demand, a strong increase in industrial demand and significantly lower investment demand. Gross platinum demand remained unchanged in 2011, while a small increase in recycling and a 5% increase in mined supply resulted in the platinum market remaining in balance.
The palladium market in 2011, however, saw a 19% supply surplus in the year, as significant declines in jewellery and investment demand were only partly offset by the solid increases in demand for palladium in autocatalysis and industrial applications. The rhodium market saw its fourth consecutive surplus as recycle volumes remained high.
Platinum continued to work with industry partners and stakeholders to develop the platinum markets to maintain existing and develop new industrial applications and, through the PGI, maintain the health of jewellery markets.
Demand for light vehicles increased by 1% in 2011 to 75 million units. Vehicle production was constrained by the earthquake and tsunami in Japan and by flooding in Thailand. Vehicle production in Europe increased by 3%, buoyed by Germany and export markets. Gross autocatalyst demand for platinum increased by 2% to 3.15 million ounces and for palladium by 5% to 5.8 million ounces. Autocatalyst demand for rhodium was slightly lower year-on-year at 705,000 ounces.
Gross industrial demand for platinum reached a new record high of 1.96 million ounces, largely due to growth in the glass and petroleum industry. Wider application of process catalysts in the chemical industry saw platinum demand increase proportionately higher than the corresponding increase in chemical demand. High growth in fuel cell units continued in 2011, driven by stationary applications. Palladium process catalyst use for plastic bottle feedstock increased as new capacity increased. Rhodium content in rhodium/ platinum catalysts for glass manufacturing increased owing to low rhodium price levels.
Platinum jewellery demand increased 2% in 2011, despite higher average prices during the year. Platinum and gold price volatility increased in the last quarter of 2011, and the platinum price fell below that of gold. This resulted in consumers preferring platinum over gold, and in China the increased platinum demand improved retail profits, leading to an increase in the number of new retail stores that, in turn, led to increased platinum stockholdings and sales.
Ongoing macro-economic uncertainty continues to dampen investment sentiment and in the last quarter of 2011, platinum and gold suffered the consequences of the risk averse trades by global investment and hedge funds. Although there was little change in physical demand for platinum, the increased platinum trading liquidity greatly exaggerated the consequent fall in the platinum price. Since then, reduced investor participation, particularly by gold investors who previously held both metals, continues to keep the platinum price at depressed levels, with the rand basket price currently below the incentive price of the majority of production. Trade in non-visible or over-the-counter metal continues to have a material impact on short term prices while higher levels of price volatility are expected in 2012, with a bias to higher prices if investment sentiment improves.
Twelve employees lost their lives during the year, a very disappointing performance. We extend our sincere condolences to their families, friends and colleagues. Platinum had 81 Section 54 Department of Mineral Resources safety stoppages in 2011, compared with 36 in 2010. Platinum is continuing to work with government and labour departments towards zero harm.
Equivalent refined platinum production (equivalent ounces are mined ounces expressed as refined ounces) from the mines managed by Platinum and its joint venture partners totalled 2.41 million ounces, a decrease of 3% compared with 2010.
Wholly owned mines (including Union and Western Limb Tailings Re-treatment) produced 1,601,600 equivalent refined platinum ounces, in line with the prior year. A strong performance from Mogalakwena and Unki was offset by lower volumes from the Rustenburg, Tumela and Dishaba mines. Unki was delivered successfully, on schedule and within budget, in January 2011 and contributed 51,600 additional equivalent refined platinum ounces. In addition, Mogalakwena, a low cost open pit mine, continued to perform strongly. Mogalakwena mine increased production by 18% owing to a 12% improvement in 4E built-up head grade, a 4% increase in tonnes milled and a 16% improvement in recoveries at the North concentrator during the second half of 2011.
Refined platinum production of 2.53 million ounces for 2011, was 2% lower than in the prior year.
Capital expenditure for 2011 was $970 million, of which $451 million was spent on projects, $443 million on stay-in-business capital and $76 million on waste stripping at Mogalakwena.
Project capital expenditure for the year related mainly to the Twickenham project ($95 million), Mortimer furnace upgrade ($58 million), Thembelani 2 shaft replacement project ($57 million), Unki ($40 million), the Base Metals Refinery 33,000 tpa nickel expansion project ($34 million), and the Khuseleka ore replacement project ($25 million).
The Unki platinum mine project was handed over to operations in January 2011, and had reached steady state production of 120,000 tonnes milled per month during the fourth quarter of 2011, a year ahead of schedule. The Base Metal Refinery 33,000 tpa nickel expansion project has produced its first metal in line with expectations and reached steady state production during the fourth quarter of 2011 as planned.
Growth in platinum demand is expected to be driven by increased global vehicle production, ongoing tightening of emissions legislation and strengthening jewellery demand. Primary supply challenges are expected to escalate during 2012, with increased risk of supply disruptions from power shortages, industrial actions and safety stoppages in South Africa. The ongoing constraint on capital investment posed by low prices continues to limit South African output growth and 2012 may exhibit the compounding effects of similar capital constraints in recent years.
Consequently, Platinum expects the platinum market to remain in balance in 2012. We believe the expected growth in demand for platinum and the ongoing challenges faced by platinum miners will be key drivers of the recovery in the price in 2012. Platinum plans to refine and sell between 2.5 and 2.6 million ounces of platinum in 2012, subject to market conditions. In 2011, Platinum had forecast growth to 2.7 million ounces in 2012; however, given the current circumstances, the forecast has been reduced. Although the 2012 sales volume target is unchanged from that achieved in 2011, Platinum believes this is an appropriate level to meet forecast demand.
Platinum maintains a relentless focus on mitigating industry-wide cost pressures, primarily through an increase in production volume from our underground mines, and an increase in utilisation of smelting and refining capacity through the introduction of some secondary material. This will be assisted by reducing the labour complement through mechanisms that avoid retrenchment, adjustment of overhead and shared services labour to the needs of the business, freezing of all recruitment in non-production jobs and the continued focus on asset optimisation and supply chain management, benefiting from Anglo American's global initiatives.
Platinum's project ranking and prioritisation to focus on less capital intensive projects in the near term is expected to reduce capital expenditure for 2012 from $1.16 billion to up to $1.10 billion, excluding capitalised interest.