ARM Platinum’s interests comprise:
ARM Platinum manages and operates the Two Rivers Platinum Mine and participates in the joint management of the Modikwa Platinum Mine and the Nkomati Mine through their joint management committees.
ARM Platinum’s individual operations performed well in the year under review, with the continuing ramp-up at the PGM operations delivering into an exceptional PGM market. This was complemented by continuing strength in base metal prices, notably copper and nickel. ARM Platinum’s attributable PGM production for F2007 increased by 52.9% to 264 400 ounces of PGMs.
A highlight of the year was the start-up of production at Two Rivers Platinum Mine one month ahead of schedule, and R187 million (12%) under budget, with some 225 000 tonnes per month milled. At Nkomati Mine ARM has commissioned the 100 000 tonnes per month MMZ concentrator ahead of schedule. With the tailing-off of production from the Massive Sulphide Body (MSB), ARM’s focus at the Nkomati Mine will be on transforming the operation to a low–grade high volume MMZ operation.
Modikwa Platinum Mine recorded 2 million fatality–free shifts during the year, an excellent achievement for a mine in start–up. At Two Rivers Platinum Mine, an outstanding safety achievement was reported, with a lost time injury frequency rate (LTIFR) of 3.7 per million man–hours worked. Sadly, this was marred by the death of an employee during the year in a fall of ground accident. The Nkomati Mine, too, turned in a good safety performance with an LTIFR for the financial year recorded at 0.85 per million man–hours. Nkomati Mine was also declared the winner of the internal “Excellence in Safety” competition for F2007.
Total capital expenditure for the year amounted to R1 066 million:
At Modikwa Platinum Mine R204 million was spent on the deepening of the North Shaft; ore reserve development; and replacing ageing trackless fleet equipment. At Two Rivers Platinum Mine capital expenditure was mainly to complete the development of the mine.
The markets for our basket of PGMs continue to be fuelled by supply–side shortfalls. The sustained drive for clean energy, and the use of PGMs in autocatalysts continues to grow reflecting the growing demand from heavy duty diesel vehicles, especially in the USA and Europe. ARM believes that the strong market trends will persist for PGMs, particularly with the previously mentioned supply–side shortfalls and the slower than expected start–ups of many junior companies who have entered the PGM market. The softening in the nickel price towards the end of the reporting period reflects the market moving into surplus; however, the company anticipates that nickel prices will remain well above their long–term mean pricing levels, assisted by the strong growth in stainless steel supply requirements, in particular China and India.
In F2007, Modikwa Platinum Mine treated 2.32 million tonnes and produced 274 174 ounces of PGMs at R467 per tonne milled. The lower output (F2006: 293 000 ounces PGMs) is largely attributable to industrial action in the first quarter of the calendar year, resulting in 24 days’ production losses in January and February of this year, and interrupting the steady build–up of production during the second half of the financial year.
After lengthy negotiations, both the National Union of Mineworkers (NUM) and the United Association of South Africa (UASA) signed off a working conditions agreement in May, and continuous operations (including Sunday work) were resumed shortly thereafter. This industrial action caused production shortfalls from February through to June 2007.
Owing to the lower output, unit cash costs were negatively affected, rising from R398 per tonne to R476 per tonne in F2007. In spite of the production shortfalls, revenues were up by 32% year–on–year, largely a function of favourable metal prices and exchange rates.
|Cash operating profits||Rm||923||360||156|
|Head grade (4E)||g/t||4.37||4.28||2|
|PGMs–in–concentrate||oz||274 174||293 313||(7)|
|Average basket price||R/kg||277 701||183 537||51|
|Cash cost||R/Pt oz||8 917||7 551||(18)|
|Cash cost||R/PGM oz||4 037||3 394||(19)|
|Headline earnings attributable to ARM (41.5%)||Rm||181||42||331|
The steady improvement in production is expected to continue in F2008,meeting targets in the first half of the F2008 year and achieving steady–state by the end of the financial year.
Capital has been provided for the deepening of the North and South Shafts to sustain production at 240 000 tonnes per month in the medium term. Merensky trial mining is scheduled to continue at 10 000 tonnes per month in F2008. At the same time a conceptual study has been approved which will investigate an increase in the size of the mine in a modular and incremental manner.
The past financial year saw the start–up of production at Two Rivers Platinum Mine in August 2006. A total of 2.04 million tonnes were milled during the year with a mill head grade (6E) of 4.24g/t yielding 184 099 ounces of PGM concentrate. Two Rivers Platinum Mine generated good revenues, largely attributable to the exceptional metal prices achieved during the year. Costs were positively affected by the utilisation of the lower cost start–up stockpile of 1.1 million tonnes at the F2006 year–end. By the end of June 2007 the stockpile had reduced to 162 000 tonnes of lower grade ore.
Total cash costs at R392 million were well controlled in relation to production volumes and translated into unit costs of R192 per tonne milled. When excluding the stockpiled tonnages cash costs were R306 per tonne milled. During the year production was interrupted when contractor mining employees went on strike, which saw 14 days of lost production. The ramp–up resumed, however, after new employees were hired.
Ongoing ramp–up continues, and by the end of the first half of F2008, the Main Decline is scheduled to reach 185 000 tonnes per month; the North Decline is on track to produce 40 000 tonnes per month in the first quarter of 2008. The North Decline has intersected reef and is slightly ahead of schedule.
After wet commissioning of the concentrator plant in July 2006, the plant is operating at its design capacity of 225 000 tonnes per month, while further optimisation at the plant could see throughput increasing.
|Cash operating profits (9 months)||Rm||945|
|Head grade (6E)||g/t||4.24||–|
|Average basket price||R/kg||316 260||–|
|Cash cost||R/Pt oz||4 458||–|
|Cash cost||R/PGM oz||2 129||–|
|Headline earnings attributable to ARM (55%)||Rm||280||–|
The focus on project capital investment has shifted to operational sustaining capital. The North Decline is the last large–scale capital item which should be completed next year at a capital cost of R231 million. Capital expenditure in F2007 for the North Decline amounted to some R186 million. With the continuing ramp–up, production should continue to grow in F2008. A slight decline is expected in the head grade owing to the reef mix mined.
During F2007 Nkomati processed 318 000 tonnes translating into 4 418 tonnes of nickel and 46 101 PGM ounces in concentrate at a negative cash cost, after by–product credits of US$1.10 per pound. The lower nickel production is largely owing to the lower grades and the tailing off of production from the MSB, which is almost entirely depleted. Nevertheless, revenues were 57% higher year–on–year at R1.4 billion, owing mainly to the positive price environment for all the commodities produced. Chrome contributed R214 million to revenues.
The unit mining cost increase to R503 per tonne milled was attributable largely to the impact of scattered mining used to extract the last remaining remnants of the MSB. The US Dollar per pound nickel cash cost produced an increased credit to US$1.10 per pound as the negative impact of the on–mine cost increase was more than offset by strong PGM and copper prices. Chrome fines stockpiled at year–end amounted to 673 000 tonnes.
|Cash operating profit||Rm||1 011||547||85|
|Tonnes milled||000 t||318||373||(15)|
|Head grade||% ni||1.57||1.89||(17)|
|On–mine cash cost per tonne treated||R/t||503||392||(28)|
|Cash cost (net of by–products)||US$/Ib||(1.10)||(0.36)||206|
|Nickel||t||4 418||5 616||(21)|
|PGMs||oz||46 101||49 437||(7)|
|Copper||t||2 788||3 398||(18)|
|Chrome ore sold||t||584 177||–||–|
|Headline earnings attributable to ARM (50%)||Rm||337||185||82|
The Large Scale Expansion Project was approved subsequent to the financial year–end. (Refer below for more detail.) Build–up of production, in line with the interim plan, continues. Chrome mining will continue for a period of four years. Nkomati’s exploration activity also continues. Nickel output is likely to increase in the next financial year, while PGM production is expected to be maintained at current levels.
In September 2007, ARM and Norilsk Nickel approved the release of the R3.2 billion (US$445 million) Nkomati Phase 2 Large Scale Expansion Project to increase average annual nickel production to 20 500 tonnes per annum from 5 500 tonnes per annum and to extend the life of mine by 18 years to 2027.
The Phase 2 Large Scale Mining Expansion will exploit two zones of the large layered polymetallic disseminated sulphide resource, which contains 904 335 tonnes of nickel. In addition to nickel, by–products of PGMs, chromite, copper and cobalt will also be recovered.
Mining will continue from the underground mine, at the rate of 47 000 tonnes per month, and the development of two new open–pits, Pits 2 and 3, which will produce 578 000 tonnes of ore per month at steady–state production. The MMZ nickel cut–off grade will be 0.24% and the PCMZ nickel cut–off grade will be 0.16%. The average mill grade for the total project will be in the order of 0.4% nickel, over the life of the mine.
The current 100 000 tonne per month concentrator will be upgraded to 250 000 tonnes per month to process the PCMZ ore and a new 375 000 tonne per month concentrator for the MMZ will be constructed to give an overall concentrator capacity of 625 000 tonnes per month. The mine’s related infrastructure will also be upgraded, including construction of two new tailing facilities and an upgrade of the power supply.
Construction will commence in early 2008 and is scheduled to take 24 months from announcement date. Production will be sequenced, targeting initial production ramp up from the MMZ concentrator during the third quarter 2009, with full production by first quarter 2010, and then initial PCMZ production ramp up targeted during the third quarter 2010, with full production by 2011.
Average annual nickel production in concentrate is forecast to be 20 500 tonnes over the 18–year life of mine. By–product production is expected to be 9 000 tonnes per annum of copper and 110 000 ounces per annum PGMs, predominantly palladium. The mine will continue to generate 1 million tonnes of oxidised chrome ore for sale over four years.
The expansion secures 254 jobs and creates an additional 330 new jobs. During construction the project will employ some 2 000 contractors.
The project assessment was based on a capital cost of R3.2 billion ($445 million) in May 2007 terms and an average nickel cash cost forecast of $3.57/lb. This will result in an after–tax real IRR greater than 20%. The project will be funded from Nkomati internal cash flows and by both partners when required. The release of the project triggers the US$20 million payment by Norilsk Nickel (previously LionOre) to ARM in accordance with the original transaction.
Nkomati has already secured toll smelting and refining capacity for its concentrate. A bankable feasibility study (BFS) will be carried out during 2008 to examine the viability of constructing an Activox® refinery for Nkomati.
|Phase 1 (interim)|
|Phase 2 (large scale)|
Released for construction
|Plant capacity (tpm)||MMZ 100 000||MMZ 375 000||PCMZ 250 000||Total 625 000|
|PCMZ open–pit||MMZ/PCMZ combined|
|Nickel production (tpa)||c. 5 500||c. 15 000||c. 5 500||c. 20 500|
During the year 26 000 metres of the planned 45 000 metres of geological drilling were completed. Drilling is on schedule for completion by the end of the calendar year.
Two diamond drill rigs and a reverse circulation rig are located on site. Kalplats is also involved in a pre–feasibility study, expected to be completed by the start of the 2008 calendar year.
© 2007 African Rainbow Minerals Limited