ARM Platinum

Despite a good operational performance, ARM Platinum's results were significantly affected by the decrease in PGM prices and a slowing world economy.

Divisional structure

Steve Mashalane Chief Executive: ARM Platinum

Scorecard

Operational overview – attributable to ARM

											Operational
									F09/08		target
					F2009		F2008		% change		F2010
	Modikwa – PGM production*		Ounces 6E		174 433		171 531		2
	Two Rivers – PGM production		Ounces 6E		135 462		113 570		19
	Nkomati Nickel Mine
		Nickel	Tonnes		2 247		2 568		(12)
		PGMs	Ounces		13 374		20 406		(35)
		Copper	Tonnes		1 134		1 303		(13)
		Chrome tonnes sold	000t		331		573		(42)
	ARM Platinum PGM production
	(incl. Nkomati)		Ounces		323 259		305 508		6
	ARM Platinum cash operating margin		%		(5)		61
	Headline (loss)/earnings contribution
	to ARM		R million		(319)		1 347		–

* Modikwa production figures have been converted to 6E due to the new off-take agreement in place since 1 December 2008.

Review of the year

In spite of a good operational performance, ARM Platinum's results were significantly affected by the decrease in global platinum demand and a slowing world economy.

Cash operating losses were recorded by both Modikwa and Two Rivers, while Nkomati generated a cash operating profit. ARM Platinum's attributable PGM production (including Nkomati) for F2009 increased by 6% to 323 259 ounces (F2008: 305 508 ounces) of PGMs in concentrate, resulting from grade improvements, increased production and enhanced efficiencies. Nkomati chrome ore sales decreased by 42% due to a sudden downturn in the chrome market. ARM Platinum's attributable headline loss amounted to R319 million.

The earnings of Two Rivers were negatively affected by interest charged on the shareholders' loans from ARM and Impala Platinum. Interest is charged on the shareholders' loans to Two Rivers at a rate of 11.5% per annum as at 30 June 2009 (F2008:12.0%).

The PGM basket price for both Modikwa and Two Rivers reduced by about 32% when compared to the previous financial year. Weaker average metal prices for the year under review, combined with R547 million of realised losses on the 30 June 2008 debtors' balances, resulted in the recorded losses for this period.

Modikwa Platinum Mine

Modikwa's tonnes milled remained constant at F2008 levels, despite stopping mining at the Merensky Reef. An improvement in grade resulted in a 2% increase in PGM ounces in concentrate. Even though average unit costs for the year increased by 32% to R708 per tonne, cost-containment strategies reduced monthly unit cost in the latter part of F2009, closing at R570 per tonne milled for June 2009. As part of its cost-containment initiative, Modikwa changed from continuous operations (conops) to 11-day fortnightly working shifts in April 2009 and the new strike mining layout is being implemented.

On 31 December 2008, ARM Mining Consortium's project debt for the development of Modikwa was settled in full, 18 months ahead of schedule. ARM Mining Consortium negotiated a revised off-take agreement with Anglo Platinum, effective from 1 December 2008, resulting in Modikwa now earning revenue on contained metals for all six PGMs, including ruthenium and iridium. In line with the agreement, all reported production figures have been converted to 6E.

Two Rivers Platinum Mine

Two Rivers completed its first financial year at full production capacity. Tonnes milled increased by 11%. This, together with a head grade improvement, resulted in a 19% increase in PGM ounces in concentrate. At year-end the surface ore stockpile was 207 122 tonnes. As part of the plant optimisation, the secondary crusher and additional cleaning circuit were commissioned during August 2009. Cost-containment initiatives and the postponement of capital expansion projects were implemented as part of a cash-preservation strategy.

F2009 ARM Platinum revenue contribution per commodity (100% basis)

The Impala Platinum and ARM Boards have approved a transaction in terms of which Impala Platinum will exchange portions 4, 5 and 6 of Kalkfontein, as well as all Tweefontein prospecting rights, for an additional 4% shareholding in Two Rivers, thereby increasing its stake to 49%. The transaction will become effective pending Section 11 approval from the DMR.

Nkomati Mine

At Nkomati the average US Dollar nickel price for the year dropped by 53%, negatively impacting profits. As the conversion to a low-grade, high-volume mine continues, milled tonnes increased by 18% and contained nickel declined by 12% to 4 495 tonnes. Recovery improvements on the 100 000 tpm plant is an ongoing process. During the last few months of F2009, chrome ore and concentrate sales volumes showed a steady improvement.

Mining rights status

The new order mining right application for Two Rivers was submitted to the Department of Mineral Resources (DMR) on 2 July 2007. Two Rivers has since interacted with the DMR on its proposed social and labour plan, which it is now implementing.

The new order mining right application for Nkomati has been approved. Nkomati is in the process of finalising the documents required for the execution of the mining right.

The Modikwa new order mining right application was submitted to the DMR on 31 March 2009, after the revision of ARM's offtake agreement with Anglo Platinum.

Safety

ARM Platinum's commitment to a safe working environment resulted in good safety achievements at all its operations.

On 10 March 2009, Modikwa Platinum Mine joined the ranks of a select few mines in South Africa when it achieved five million fatality free shifts. This marks a period of nearly three years without a fatal accident occurring on the mine. Modikwa reported a lost time injury frequency rate (LTIFR) of 5.3 per million man hours worked, 33% lower than the 8.1 reported in F2008.

Two Rivers Platinum Mine completed 1 million fatality free working shifts on 5 March 2009. Two Rivers reported a LTIFR of 2.8, an 11% improvement on F2008.

Nkomati reported an excellent LTIFR of 0.95 (F2008: 5.8). Regrettably, on 23 September 2008, a contract employee, Mr Wessel Borotho, was fatally injured when a stockpile collapsed on his vehicle (a two-tonne diesel refuelling truck).

Capital expenditure

Total capital expenditure for the division amounted to R2.47 billion (R1.4 billion attributable), of which 71% was spent on the Nkomati expansion project. Modikwa's planned capital expendi ture was reduced as a result of the decision to postpone work to deepen the declines and other expansionary capital projects. Two Rivers spent R159 million on the plant optimisation programme and R42 million on the replacement of the underground mining fleet.

Other than the Nkomati expansion project, all expansionary capital programmes were put on hold for the next 12 months, and the situation will be assessed continually. Ongoing capital spending, to maintain production, will continue.

F2009 ARM Platinum capital expenditure (100% basis)

Prospects

In F2010 Modikwa will maintain production at F2009 levels, while at Two Rivers recovered PGMs in concentrate will increase as a result of plant optimisation. Nickel production at Nkomati will rise steadily as the 375 000 tpm plant ramps up to full production in March 2010 and as recoveries are improved on the 100 000 tpm plant. Any improvement in the global economic situation will have a positive effect on ARM Platinum's performance.

ARM Platinum volumes from 2005 to 2012 ARM attributable PGM production (000oz)   Nkomati nickel production (100% basis) (000t)         Nkomati chrome sales (100% basis) (000t)

Market review

Platinum

Demand for platinum in F2009 dropped in response to the economic slowdown and resulted in volatile platinum prices. The reduction in demand was caused mainly by the slowdown in global vehicle sales, as well as the decrease in demand for industrial, chemical and electrical applications. ARM Platinum achieved an average platinum price in F2009 of US$1 148/oz (F2008: US$1 661/oz), with the lowest price occuring in November 2008 at US$841/oz. It is anticipated that the automotive sector will remain depressed during F2010 and demand for platinum will remain constant.

Palladium

Palladium demand fluctuated in F2009 due to declining vehicle production, rising demand from the electronic and dental sectors, as well as an improvement in off-take from jewellery manufacturing. In spite of the increase in demand from certain sectors, the frail world economy forced the price down to US$175/oz in December 2008. New emissions legislation will provide some support for demand in the European automotive sector. Worldwide palladium auto catalyst demand is likely to decrease, except in China, where a rise is anticipated. The average palladium price achieved by ARM Platinum for F2009 was US$239/oz (F2008: US$399/oz).

Rhodium

The high price of rhodium has prompted extensive development activity by car manufacturers and auto catalyst producers to reduce consumption of this metal. In F2009, demand from the automotive market and the glass sector declined. South African output of rhodium is set to grow, resulting in a surplus for F2010. ARM Platinum sold its rhodium at an average price of US$2 620/oz in F2009 (F2008: US$7 389/oz).

Nickel

Nickel demand was severely impacted by the global commodity slump. During F2009, the average nickel price achieved by ARM Platinum decreased by 53% to US$13 312/t (F2008: US$28 507/t). The year was characterised by slowing demand for and output of stainless steel, coupled with stock building in China. Market commentators indicate a recovery to be imminent, albeit at a slow pace, with lower stock levels occurring. The outlook for nickel is closely tied to the state of the global economy and will follow its recovery.

Pricing trends for F2009

Platinum (US$/oz)		Rhodium (US$/oz)
Palladium (US$/oz)		Nickel (US$/t)

ARM Platinum Operational Statistics

Modikwa Platinum Mine

The approximate conversion factor at Modikwa mine from 4E to 6E in concentrate is 20%.

Refer to pages 165 and 166 for Modikwa segmental information

* All production figures have been converted to 6E due to the new off-take agreement in place since 1 December 2008.

Two Rivers Platinum Mine

Refer to pages 165 and 166 for Two Rivers segmental information.

Nkomati Mine

Refer to pages 163 and 164 for Nkomati (nickel) segmental information.

Nkomati Nickel Large Scale Project update

To date, all project milestones have been met, resulting in the overall project progress being on schedule and within budget. Total funds committed on this project amount to R2.5 billion or 75% of the R3.34 billion approved capital budget as at 30 June 2009. The Phase 2a project (375 000 tpm plant and associated infrastructure) is on schedule to be commissioned during September 2009. The Phase 2b project (upgrade of the current 100 000 tpm plant to 250 000 tpm PCMZ plant) was released for implementation and construction, which started during August 2009.

The chrome concentrator plant, treating chrome chips and fines, was commissioned on schedule during September 2008. The plant ramp-up was delayed by the lack of demand for chrome concentrates from October 2008, and currently the plant rampup to full production is in line to match market demand.

Eskom power supply is on schedule to provide the required electricity for the Phase 2a project. The upgrade of the 132 kV overhead distribution lines has to be completed to provide sufficient power for the Phase 2b project by November 2010.

Kalplats

Definition drilling by Platinum Australia (PLA) on the Kalplats Project was completed in November 2008. A total of 17 300 m was drilled during the year, bringing PLA's total to 93 100 m. The geological modelling and resource estimation by Coffey Mining have been finalised on four of Kalplats' seven main deposits. Results to date have significantly increased the mineral resource at Kalplats and have upgraded some of the resource to a measured category. PLA is preparing a definitive feasibility study on an open-pit mining operation.

PLA is also carrying out a soil geochemical survey on the Kalplats Extended Area Project. An initial drilling programme has been completed and target grade mineralisation has been intersected over a strike length of approximately 2 km.

Kalplats PGM Exploration Project