BUSINESS DAY TV: Flexibility built across the business is allowing us to weather the storm
Steve Phiri is CEO of Royal Bafokeng Platinum.
BUSINESS DAY TV: Royal Bafokeng Platinum had a tough year in 2015 with the miner swinging to a full-year loss, and that was due to weak metal prices and a hefty R4.5bn impairment. Due to the weaker market it’s now slowing work on the first phase of its Styldrift mine and increasing focus on the higher-grade Merensky reef at the Bafokeng Rasimone Platinum Mine (BRPM). Joining us with more is CEO Steve Phiri.
Steve... so RB Plat coming under pressure now along with the rest of the sector and I guess this is indicative of just how the picture has changed over the past year and just how much pressure a lower platinum price is exerting right now?
Steve Phiri: Certainly there’s a lot of pressure coming from a low-price environment but also a lot of pressure in terms of the cost escalations, and when you’re faced with that eventuality you’ve got to take a step backwards in order to take a step forward and rejig your strategy, or look at your strategy in whether it remains relevant in this difficult environment.
And indeed our strategy came in quite handy in this situation — that is why we decided to slow down at Styldrift, cut back on capital expenditure both in terms of growth of Styldrift but also in terms of replacement capital in SIB (stay-in-business). We’re maintaining a very strong balance sheet ungeared — it’s unheard of in this difficult environment — and also preserve cash...we closed 2015 with R918m of cash balance.
So I wouldn’t say we are comfortable but we are not uncomfortable in this pricing environment…we are geared towards riding the storm.
BDTV: As you said you had cash in the books of over R900m at the end of the year, you also have R500m in credit facility, which you say you probably won’t need to use in the short-term. How quickly are you able to adapt if the prices do start to recover and you want to resume some of this capex?
JS: Mining by its nature, especially development, takes time. However, remember Styldrift is a growth project so what we did was not to stop Styldrift but to slow down Styldrift, cut back on capital instead of ramping up and slow down the ramping up.
And the reason for slowing down ramping up is that you’ve got quality ounces at Styldrift, high-grade ounces in a market which is unappreciative of that quality. So you don’t want to develop fast and ramping up, because once you are ramping up it becomes difficult to switch off and put the thing on care and maintenance, because you would have employed people, would have involved contractors and all those things.
So we decided we’re going to develop laterally, we’re going to increase the footprint, development footprint but without ramping up, so that when the market turns we are able to press a button and ramp up much quicker than we would have been if the market did not behave in the manner it did.
BDTV: The average rand basket price came in over the period at R17,256 per platinum ounce and interestingly you’re budgeting for an average basket price for the year ahead at R17,500 per platinum ounce as well...does price support come through moving forward from a cut back in supply? Is that what’s needed right now?
SP: Various fundamentals have to exist. You’re not only looking at the prices or how impressing, you’ve got to look at the market fundamentals on a sustainable basis to say, can I bank on these market fundamentals? Because the rand-dollar exchange rate, the price blip and going down on a daily basis, does not help. You cannot bank on it itself. And the average basket of 17.2 was as a result of various factors.
Remember September-October as well as November is when we saw prices really tanking. At one point we had a basket price of 16.2, 16.4; averaging it for the whole 12 months amounted to 17.3 or 17.2. But when we planned we said we will proceed with Styldrift provided we are realising a basket price of about 17.4 -17.5. If we go below that we will pull back on Styldrift and wait until the moment the price turns.
And that’s the flexibility we have built across the business itself, balance sheet flexibility, but as well as cash flexibility and with cash generative BRPM coming in handy, we are able to weather the storm and only spend the money we have rather than spend the money we don’t have.
But if the price stays above that threshold, we will continue with Styldrift, albeit slowly, certainly in a balanced way without recklessly spending shareholder money. But it only has to be on various sustainable levels given the market fundamentals that manifest themselves that we will be able to accelerate Styldrift. So we’re watching this space all the time. We may not get it right all the time but we don’t get it wrong all the time either.
BDTV: You mentioned the cost escalations also during the year and obviously you had that R4.5bn impairment that you just decided to take because of the weak platinum price so if you strip that out, how profitable are you at current prices with the platinum you’ve put down on the table for the year ahead?
SP: Yes, we are. We realised that even at those prices last year we realised an ebitda (earnings before interest tax depreciation and amortisation) margin of 9% obviously from an ebitda margin of 23% in 2014. So we are profitable. BRPM is able to pay for itself…all the costs including stay-in-business (SIM) capital and still we realised some cash so there is still a cash balance.
But there have been a lot of costs coming in there. Remember the tax situation that we had to settle last year of R50m, but also a forward tax that we had to take into our income statement again, quite a number we had to take. A huge increase, upfront loaded wage increases for our five-year wage agreement.
We also had to close the gap between contractor employees and our permanent employees and even take them onto our medical aid scheme…which is better than where they were with our contractors. So quite a lot of factors picked up but we should have a better 2016 in terms of costs.
BDTV: When it comes to safety, let’s take a look at that issue because an investigation found that leadership, behavioural maturity and contractor management needed to be addressed, and with that you’re starting to really focus on safety as being an imperative. How do you start getting to grips with that again?
SP: You keep on trying … just to take a step backwards, if you look at our safety statistics over the past six years, 59% improvement in terms of our lost time injury frequency rate, 75% improvement in terms of our serious injury frequency rate. That is not a mean achievement, but then when a big event happens, it comes and then it erodes all of those successes.
So we had to drill deeper to say we’re training all our employees, we’re doing our best, but we still have these fatalities even though we still have good safety records. What is the problem … and when you speak to the employees and even when the DMR (Department of Mineral Resources) speaks to them, they understand their roles, they understand compliance, they regurgitate them.
But what is lacking is that critical moment of decisiveness in taking the right decision at the right time and that’s where the slip-up comes. And when we drilled down we realise that the sophistication perhaps of our employees is not at the level where they’re able to take a decision as quickly as possible.
You have to understand that that’s a South African phenomenon. Everyone is entitled to employment...we need to help them with training and development but we can only help them with visible supervision and leadership. And mentoring on an ongoing basis, and therefore we realised that some of our leaders and supervisors take for granted that these employees can run things on their own without them being present all the time.
So we are insisting on them being present and guiding them. It’s not about supervising them and cracking the whip all the time because you can lead and crack the whip by mentoring rather than beating people up. But the cognitive ability of our employees was also identified as a problem so you therefore have to train them on identifying the risk, which they do, but acting in accordance with that identification...that’s where we’re lacking.
Steve Phiri is CEO of Royal Bafokeng Platinum.
BUSINESS DAY TV: Royal Bafokeng Platinum had a tough year in 2015 with the miner swinging to a full-year loss, and that was due to weak metal prices and a hefty R4.5bn impairment. Due to the weaker market it’s now slowing work on the first phase of its Styldrift mine and increasing focus on the higher-grade Merensky reef at the Bafokeng Rasimone Platinum Mine (BRPM). Joining us with more is CEO Steve Phiri.
Steve... so RB Plat coming under pressure now along with the rest of the sector and I guess this is indicative of just how the picture has changed over the past year and just how much pressure a lower platinum price is exerting right now?
Steve Phiri: Certainly there’s a lot of pressure coming from a low-price environment but also a lot of pressure in terms of the cost escalations, and when you’re faced with that eventuality you’ve got to take a step backwards in order to take a step forward and rejig your strategy, or look at your strategy in whether it remains relevant in this difficult environment.
And indeed our strategy came in quite handy in this situation — that is why we decided to slow down at Styldrift, cut back on capital expenditure both in terms of growth of Styldrift but also in terms of replacement capital in SIB (stay-in-business). We’re maintaining a very strong balance sheet ungeared — it’s unheard of in this difficult environment — and also preserve cash...we closed 2015 with R918m of cash balance.
So I wouldn’t say we are comfortable but we are not uncomfortable in this pricing environment…we are geared towards riding the storm.
BDTV: As you said you had cash in the books of over R900m at the end of the year, you also have R500m in credit facility, which you say you probably won’t need to use in the short-term. How quickly are you able to adapt if the prices do start to recover and you want to resume some of this capex?
JS: Mining by its nature, especially development, takes time. However, remember Styldrift is a growth project so what we did was not to stop Styldrift but to slow down Styldrift, cut back on capital instead of ramping up and slow down the ramping up.
And the reason for slowing down ramping up is that you’ve got quality ounces at Styldrift, high-grade ounces in a market which is unappreciative of that quality. So you don’t want to develop fast and ramping up, because once you are ramping up it becomes difficult to switch off and put the thing on care and maintenance, because you would have employed people, would have involved contractors and all those things.
So we decided we’re going to develop laterally, we’re going to increase the footprint, development footprint but without ramping up, so that when the market turns we are able to press a button and ramp up much quicker than we would have been if the market did not behave in the manner it did.
BDTV: The average rand basket price came in over the period at R17,256 per platinum ounce and interestingly you’re budgeting for an average basket price for the year ahead at R17,500 per platinum ounce as well...does price support come through moving forward from a cut back in supply? Is that what’s needed right now?
SP: Various fundamentals have to exist. You’re not only looking at the prices or how impressing, you’ve got to look at the market fundamentals on a sustainable basis to say, can I bank on these market fundamentals? Because the rand-dollar exchange rate, the price blip and going down on a daily basis, does not help. You cannot bank on it itself. And the average basket of 17.2 was as a result of various factors.
Remember September-October as well as November is when we saw prices really tanking. At one point we had a basket price of 16.2, 16.4; averaging it for the whole 12 months amounted to 17.3 or 17.2. But when we planned we said we will proceed with Styldrift provided we are realising a basket price of about 17.4 -17.5. If we go below that we will pull back on Styldrift and wait until the moment the price turns.
And that’s the flexibility we have built across the business itself, balance sheet flexibility, but as well as cash flexibility and with cash generative BRPM coming in handy, we are able to weather the storm and only spend the money we have rather than spend the money we don’t have.
But if the price stays above that threshold, we will continue with Styldrift, albeit slowly, certainly in a balanced way without recklessly spending shareholder money. But it only has to be on various sustainable levels given the market fundamentals that manifest themselves that we will be able to accelerate Styldrift. So we’re watching this space all the time. We may not get it right all the time but we don’t get it wrong all the time either.
BDTV: You mentioned the cost escalations also during the year and obviously you had that R4.5bn impairment that you just decided to take because of the weak platinum price so if you strip that out, how profitable are you at current prices with the platinum you’ve put down on the table for the year ahead?
SP: Yes, we are. We realised that even at those prices last year we realised an ebitda (earnings before interest tax depreciation and amortisation) margin of 9% obviously from an ebitda margin of 23% in 2014. So we are profitable. BRPM is able to pay for itself…all the costs including stay-in-business (SIM) capital and still we realised some cash so there is still a cash balance.
But there have been a lot of costs coming in there. Remember the tax situation that we had to settle last year of R50m, but also a forward tax that we had to take into our income statement again, quite a number we had to take. A huge increase, upfront loaded wage increases for our five-year wage agreement.
We also had to close the gap between contractor employees and our permanent employees and even take them onto our medical aid scheme…which is better than where they were with our contractors. So quite a lot of factors picked up but we should have a better 2016 in terms of costs.
BDTV: When it comes to safety, let’s take a look at that issue because an investigation found that leadership, behavioural maturity and contractor management needed to be addressed, and with that you’re starting to really focus on safety as being an imperative. How do you start getting to grips with that again?
SP: You keep on trying … just to take a step backwards, if you look at our safety statistics over the past six years, 59% improvement in terms of our lost time injury frequency rate, 75% improvement in terms of our serious injury frequency rate. That is not a mean achievement, but then when a big event happens, it comes and then it erodes all of those successes.
So we had to drill deeper to say we’re training all our employees, we’re doing our best, but we still have these fatalities even though we still have good safety records. What is the problem … and when you speak to the employees and even when the DMR (Department of Mineral Resources) speaks to them, they understand their roles, they understand compliance, they regurgitate them.
But what is lacking is that critical moment of decisiveness in taking the right decision at the right time and that’s where the slip-up comes. And when we drilled down we realise that the sophistication perhaps of our employees is not at the level where they’re able to take a decision as quickly as possible.
You have to understand that that’s a South African phenomenon. Everyone is entitled to employment...we need to help them with training and development but we can only help them with visible supervision and leadership. And mentoring on an ongoing basis, and therefore we realised that some of our leaders and supervisors take for granted that these employees can run things on their own without them being present all the time.
So we are insisting on them being present and guiding them. It’s not about supervising them and cracking the whip all the time because you can lead and crack the whip by mentoring rather than beating people up. But the cognitive ability of our employees was also identified as a problem so you therefore have to train them on identifying the risk, which they do, but acting in accordance with that identification...that’s where we’re lacking.
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