Atlatsa Resources Corporation (NYSEMKT:ATL)
Q2 2014 Results Earnings Conference Call
August 14, 2014 10:00 AM ET
Prudence Lebina - IR and Corporate Finance
Tumelo Motsisi - Executive Chairman
Joel Kesler - Chief Commercial Officer
Bava Reddy - Technical Services Executive
Dawid Stander - MD Bokoni Platinum Mines and Director Bokoni Management Team
Robert Omahony - Jhs Capital
Good day ladies and gentlemen. And welcome to the Atlatsa Resources Q2 Results. All participants are now in listen-only mode and there will be an opportunity for you to ask questions after today's presentation. (Operator Instructions). Please also note that this conference is being recorded.
I would now like to hand the conference over to Prudence Lebina. Please go ahead.
Thank you Belin. Welcome everyone on the Atlatsa Resources second quarter 2014 earnings call. With me today from the Atlatsa management team is Mr. Tumelo Motsisi, our Executive Chairman; Ms. Kogi Naicker, our Interim CFO; Mr. Joel Kesler, our Chief Commercial Officer; Mr. Bava Reddy, our Technical Services Executive; and Mr. Dawid Stander, our Managing Director of Bokoni Platinum Mines as well as Director of Bokoni Management team.
Please be advised that we will be using the presentation slides as we move through the conference call. If you haven't already done so you can access the presentation on our website at atlatsa.com.
I'd like to begin with a reminder that our discussion today will include certain statements that are forward looking and subject to various risks and uncertainties. This information represents our best judgment based on today's information. However actual results may vary based on these risk and uncertainties. The company undertakes no obligation to update or revise any forward looking statements.
Getting into the presentation itself starting with slide three with our highs and lows indeed a pleasing performance for the second quarter with a 21% increase in revenue to $59 million. Cash flow generated from operations improved to $5.8 million. Total tonnes milled up 16% with 4E ounces produced up 9%. We recorded lower losses with loss per share down 50% to $0.01. Our loss for the quarter is the disappointing safety performance which I’ll talk through on the next slide.
Moving on to slide four, the safety of our employees remains a paramount important to management. We are concerned by the safety performance for this quarter which is mainly attributable to the non-adherence to safety standards and procedures. As management we are continuously working on instilling principle of zero harm with safety training rose out at all levels focusing on employee compliance and developing a culture of safe behavior.
On slide five, Atlatsa has good stakeholder relations with both labor and the community, wage negotiations are progressing well and we believe finalization is eminent. The labor environment around the mine is stable. The Bokoni Mine is a community mine with structures in place to invest in the community. What I’d like to highlight for the quarter is the finalization of the Monametse Village housing project with handover to residents underway.
I’d now like to hand over to Joel Kesler to talk to the operational performance.
Thanks, Prudence. As Prudence highlighted, for the very pleasing quarter especially in light of the fact that the second quarter is always a challenging quarter within the corporate calendar, given the number of public holidays that we encounter during the period. So all being said this was a very credible performance again by the Bokoni Mine management team.
All operating metrics were up quite considerably year-on-year specifically with a 16% increase in tonnes milled. Our recovered grade you will note has dropped a bit, 4% over the period and that’s largely as a result of the production mix taking into consideration the lower grade opencast material and also the amount of secondary development we’ve been doing in our underground mining plan in order to open up the ore body for greater flexibility.
Ounces again improved considerably year-on-year, up again another 9%, and our UG2 percentage within the production mix continues to decline as we increase our Merensky mining at the opencast operation and at the underground shafts. Primary development which is a key focus for us and a key metric that we look to achieve in order to create the necessary mining flexibility and opening up the ore body on the way forward, increased again significantly by 13%. And at the same we achieved this with reduced capital expenditure over the period by 26% which goes to good cost management and capital discipline at the operations.
Operating cost per tonne were up roughly 8% over the period on a rand per tonne basis and 16% on a rand PGM ounce basis largely attributable to the increase in volume as well as the increase in our power utility charges on the winter tariff. And then the biggest contributor to the increasing costs really large in the amount of development work that we are doing at Bokoni Mine in terms of our accelerated development program and second the mine up at the commodity price Atlatsa in the medium-term.
Turning to slide number seven and just a summary of our operational performance. If we look at it probably from where we've come from over the last year, all the metrics again going in the right direction, turns mode up significantly, the trajectory on ounces remains good and the forecast remains good for the balance of the year, development meet us again China good performance on target with from where we want to be. And we are starting to see some of the benefits of the additional development in terms of declining cost trend on unit ounces. Its still not where we want to be, but I'm sure that during the balance of the year, we will see these type of trends continue as the management team continues to make good progress on all of these metrics going forward.
Turning to slide number eight, we've taken some key operational decisions. At Bokoni Mine, which are yielding good benefit for us. Firstly we've now achieved our Phase I underground development plan in terms of which we currently are delivering 150,000 tonnes per month from our underground operations. Just for the listeners, I’ll remind you that we have a 160,000 tonnes per month of installed mine capacity at the operations and our time plan was to deliver as much underground material as possible with the open cost material filling that gap relative to our 160 kiloton installed capacity. So, to that end we're roughly feeding in 50,000 tonnes per month currently of open cost material into the plot in order to fill that gap so our (inaudible) are now full and we also have a decent stock going ahead of the plant, something which we haven't seen at Bokoni for some time.
In terms of the open cast mine, we've now established three box cuts to the East and West of that operation which has created decent mining flexibility for us and we're now comfortable that the open cast can deliver up to 40,000 tonnes per month of feed to the plant or stockpile as required.
Before its achieved our targeted 160,000 tonnes per month concentrating milling rate something which hasn't been done at the Bokoni for some time and that's really accreted to both the mining and processing team at the operations.
We've also taken the decision to move away from electric handle drilling to hydropower drilling and we're starting to see some decent benefits for that, specifically in our development ends at the operation. We've also introduced a new pothole management system which has been developed by the Bokoni management team and which is also making our navigation surrounding geological potholes in marine operations that much easier to manage.
We've also taken the decision to move from conveyor to rail-bound tramming on all of our new levels at our two ramp up operations at our Brakfontein, Merensky and Middelpunt Hill ramp up projects and that should result in a considerable drop in maintenance capital and other efficiencies on a go forward basis.
Turning to slide number nine and looking at the summary of our financial performance. Revenue up 21%, year-on-year, cash operating costs down 20% and I have spoken to the reasons behind that predominantly associated with the accelerated development program.
Cash operating profit up 36% year-on-year. EBITDA number positive and that's taking into consideration no real fair value guidance as we recognized in Q2 of last year and otherwise that's a pretty clean EBITDA number. And then I think most importantly, we started to generate cash from our operating activities to the tune $5.8 million which was the first (inaudible) which we were looking to achieve in terms of our financial performance, the next step would obviously be our target to that cash flow positive after capital at the operations.
So, all in all a decent performance to that end with our basic and diluted loss per share reducing by 50% year-on-year to $0.01 per share.
Turning to slide number 10. Balance sheet and capital expenditure, very strong focus remains on cost management and capital discipline at the operations.
I think importantly, this was the first clean quarter where we can see the clear benefits of the restructure plan which we implemented in February of this year and one can see that our finance charges have come down from $15 million for the quarter to $4 million as a result of implementation on that plan. Roughly $12 million cash on hand at the end of June and capital expenditure for the quarter $9.8 million with $13.5 million of capital for the balance of the year. As one can see from the growth on the right hand side of the slide, our capital discipline has been good over the period and we remain on target in terms of capital spend both maintenance and project capital for the balance of the year.
Turning to slide number 11, and a topic which the number of people have been questioning us on recently is our relationship with Anglo Platinum and where that relationship is going, lot of recent announcements by Anglo Platinum in the interim results. Now, in summary the position is as follows: That Anglo Platinum and ourselves remain joint venture partners in the Bokoni. Both parties remain committed to trending build out about 160,000 tonnes a month underground steady state operation and that remains in place. The sustainability of Bokoni Mine remains a fair amount importance to both Atlatsa and Anglo Platinum and we continue our discussions with Anglo Platinum surrounding Bokoni Mine and as well as Atlatsa’s intend its growth plans. So moving forward Anglo Platinum has announced that it will be repositioning its portfolio as a result of a number of internal issues and push and pull factors that they are considering for that purpose. As I said that as announced that they will be assessing their minority non-management joint venture participation interest in Bokoni but no decision has been taken for this purpose yet. And as a result of all of this Atlatsa will engage with Anglo Platinum in close consultation with the Department of Mineral Resources especially in light of the recognition by all parties that Atlatsa remains -- and Bokoni remains of paramount of importance in terms of the accreditation and the fact that this Bokoni transaction is a cornerstone in platinum transaction for Anglo Platinum’s purposes.
Turning to slide number 12, just summarizing the current roadmap for growth at Bokoni, we’ve achieved, we’re bang on target in order to achieve our initial growth plan, roughly $200 million of capital investment in this mine has taken place over the past four years, bringing the mine to its current level where we saw 70% production growth over the period.
Our next step was to achieve the 160,000 tonne per month underground target and we are well on track for that effort and the management team at Bokoni is doing a stellar job for that purpose.
The next CapEx decision based on the current plan will be viewed in 2019-2020 when we look to lift this operation from a 160 kilo tonne operation to 240 kilo tonne based on the current plan and that should yield decent benefits given the fact that we will maintain a fairly consistent fixed cost base and almost double our production ounces on the back of that capital investment initiative down the line. So, the plan from Atlatsa perspective remains the same in terms of the growth part and obviously there is a few hoops that you need to jump through, so in order to achieve that.
So turning to slide number 13 and the outlook for Bokoni. We remain well positioned to achieve our 10% year-on-year targeted production growth rate. And we are confident that the back end of this year is looking pretty good for that purpose. Our accelerated development program is on track, in fact slightly ahead of schedule, our mining flexibility is improving with the result that our crew efficiencies are improving it’s just that much more face length now available for our crews to mine and they’re being given the right tools so to speak in order to achieve those improved efficiencies.
The new pothole management system is being implemented which is yielding good progress in terms of our underground operations and we’re pleased with where we’re at in terms of our opencast mining performance.
So all-in-all, a credible quarter and that generally sees the end of the toughest part of the year in terms of the mining calendar. And looking forward, we hope to deliver some even better and improved results on the Q2 performance for that purpose.
So, now I’d like to open up the floor to any questions from any of the listeners.
Thank you, sir. (Operator Instructions). We have a question of Robert Omahony of Jhs Capital. Please go ahead.
Robert Omahony - Jhs Capital
Hi, Joel. Just wanted to get some color on average cost, the rand nominated basket price in Q2 and where we currently stand at this moment?
Rand denominated basket price in Q2 and where we currently stand. So, in Q2, we roughly achieved a basket price of 12,100 rand, per ounce in terms of our realized price. And if you look at it from a spot basis, currently we’re sitting at between 12,600 to 12,700 rand an ounce and that's and that’s PGM ounce in terms of the Bokoni basket mix. So, we add to that $500 to $600 on the Q2 revenue basket. And that's realized pricing.
Robert Omahony - Jhs Capital
Okay. Thank you very much.
(Operator Instructions). Our next question comes from [Hobi (inaudible) at Vunani Securities]. Please go ahead.
Hi Joel, hi guys. So, does it mean that the 160 milling will then sell for the next quarter we should see the 480 instead of 420, that's the first question. And then at the 160 level what sort of recoveries are you seeing in the plot?
Dawid you want to answer that question?
Hi, Dawid Stander here.
We still see the sign recoveries as that we've experienced prior to getting to the 160. The only difference is that we are milling more underground material than we milling from the opencast, which not only here from the less at least yield, but no, nothing is going to change going to the 160.
So, I think to answer your question, yes we are on target for roughly the 480 mark in terms of most times and you can expect the yield to remain roughly around the 90% mark on marine initiates on it.
Great. Thank you very much.
(Operator Instructions). We have a question from Adam (inaudible) at Business Day. Please go ahead.
Thank you. Hi guys. Just on slide 12, could you just take me away from this, point to the 2014 and 2019, you need to make a further $100 million investment. Is that have you already started that CapEx program and how do you propose funding that?
Thanks Adam. The $100 million CapEx investment that is put out there is roughly the CapEx profile in totality over that period which will be spent, roughly the CapEx which will be spent at Bokoni. In terms of the current plan funding is in place for that purpose and most of that is funded from internal cash flows. So, now if you look at our CapEx spend over the period we’re spending between 20 million to 30 million a month on project expansion capital at the operations and then we said as well that debt will be funded from internal cash flows together with existing commercial facilities which are in place.
Okay. So, (inaudible) Anglo Platinum JV that expenditure and that program shouldn’t be derailed?
Well, there is a number of factors that we’ll need to discuss with Anglo Platinum given the fact that all of the facilities are linked to Anglo’s funding there is no external funding in the Bokoni system. So, what you’ll look at in terms of any of those discussions will be all of the funding arrangements but I think that you can certainly assume that the key feature for Bokoni from both Atlatsa and Anglo Platinum perspective there is one of sustainability going forward.
So, while as we can’t talk to specific issues on behalf of Anglo Platinum, I assume that that would be a fair amount importance to both parties.
Okay. And then Joel just further to the comments about having talks with (inaudible) and the BMR how do you see that playing out in terms of involvements in the project from here and out, if that’s the case at the unfolding scenario?
All right. I’ll let Tumelo answer that one.
Yes, hello. Look we -- as we obviously can’t say much at the moment I think the only thing that we can say is what Joel has already said is that we continue discussions with Anglo Platinum in terms of that announcement but obviously we have to work very closely with the BMR internal process. And when we have got sufficient mileage then we’ll make the right announcement so we’ll make the announcement as and when we get to that space.
Thanks very much.
Gentlemen we have no further questions, do you have any closing comments?
Unidentified Company Representative
I think just in closing as a general comment I think that it was a very credible performance at Bokoni mine for the second quarter, not only given the fact that it’s generally a challenging quarter Q2 but also in light of the fact that the macro environment surrounding the PGM industry in South Africa has been a challenging one and it’s a great credit to both the team at the mine and at Atlatsa corporate office that we’ve not only managed to keep the ship steady during this period but in my opinion also improved our stakeholder relations with both our employee base and community during this period.
And that has translated into a better working environment at Bokoni a more stable environment and one that I am sure will continue to prove its upward trajectory going forward. Thanks.
Thank you. On behalf of Atlatsa Resources, that concludes this conference. Thank you for joining us. You may now disconnect your lines.
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