In the media

2010

Special report podcast: Philip Kotze - CEO, Anooraq Resources

13 May 2010

Source: Moneyweb

Author: Barry Sergeant

Anooraq Resources CEO Phillip Kotze discusses the company's first quarter results for 2010

The turnaround at Bokoni since it bought 51% from AngloPlat. And quarterly update.

Barry Sergeant: In this podcast I'm in conversation with Philip Kotze, CEO of Anooraq listed in Johannesburg, Toronto and nyse Amex. Phillip you've just reported first quarter results for 2010 - it's been a tumultuous period - just take us back a little bit. July 1 you took over 51% of the equity in the Bokoni Platinum Mine in South Africa and also interestingly in the current context, the management of the mine. The price you paid was about C$370m - about R2.8bn - give us some feel for what infrastructure is in the ground there - the mine has been going for many years already...

Philip Kotze: Yes - the mine has been going for about 25 years as you've mentioned - that was the vertical shaft. One must remember that there are four different shafts on this mine and the vertical shaft is the one that has been going for the longest. Anglo Platinum started investing capital into the new future of the mine that is the Brakfontein Mine and they were in the process of developing the area of Brakfontein, which we are now continuing with. We've now got a growth profile over the next three years where the Brakfontein mine will by far mine the most within the mining lease area and go up to 120,000 tonnes a month. Apart from Brakfontein, we've got the UN2 shaft which is a short life shaft - we've got about another two years left, then we've got a Middelpunt Hill shaft which is mined on the UG2 reef horizon and that's a very long life mine as well.

Barry Sergeant: What is the estimated replacement cost of the infrastructure in the ground?

Philip Kotze: If you look at four different shafts and if you look at concentrated complex, my guess would be somewhere in the region of about C$2.2bn to C$2.8bn - somewhere between R15bn and R20bn.

Barry Sergeant: Now the current production is running at about 80,000 tonnes a month - that is in a normalised situation which, if you go right to the bottom line, produces about 120,000 ounces a year - that is platinum, rhodium, palladium and gold - the so-called four E plus some important amounts of copper and nickel. The plan at the moment is between 2010 and 2014 to ramp that up to 160,000 tonnes a month and finally between 2016 and 2020 which sounds like a long time away, to move that up to 375,000 tonnes a month going to a bottom line of 570,000 ounces a year of the four Es. So it's a very big step increase over the next decade. The ownership that you have in Bokoni and the other properties within Anooraq gives you control of 200m platinum group metal ounces - how does that compare with the rest of the industry?

Philip Kotze: Yes, it gives us control of the third largest asset base in South Africa at this stage and on a direct attributable basis Anooraq has got control of the fifth largest ore body. This is a phenomenal ore body and hence this quarter the quarter that we've just completed was a milestone for us because after having done this labour restructuring where we moved about 800 odd people it really puts us at the start of the growth profile now. So going forward, we will be ramping up production on a quarter-by-quarter basis up to the numbers that you've just mentioned.

Barry Sergeant: Lets speak about the first quarter - a tumultuous period in the sense that it wasn't a normalised quarter. You produced just below the trend line - about just below 27,000 ounces of PGMs - what is the net result on the cost line because that really is your focus in the restructuring at the mine, if I understand it?

Philip Kotze: The first nine months under our control has really been focused on getting the costs down because as I mentioned in the previous quarter doing labour restructuring in South Africa is not one of the easiest tasks that one undertakes and we were fortunate to sign that restructuring agreement at the end of December and just used the January, February and March months to move about a quarter of our labour force. I must say I was very pleased with the rate at which the move of labour had taken place. As you can imagine, always very traumatic for our labour force, and having put that behind us really puts us in a very nice position to grow from hereon forward now. So although most of our attention has been on absolute cost terms, which you could see reduced on the last quarter again, despite this labour restructuring. Our focus going forward would be to maintain very good cost controls but really the benefit from now will start coming from increased production and thereby dropping your unit costs even further.

Barry Sergeant: Right - because nobody knows what the metal prices are going to do going forward, but its probably important for investors to know or have a sense of your substantial expansions over the next decade - your target there is to finance those out of internal cash flows. Is that the position?

Philip Kotze: Yes once again we've put targets out to the market. I shared the first objectives with the market last year in august where we mentioned we'll be going to about $900/PGM ounce by this June quarter which we are still committed to do. And by the end of this year, to get our costs to the region of about $800/oz - by the end of 2011 year, to get that by about $700/oz. Now with $700 or even $800/oz you can see that you've got a very nice margin on this business and therefore our view is that towards the end of this year even, on $900/oz we will be able to fund all the current capital projects internally.

Barry Sergeant: Would you possibly clarify that - when you refer to $900/oz, which is per PGM ounce - that's the so-called basket price?

Philip Kotze: That's correct.

Barry Sergeant: At current spot prices, where is the selling price of the basket?

Philip Kotze: In the region of about $1100/oz so by the time that we get to $900/oz we've got a fairly nice margin to start using some of that towards our capital.

Barry Sergeant: Just to get a sense of the market, where was that basket about 12 months ago - it was a whole lot lower, wasn't it?

Philip Kotze: It was significantly lower yes. About 12 months ago we were standing in the region of about $700/oz.

Barry Sergeant: OK, so on current figures or the slightly historical figures over the past couple of quarters, Bokoni would have been running at a cash flow, in fact any kind of loss, whereas it's now already in the profits.

Philip Kotze: That's correct...

Barry Sergeant: ...and you're going to be digging away at the cost line to raise the margins going out.

Philip Kotze: I believe that this mine, when we took it over, was the highest cost producer in the industry. We've managed to drop that - if I just talk from rand per tonne terms - from R1,150/tonne and take over to current levels of $980/tonne. As I've mentioned towards the June quarter we believe that that number can come down to about $900/tonne and that's when we start showing good margins on this operation.

Barry Sergeant: And of course, Anglo Platinum is still 49% shareholder at Bokoni, but being very diplomatic - what was the position you found, under the Anglo Platinum managed - was the operation remote from the main operations - as close as you are to Polokwane. What exactly was going on that you could make such a huge turnaround in such a relatively short period?

Philip Kotze: The majority of the focus certainly was on the western limb where they were mining higher grades than what is being mined on the eastern limb. The eastern limb was seen as a project and they were in the process of starting to improve those operations. Our model compared to the Anglo Platinum model is ... this is the only operating entity that we've got at this point in time in the company and therefore it gets 100% of our attention. In the Anglo's table at one stage it was making up about 4% of their profits and to that extent, I'm sure there are other areas that they gave more attention to. But with the growth opportunities that we see in this - being the only asset that we've got - I can assure you that we give it all of our attention.

Barry Sergeant: Just one final word - you're talking about grade there. Now of course Bokoni is somewhat unusual - you've got access to both the UG2 or which is relatively high in chrome - it's got a different composition to lets say the traditional reef - the Merensky - but at Bokoni you have essentially got access to both those reefs.

Philip Kotze: That's correct. The eastern limb is renowned for - all the other operators only mine the UG2 reef horizon there - mainly on the back of the fact that the Merensky reef grade is too low to be mined economically. The Bokoni mine has got Merensky grade sitting at about 3.9 grams/tonne recovered, which certainly makes it a very viable option for us. And even the UG2 grade is being mined currently at about 5.4 grams/tonne. So on the Bokoni mine we've actually got somewhere between 0.7 and 1 gram/tonne grade advantage between some of the other mines that are mining on the eastern limb.

Barry Sergeant: Over the next decade your expansions that are underway, your step-ups you'd be setting up Bokoni to mine essentially for the next century and even beyond that. What is your Runnemede grade that you're looking at - your head grade.

Philip Kotze: We're currently running at about 4.3 grams/tonne as where we ran for the previous quarter - this quarter with all the labour moves and some of the problems that we picked up in the concentrator - that dropped a little bit but we're very confident that the longer term grade would run in the region of about 4.3 to about 4.5 grams/tonne.