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Impala Platinum Profit Climbs 7.3%; Output to Drop (Update4)

By Carli Lourens

Feb. 14 (Bloomberg) -- Impala Platinum Holdings Ltd., the world's second-biggest producer of the metal, said fiscal first- half profit rose 7.3 percent on record prices and forecast output will drop because of a power shortage in South Africa.

Net income climbed to 4.66 billion rand ($608 million), or 7.70 rand a share, in the six months to Dec. 31, from 4.34 billion rand, or 8.20 rand, a year earlier, the Johannesburg- based company said today in a statement. Production will probably fall to ``just under'' 2 million ounces in the current fiscal year, compared with 2.03 million ounces a year earlier, Chief Executive Officer David Brown said in an interview.

Impala and larger rival Anglo Platinum Ltd. account for about two-thirds of global output of the metal. Most of their mines are in South Africa, where power cuts and safety-related stoppages helped push the average price of the metal up 17 percent to $1,372.21 in London during the second half of 2007.

``While strong platinum prices may be good for earnings in the short term, there is the danger that jewelry makers and other users will start looking for substitutes,'' said Andries Theron, who helps manage 20 billion rand at Johannesburg-based Standard Private Bank Equity Advisory Services. Platinum is also used in auto catalysts.

Impala rose 9.75 rand, or 3.3 percent, to close at 308.75 rand in Johannesburg trading, taking its gain this year to 30 percent. Anglo Platinum climbed 0.7 percent to 1,190 rand, taking its advance in 2008 to 18 percent.

Record Output

Impala's output jumped 1.4 percent to a record 1.03 million ounces in the fiscal first half. Inadequate electricity supplies may cost the company as much as 40,000 ounces this fiscal year, Brown said.

Platinum production from South Africa, which accounts for almost 80 percent of world supply, may be cut by 500,000 ounces this year as state-run utility Eskom Holdings Ltd. rations power use, Barclays Capital said on Feb. 8. Anglo Platinum expects to lose about 150,000 ounces of production this year because of the shortage, the company said Feb. 11.

Impala will consider co-generation power plant projects, possibly in a joint venture with Anglo Platinum and Lonmin Plc, Brown said.

``We have to now plan for a worst-case scenario in terms of power outages,'' Brown said. Eskom, which supplies 95 percent of the country's power, has lost ``credibility'' as a reliable supplier, he said.

Power Rationing

Impala and other industrial customers have been rationed to 90 percent of their normal power requirements as Eskom builds new plants to meet demand. It will probably ration supply until 2012 when the utility's first new coal-fired plant opens.

``They are all going to be affected by power reduction,'' Mark Madeyski, an analyst at Afrifocus Securities, said by telephone from Johannesburg today. Platinum prices ``may be strong enough'' to make up for the power cuts, he added.

Power rationing ``shouldn't'' affect expansion plans, Brown said, adding that production should rise to 2.3 million ounces by the 2010 fiscal year, even as its Two Rivers project is delayed by ``labor issues and difficult geological conditions.'' Number 17 shaft was approved at a cost of 5.5 billion rand, Brown said.

Production in Zimbabwe may reach 260,000 ounces in ``the next couple of years,'' Executive Director Les Paton told analysts.

Impala may spend as much as 5.5 billion rand expanding and replacing equipment this year, Brown said. Approved expenditure was at 14.2 billion rand as of Dec. 31.

Platinum's Record

Platinum advanced to a record $2,027.50 an ounce earlier today and traded at $2,007 as of 10:41 a.m. in London. The metal may trade at an average of $1,800 an ounce this calendar year, Brown said.

``The extreme volatility in prices and prices going up quickly in the short term for us is an issue,'' Brown said in the interview. ``It is of concern that people will be looking more intensely at substitution,'' Brown told analysts in a presentation.

The platinum shortfall could increase to 620,000 ounces this year, pushing the average price to about $1,850 an ounce, Derek Engelbrecht, marketing executive at Impala, told analysts and reporters in Johannesburg. A rhodium deficit will also continue and the metal may trade at an average $8,000, he said.