Aquarius Platinum shares continue to slide after a directive from South African inspectors designed to reduce mining accidents.
On Friday the company said miners had been told to reduce bord widths in bord and pillar systems [bords are tunnels left when mining material is extracted horizontally, with the sides acting as pillars to support the roof] and this would affect two of its projects. Aquarius said it would appeal against the directive today, as it believed it would not lead to a safer mining environment. It added:
Aquarius believes the directive will have a detrimental economic effect on those Bushveld chromite and platinum mines that use the bord and pillar mining method.
The company has recently suffered two separate fatal accidents at its mines, the latest at Marikana where five miners were killed.
When news of the South African directive broke on Friday shares in Aquarius lost 45.5p to 256p and today they have dropped another 30p to 226p. Analyst Alison Turner at Panmure Gordon said:
Aquarius Platinum on Friday received an instruction from the Principal Inspector of Mines in the North West to the effect that mechanised bord and pillar mines in the region must reduce bord widths to 6m. We estimate that this could reduce reserves and production at Kroondal and Marikana by 8-10%, with unit cash costs rising by a similar figure. This reduces our 2011 EBITDA forecast for Aquarius by 23% and 2012 by 12%.
Aquarius intends to appeal. Given the political sensitivity of the issue, we believe that an about-turn on the part of government would be difficult. Until the uncertainty is resolved we see limited potential for the share price to recover. We maintain our sell recommendation and reduce our price target from 300p to 250p.
