Although the average basket price received for our metals in US dollars remained relatively constant, averaging US$498 for the year, the substantial strengthening of the Rand particularly in the second half of the year resulted in the Rand basket price received declining by some 9% to R145 273/kg. However, unit sales increased by 2.6% to 9 174kg (3PGE+Au) resulting in total revenue for the year under review declining by only 5.6% to R1 472 million from R1 561 million in the previous year.

Cost of sales

Cost of sales increased by 11.4% as shown in detail in the accompanying table:
 

	F2003	F2002
Labour	401 860	331 903
Stores	346 201	260 471
Utilities	81 217	74 832
Sundries	173 822	135 155
Decommissioning and restoration	1 227	1 153
Total cash operating costs	1 004 327	803 514
Refining and realisation	68 549	41 394
Leased metal costs	14 149	-
Depreciation and impairments	89 059	99 451
Change in metal inventories	(89 513)	31 190
Cost of sales	1 086 571	975 549

Operating costs

Total operating costs increased by 25% year on year. Labour costs increased by 21.1% of which the F2002 wage increases accounted for 12.2% and an increase in labour complements accounted for 6.2%. UIF and additional contributions to the Mineworkers' Provident Fund made up the balance. Stores costs increased by 14% in line with the 13.3% increase in stoping production. The company had to absorb above inflation increases in the prices of imported steel and chemicals. Sundries increased by 28% largely as a result of increased insurance costs, and costs associated with the toll refining during the smelter rebuild.

Refining and realisation costs

Refining and realisation costs increased by 65.6% from R41.3 million to R68.5 million in the year under review. A large portion of this increase, representing 25.4%, is attributed to the toll treatment of ore by Impala Refining Services during the smelter rebuild, and to the cost of treating Northam's nickel production, which was previously netted off the nickel sales revenue.

Leased metal costs

This cost represents the equivalent cost of production of metal leased during the year to meet marketing commitments during the smelter shutdown.

Depreciation and impairments

The depreciation and impairment charge reduced compared to F2002, as that period included an impairment charge of R11.2 million.

Change in inventories

Metal inventories increased as a result of the extended pipeline occasioned by the smelter rebuild. This metal will be released during the coming year.

Investment income

Investment income increased as a result of the higher interest rates received.

Net sundry revenue

Net sundry revenue comprises mainly gains from the hedging programme discussed on pages 57 and 58.

Net income

The decline in sales revenue, together with the increase in cost of sales, resulted in the operating profit declining by 34.1%. This was partially offset by an increase in investment income as a result of higher interest rates, resulting in net income declining by 31.1%.

Distribution to shareholders

In line with its policy of maximising distributions to shareholders, the company paid an interim dividend of 90 cps and a repayment of share premium of 20 cps at the half year stage, and is in addition proposing a further repayment of share premium of 35 cps.

Hedging

During the year the company embarked on a hedging programme to protect its revenues from a potential decline in the prices of platinum and palladium. At 30 June 2003 an average of 4 250 ounces of palladium per month until February 2004 had been hedged at an average price of US$244 per ounce. For July to September 2003, 5 000 ounces of platinum per month have been hedged at an average price of US$661 per ounce. 

A realised gain of R6.6 million is included in net sundry revenue, and in terms of AC 133 - Financial Instruments: Recognition and Measurement, the hedging instruments outstanding at year end have been recognised at fair value at the end of the period, with a gain of R16.7 million being included in net sundry revenue.

Capital expenditure

The development programme (R42 million), the smelter rebuild (R35 million) and additional refrigeration plants (R31 million) were the major contributors to the capital expenditure of R176 million. 

Planned capital expenditure for 2004 amounts to a total of R130 million and includes the following major items: the development programme (R49 million); additional refrigeration plants (R20 million); safety improvements to the hoisting arrangements (R12 million), and access infrastructure to 1 level (R10 milion).