http://macq.wir.jp/e.ut?e=wgCrDnzhgV4W9kljgXhkFcD72GPAquarius...

http://macq.wir.jp/e.ut?e=wgCrDnzhgV4W9kljgXhkFcD72GP

Aquarius Platinum

All mines cash positive

Event

* AQP released 2Q11 (and hence 1H11) operating and cash cost metrics.

Impact

* A strong operational performance: AQP reported attributable PGM (4E) production of 128koz in 2Q11 (1Q11: 123koz), a 14% YoY and a 3% QoQ increase. 1H11 attributable PGM production was 251koz, marginally below our 269koz forecast but significantly above 1H10's level of 209koz. This increase is largely due to the continued ramp-up of Everest, which produced 25koz during the quarter and 46koz for 1H11. AQP enforced safety related stoppages at Marikana and Kroondal during 1Q11; the 2Q11 bounce in PGM output from these two assets was notable.

* The engine room is firing: Kroondal, AQP's flagship operation, delivered an 8% QoQ increase in PGM output, producing attributable PGM production of 115koz for 1H11 (99koz in 1H10). Marikana also delivered a strong operational performance, producing 16koz in 2Q11 (+18% QoQ), with 1H11 PGM output of 30koz, only marginally below the 34koz in 1H10. Mimosa, rather surprisingly, in our view, delivered a QoQ decline in PGM production due largely to AQP encountering poor ground conditions. Mimosa produced 24koz during 2Q11 (-13% QoQ) and 51koz for 1H11, still ahead of our 1H11 PGM forecast of 46koz.

* Financially defensive: Despite a strong rand/US$ exchange rate environment, the favourable impact of a stronger US$ PGM price resulted in AQP recognising a net increase in its rand PGM basket price for 1H11. AQP underpinned this relative gain with good cost control, with a decline in unit cash costs (rand) per PGM ounce of 13%. Only Mimosa recognised a rise in unit cash costs (5% QoQ). Importantly, AQP reported underlying cash margins of 24?55% at its operations, emphasizing its cash flow generation ability at current constrained rand PGM basket prices.

* Safety remains a priority: As part of AQP's review of the hanging wall support systems and mine layouts at Kroondal, Marikana and Everest, new support systems have been implemented at these mines. A decrease in fall-of-ground incidents at Kroondal was reported. As anticipated, the redevelopment of Blue Ridge has commenced (with effect from the beginning of 2Q11) and a full update will be provided when AQP reports interim results on 10 February 2011.

Earnings and target price revision

* No changes. To be reviewed post interims on 10 Feb.

Price catalyst

* 12-month price target: A$6.90 based on a DCF methodology.

* Catalyst: 2H11 extension of the Marikana and Kroondal P&SA. Zimbabwe Indigenisation legislation clarity.

Action and recommendation

* On the back of a strong quarter, we reiterate our Outperform rating for AQP and target price of A$6.90. Despite AQP guiding to a difficult 2H11, we still anticipate a financial and operating recovery from AQP in FY11/12. This should enable the company to add to an already substantial net-cash position, highlighting its defensive FCF-generation ability at current rand PGM prices.