World number two platinum group metals (PGM) supplier Anglo American Platinum (Amplats) will regain its usual place as the go-to investment in the sector after putting a difficult six months behind it.
Amplats, which is 80% owned by Anglo American, had a tough six months with processing stoppages, SA’s Covid-19 lockdown and erratic electricity supply, but its financial results were saved by an 80% increase in the rand price for the metals it produced.
The rhodium and palladium prices were the star performers, adding R9.6bn to earnings before interest, tax, depreciation and amortisation (ebitda) of R13.1bn in the six months to end-June compared to R12.4bn a year earlier. Rhodium, which is used to make anti-pollution devices in vehicle exhausts, contributed R6bn alone and doubled its contribution to revenue to 30%.
The higher prices masked the production difficulties both at its mines and processing division where a trio of problems overlapped and pushed PGM sales down by 38% to 1.23-million ounces for the six months.
With the tricky interim period behind it and increased production as mines in SA returned to full production and Amplats processes the 500,000oz of PGMs it was unable to refine in the first half, the company was again a preferred platinum share for investors, said Nedbank mining analyst Arnold Van Graan.
“Amplats remains one of the best-positioned producers in terms of being able to withstand the impact of the Covid-19 crisis and to benefit from rising metal prices, given its quality asset base and large open-pit production exposure. We believe it will remain one of the preferred names for investors looking for PGM exposure.”
Amplats declared an interim dividend of R10.23 a share, 7% lower than for the same period a year earlier, but in line with its dividend policy.
Revenue shot up 28% to nearly R55bn due to an 80% rise in the rand prices for the metals it produces. After-tax profit fell 9% to R9.35bn.
In the six months, refined output was hammered by the failure of its two converter plants that feed the refineries as well as disruptions stemming from the March 27 lockdown of the economy to stem the spread of Covid-19.
Cost of sales per ounce bounced up 69%.
The lockdown cost Amplats 585,500oz of PGM production, while the company paid R1.2bn to employees who were not working during the lockdown, which was eased in phases.
The difficult start to the year has proved a test for new CEO Natascha Viljoen, who replaced Chris Griffith after his unexpected resignation earlier in 2020.
“While the early stages of an economic recovery are under way in many geographic regions there remains a great deal of uncertainty and we have limited visibility beyond a couple of months,” Viljoen said.
Supplies of mined PGMs, of which SA is the leading source followed by Russia, are “expected to be sharply lower this year due to the impact of Covid-19, while global recycling volumes are expected to be less affected”, she said.
PGM demand will be softer because of reduced global car making and sales.
“We do expect platinum, palladium and rhodium to remain in deficit this year,” Viljoen said.
Considering the first-half difficulties, Amplats had a “good” set of results, said Van Graan.
“The higher PGM basket price provided a massive boost, offsetting the impact of lower production and higher costs that resulted from these operational challenges,” he said in a note.
“As a result, the company remained highly cash-generative and was able to pay a R10.23/share interim dividend, in line with its dividend policy,” he said. Amplats had net cash of R11.3bn at the end of June.
Amplats forecast refined PGM output for the full 2020 financial year to end-December to be 3.1-million to 3.6-million ounces.
Refined production, excluding the metal processed for paying customers, dropped 49% to 1-million ounces due to the converter failures and electricity supply disruptions during the first quarter.
From the start of June all mines were allowed to return to full production provided stringent health and safety measures were met.
Amplats expects to return to 95% of mining capacity by year’s end. It was at 80% by end-June.
Amplats will process about 45% of the 500,000oz of the PGMs held in inventory in the balance of this year and the rest during 2021, CFO Craig Miller said.
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