Anglo American Platinum (Amplats) dropped out of the JSE top 40 index on Friday, reflecting a 35.5% drop in the group’s share price since the beginning of this year as platinum group metal (PGM) miners continue their fall from favour.
Amplats, the world’s largest primary PGMs producer, was at R604.46 a share when markets closed on Friday, having fallen from a peak of R2,675.38 in 2022. On Monday the share price recovered 2.87% to close at R621.78. After shedding nearly R100bn in value on the JSE this year Amplats is no longer among the JSE’s 40 most valuable companies — its position was taken by retailer Pepkor.
Amplats’ departure from the JSE top 40 opens the door to selling pressure from index trackers, now forced to dispose of their stake in the company. This could drive Amplats’ share price down further, says Independent Solutions portfolio manager Harold de Kock.
“We generally see less liquidity in companies that drop out of indices, and we generally expect their share prices to decline over a period because there are more forced sellers and fewer buyers,” he said.
Omission from the index also means fewer institutional investors watching the company, which could lead to declining volumes and the share price falling further. But De Kock said overnight shifts in Amplats’ share price were unlikely as institutional investors and index trackers monitor changes to the index before they happen and adjust their funds accordingly.
“When companies like Amplats fall out of the index institutional investors have generally already planned for that, so we don’t see sharp moves in companies coming in or going out of the index on the day of the change,” said De Kock.
Amplats’ fall from the top 40 comes after three years of falling PGM prices have eroded the group’s financial and operational performance. The group’s latest interim results reflected lower PGM prices driving an 8% reduction in earnings before interest, taxes, depreciation and amortisation (ebitda) and a 5% drop in output.
“The PGM sector has come under a lot of pressure,” said Anchor Capital investment analyst Seleho Tsatsi.
“PGM miners have high fixed costs, so declines in PGM prices really affect their margins and thus earnings. That’s what we’ve seen from Amplats and PGM miners in general over recent reporting periods.”
Amplats’ share price also came under strain after the announcement earlier this year that parent company Anglo American plans to divest Amplats by end-2025 along with its diamond, nickel and metallurgical coal business units.
“Anglo American is the significant, anchor shareholder for Amplats,” said Tsatsi, “so this announced intention to divest of Amplats has been somewhat of an overhang for the Amplats share price.”
Earlier this month, Anglo completed a bookbuild to divest 5% of its Amplats stake, achieving the first step in the process. Tsatsi said Amplats’ ability to rejoin the top 40 index hinged primarily on the future direction of PGM prices.
“Though cost and volume performance and capital allocation can make significant differences in how individual PGM mining companies perform over time, the performance of PGM prices ultimately has a huge influence on the fortunes of individual companies and the sector as a whole,” he said.
Amplats’ replacement in the top 40 index, Pepkor, has seen a 38% rise in its share price in the past year, returning it to its 2022 highs.
Pepkor’s latest interim results reported revenue up 9.5% at R43.3bn, while operating profit grew to R5.1bn. The group is expanding rapidly, having added 111 new stores in the six-month period under review, on top of its existing 5,823 stores.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.