ANGLO American Platinum (Amplats) said its interim headline earnings and headline earnings per share would be at least a fifth lower partly owing to lower dollar prices for the basket of metals it produces which the weaker rand/dollar exchange rate could not completely mitigate.
Amplats, which is 79%-owned by Anglo American, was comparing its expectations for the six months ended June 30 this year to the corresponding six month period of the previous financial year in 2015. It said it would provide a more definitive update before it reported its figures, which has been scheduled for July 25.
The other factor affecting earnings was a stock take adjustment in the previous period which resulted in an after tax gain of R1.6bn, equal to 599 cents per share.
A 20% decline in headline earnings translates to R494m or 189 cents/share. Headline earnings in the interim period of the previous financial year was R2.5bn whilst share earnings came in at 936 cents/share.
Shares in Amplats have gained nearly 120% this year alone, an improvement that analysts believe is pricing in a much higher rand platinum price than is sustainable. Despite some retracement in the shares, they remain relatively strong suggesting that there are enough positive forces to support an improvement in the price of platinum group metals (PGMs).
At a basket price of about R12,600 per ounce, roughly 90% of the industry was cash positive after sustaining capital expenditure, according to a recent UBS report. “Whilst this is lower than recent highs of about R14,000/oz, it is materially better than November 2015 when only 55% of the industry was cash positive,” the bank said.
It said Amplats had made signfiicant progress in restructuring its operations since 2013 with the proposed sale of its Rustenburg Platinum Mines (RPM) to Sibanye Gold viewed as the latest step of note.
“Although the transaction removes some of the leverage to a rebound in PGM prices, it limits the potential cash burn in a low-price environment,” said UBS. “Additionally, with a 100-year mine life at current production, we see material upside to production from Mogalakwena, which has a higher cash margin than practically any other South African PGM operation, though we do not believe it will be developed near term,” it added.
Sibanye Gold has forecast a cut in platinum production over the coming years, partly owing to its own efforts at consolidation. The company aims to become the third largest PGM producer globally and, therefore, it could have an impact on the PGM market if it followed up on its intention not to mine unprofitable ounces.
Analysts are not convinced, however, that PGM output will decline significantly in South Africa. “We think tightness in the market has been over-estimated by up to 800,000 ounces (about 10% of the market) and see a surplus of 200,000 oz,” said Goldman Sachs in its report which was published on June 9.
It is different to recent findings of the World Platinum Investment Council, and another research house, the UK’s Johnson Matthey, because it is bullish on new production.
Toronto-listed Platinum Group Metals’ project, WBJV, and Northam Platinum’s Booysendal projects were due to ramp up while Amplats’ Rustenburg Platinum Mines would also expand taking primary metal output from South Africa up some 120,000 oz/year, it said.
