Grim times continue to hammer South Africa’s platinum miners

Anglo American Platinum (Amplats) has completed the disposal of two more of its unwanted assets but the stage is set for further restructuring in the broader platinum sector during 2018 as the platinum price plunges below the $900/oz level once again.

That is despite optimistic outlooks for the metal voiced during November  by Northam Platinum  CEO Paul Dunne and the World Platinum Investment Council (WPIC).

On  November 14,  Dunne commented he was  “getting excited” about recent developments in the platinum markets pointing to growing “real” as opposed to “investment” demand for the metal coming from China in particular.

He did – however – qualify his comments by adding that, “current market conditions will persist for a little bit longer.”

On November 21,  the WPIC published its latest Platinum Quarterly Report in which it predicted a jump in the global platinum market deficit to 275,000oz  during 2018 from an expected 15,000oz this year.

WPIC head of research Trevor Raymond highlighted declining “above ground” stocks of platinum and told  Reuters  “ for five years these stocks have been feeding deficits…….it does appear the platinum market is much tighter than it’s ever been in last five years.”

Yet the platinum price has subsequently plunged from around $955/oz on November 27 to current levels around $880/oz.  That  takes it back near the lowest levels it has hit  over the last six years during which the price has slumped from around $1,900/oz in August 2011 to below $850/oz  in January 2016 from where it staged a temporary  recovery to around $1,150/oz  before collapsing again.

If the platinum price stays at these lower levels it must lead to further rationalisation amongst the country’s platinum miners given Dunne’s observations in November that  “the country’s production is still shrinking. You will see further production surprises.”

Northam is one of the better placed South African platinum producers with Dunne claiming the position of  lowest-cost producer in the sector after publication of the company’s  2017  financial results in August.

The company will build on that through the acquisition of the additional resources from the Amandelbult  mine which was one of the deals that Amplats announced today has been completed.

Northam paid R1bn in cash for that ground which is adjacent to its Zondereinde mine.  The deal extends Zondereinde’s life by 10 years and gives it access to additional reserves of higher-grade Merensky reef.

The other deal completed by Amplats is the sale of its “loss-making 42.5% interest in Pandora”  to Lonmin which now owns 100% of that operation.  Lonmin got Pandora for the knock-down price of a deferred cash payment of between R400m and R1bn  “based on 20% of free cash flow over six years”.  Amplats was also granted full control of Lonmin’s Baobab concentrator for three years.

Lonmin CEO Ben Magara commented the acquisition is “an excellent strategic fit for us”   which “allows us to maintain production levels at Saffy while significantly reducing our capital expenditure requirements at this operation over the short and medium term.”

But Lonmin continues to face a grim financial and strategic position which is why it has been  referred to by some observors as “the weakest link” in the  SA platinum business.

The group has been through a torrid time since the disastrous events at Marikana and there is considerable market speculation Lonmin is about to call its fourth rights issue in eight years.

Still awaiting closure at Amplats is the disposal of its Union Mine following the deal struck in February this year to sell it to Siyanda Resources.

According to Amplats CEO Chris Griffith,” significant progress has since been made on completing the conditions precedent including approval from the South African competition authorities ………..and consent in terms of Section 11 of the Mineral and Petroleum Resources Development Act.”

Griffith added he expected completion of the deal in early 2018.