[miningmx.com] – ANGLO American Platinum (Amplats) sought to ease fears about its mounting debt levels saying that it had headroom of R6bn on its balance sheet, and that it might even reduce net debt in the second half of its financial year.
The concern is that with capital expenditure expected to remain at between R6bn to R7bn a year for the next three years, and with a slew of short-term extraordinary cost pressures due to hit the balance sheet, such as restructuring costs, Amplats will draw on its parent, Anglo American, or tap shareholders for more funds.
Amplats raised R12.5bn in a rights offer in 2010 with Anglo American taken up most of the strain. Net debt in the six months ended June increased about 30% to R13,2bn owing to the strain of stay-in-business capital.
In the second half of its financial year alone, Amplats will face R2.6bn in restructuring costs without realising the bulk of the benefits until the 2014 financial year. It is also expected to book certain non-cash items such as R2.3bn in impairments, and a loss on the refinancing of its empowerment play, Atlatsa Resources totalling R1.2bn.
Amplats finance director, Bongani Nqwababa, said there was no danger of debt spiralling out of control.
“It’s not a given that net debt will be higher by year end,” said Nqwababa in response to questions at Amplats’ interim results presentation in Johannesburg today.
“You shouldn’t be surprised if net debt is lower,” he said, adding that the outcome of the debt picture turned on the basket price of platinum group metals, as well as the extent to which Amplats worked through high levels of inventories, and released working capital.
Asked if the company may be in danger of breaking bank covenants – which ask that a company’s earnings cover debt by a certain ratio – Nqwababa said: “Just to reassure you, even if gross debt were to increase by 50%, we would not breach the covenants”.
“Obviously lower debt is preferred to higher debt, but have committed facilities of R6bn and we’re confident that won’t breach those,” he said.
The question of balance sheet flexibility raises its head especially as the outlook for metal prices remains uninspiring. Chris Griffith, CEO of Amplats, said the market was currently in balance given the weak supply and flat autocatalyst demand. The light vehicle diesel market which is a main driver for platinum, was poor however.
The risk is that without funding flexibility, Amplats will be unable to pay for its high capital expenditure demands without returning to the market.
Griffiths said the company would not stop developing at its operations in the eastern limb of the Bushveld, or Unki, the company’s Zimbabwean mine.
He even raised the prospect of doubling production at Mogalakwena which, with interim net sales revenue of R4.9bn out of a total of R18.2bn in revenue from own mines, in the six months ended June, is by far Amplats’ largest mine.
“The longer term focus is to replace higher cost ounces with more quality ounces on the Eastern Limb, Unki Mogalakwena,’ said Griffith.
“If we double expansion at Mokgalakwena we will need a new smelter and another base metals refinery. It will be a high capital expansion, but it’s not something that is putting us off,’ he said.
“We are looking at what a big expansion of Mokgalakwena will look like . There are plans in the long-term, but we need to finish out work to know what it means,’ he said. Amplats was also considering “other open pit operations in the northern limb’, he said.
Griffith said Amplats hoped to get another 100,000 ounces of platinum from Mokgalakwena by de-bottlenecking the operation. The plan was not to put more ounces into the market but to replace raise the operating margin.
