ANGLO American Platinum (Amplats) said full year headline earnings for 2021 would be more than double the previous year after it rapidly sold a backlog of platinum group metals (PGMs) and benefited from a 22% increase in rand basket prices.
Earnings would come in between R74.8bn and R80.8bn. The company, which is 80% controlled by Anglo American, earned R30.3bn in its 2020 financial year.
PGM sales were 82% higher year-on-year after the company cleared out an inventory of metal in concentrate that couldn’t be refined in the previous financial year owing to technical faults at the firm’s Rustenburg-based processing facilities.
Amplats said in a production update in December that refined production for this year would come out higher than forecast at between five million and 5.1 million PGM oz compared to the previous forecast of 4.8 to five million oz.
The release in capital build was offset by an increase in purchase of concentrate costs, higher tax bill and royalties – a function of increased sales – and higher input inflation.
Mining inflation is likely to become a major theme for the South African mining sector this year. According to a report by RMB Morgan Stanley today rising unit cost inflation was one of the reasons why PGM shares in Johannesburg, including Amplats, were lagging an improvement in the price of the metals this year.
In addition, a production slippage at Impala Platinum (Implats) and Amplats’ forecast that concentrate production would fall in the current financial year also suggested “a maturing cycle”, said the bank. This was similar to 2006 and 2008 when the platinum price was high.
In that time period, the improved market fundamentals did not translate into as strong a performance by the equities, although they did provide a positive return over the period, said RMB Morgan Stanley. The current lag in PGM shares suggested a similar outcome was due in the current cycle.
However, RMB Morgan Stanley said mining inflation might not be as high as in the 2006 to 2008 period. “Cost inflation (currently in low double digits) is still well below this time period …” of more than 20% in 2007/2008, it said.
Interestingly, capital expenditure today serves to replace the existing supply base whereas in the last PGM upcycle it was an aggressive attempt at growth. However, the bank’s analysts said that merger & acquisition activity in the PGM over the last 12 months was suggestive of a mature price cycle.
In addition to the high stakes bid for Royal Bafokeng Platinum by Implats, the acquisition of shares in RBPlat by Northam, there have been other deals including the R1bn purchase of Bokoni Platinum Mines from Amplats by African Rainbow Minerals and Sibanye-Stillwater’s buyout of the Kroondal Platinum pool and share, again with Amplats.
