ARM warns of lower earnings as PGM price correction weighs on receiveables

Patrice Motsepe, executive chairman, African Rainbow Minerals

AFRICAN Rainbow Minerals (ARM) said headline earnings for the first six months of its 2022 financial year had been affected by an adjustment to the value of receiveables related to a correction in platinum group metal (PGMs) prices.

Rhodium and palladium prices declined in the period which affected the average basket price of PGMs received. This “… resulted in negative mark-to-market adjustments,” the company said in a trading statement on Friday.

Headline earnings would be between 24% and 33% lower ranging from $3.38bn to $3,83bn, and basic share earnings for the interim would be between 17% and 26% weaker or R3.6bn to $.4.04bn. Headline share earnings would come in at a range of R17,33 to R19.66/share while basic share earnings would be between R18.49 to R20,74/share.

Earnings were also affected by a strengthening of the rand against the dollar and lower average US dollar iron ore and palladium prices, the group said. ARM is due to report its interim numbers on March 3.

The basket price for PGMs weakened in the last quarter of 2021 owing to a shortage of semi-conductors which curtailed car production. However, the supply chain problems have eased supporting a recovery in prices this year.

According to Noah Capital analyst, René Hochreiter, the palladium price is expected to average $2,000 per ounce this year as car sales rise whilst platinum would average at the $1,000/oz mark owing to surpluses and continued above ground stocks.

The rhodium price is expected to average $17,500/oz for 2022 – well off its high last year of about $30,000/oz – but remaining elevated from an average price perspective. This is as a result of lower supply from Anglo American Platinum – which has cleared an inventory backlog – and a recovery in motor vehicle manufacturing.

The rhodium price is expected to improve from 2023 “… due to high loadings in autocats and current strong demand for motor vehicles,” said Hochreiter.

All eyes will be on whether ARM intends to press ahead with a restructuring involving its PGM business. Group executive chairman Patrice Motsepe commented in September that  separately floating the platinum business had been a discussion for the last seven years. 

Analysts at the time speculated that in raising the matter publicly Motsepe was preparing the market for potential corporate activity. In addition to PGM production, ARM also produces thermal coal, iron ore, chrome and manganese.