Amplats’ Viljoen says PGM price resilience is helping firm outpace inflation

Natascha Viljoen, CEO, Anglo American Platinum

PLATINUM group metal (PGM) prices had withstood a series of recent crises which would assist Anglo American Platinum (Amplats) in preserving its margins, said the group’s CEO, Natascha Viljoen.

“In the short term, yes,” Viljoen said in response to a question as to whether PGM prices have been able to outpace the effect of inflation on the group.

“If you just look at what the (PGMs) price has done in the last week. It has come down from recent highs, but it has stabilised. Just when we thought we were out of the woods with the (semi-conductor) chip shortages, the lockdown in China happened.

PGM prices collapsed at the end of last year as automanufacters slowed production amid a shortage of semi-conductors. This year, China has enforced lockdowns in terms of its zero-policy on Covid-19 infections.

“Now there are concerns about inflation on consumer demand ultimately but the prices have withstood all those shocks,” Viljoen said. She was commenting during a meeting with media earlier this month.

At $1,964 per ounce, the price of palladium is down only $10/oz in the last 30 days, although it is significant weaker than when it traded at just over $3,000/oz in March – a five year high for the metal.

Rhodium prices have also come off a 30 day low of $11,800/oz in mid-June to trade at about $12,600/oz, although well off the $20,000/oz they achieved in March.

“From now on we want to keep costs under control. Some of our most robust conversations are about capital allocation and where we look for stay-in-business capital or growth. We have to be very disciplined and agile,” Viljoen said.

“Stronger for longer remains our base case,” said RMB Morgan Stanley in a recent report addressing the PGM price outlook. “This view is driven primarily by supply-side constraints, with both recycled and mined supply forecast to fall into 2022/2023 and ongoing risk from the potential realignment of Russian supply,” the bank said.

It added that the disconnect between Amplats’ share price and revenue basket in the second half of last year into the first quarter of 2022 had “now closed out”. Having de-rated shares in the company would benefit from improved PGM production (owing to less seasonal rainfall this year), and the early settlement of wage negotiations with unions.

Amplats paid out an R80bn total dividend for its 2021 financial year – a payout sweetened by a R33bn special cash dividend for the second half.

The special cash dividend consisted of R49 per share base dividend in line with the firm’s 40% of headline earnings payout ratio and a further R76 per share special dividend equal to R33bn. The special dividend took the payout to 100% of second half headline earnings.

Viljoen declined to comment on whether the era of special dividends was now over given the fact the group was entering a period of high capital spend as well as high inflation with average rates running at between 10% and 15% in the sector.