Amplats cuts metal forecast for two years, delays Mogalakwena concentrator to 2025

ANGLO American Platinum (Amplats) has slashed production guidance for the next two years and pushed back a decision on the development of a third concentrator at its Mogalakwena mine by 18 to 24 months citing a combination of ageing assets, lower grades, and the end of third party concentrate supply contracts.

The announcement is a major jolt to the platinum group metal (PGM) market and supports the growing view that metal supply from South Africa is on the decline and will support deficits in the metals over the next three years.

Amplats, which is 80% owned by Anglo American, also announced that it will seek to unwind a 350,000 ounce concentrate capital build estimated to provide a R7bn benefit to Ebitda over the next two years at current spot prices and exchange rates.

The capital build was partly as result of delays in the rebuild of the firm’s Polokwane smelter which is now completed and is due to start operations later this month. Eskom loadshedding was another contributing factor. In this regard, Amplats has maintained its previously adjusted production guidance at 3.8 million oz for 2022.

It’s all change for the next two years, however.

Refined PGM production for 2023 is updated to between 3.6 and four million oz compared to a previous estimate of 3.8 to 4.2 million oz. For 2024, the new forecast is for refined PGM output of 3.6 to four million oz – potentially up to 500,000 oz less than the upper end of previous 2024 guidance of 4.1 to 4.5 million.

The lower production means an increase in Amplats’ cost estimates. For 2022, cost guidance was already adjusted upwards to R15,300 per PGM oz from R14,000 to R15,000 per PGM oz. But for 2023, cost guidance is R16,800 to R17,800 per PGM oz – an increase year-on-year of as much as 16.3%, assuming upper end of guidance.

In explaining the changes to production guidance over the next two years, Amplats said recent exploration had demonstrated a reduction in higher grade ore volumes at Mogalakwena which had lowered the average grade of the mine. There was also evidence of ageing at Amandelbult: infastructure closures, “challenging” ground conditions, and the closure of open cast operations were cited as reasons for lower output.

Amplats said it had consequently decided to shut Amandelbult’s Merensky concentrator, a step that would save R200m a year. There was sufficient capacity at the UG1 and UG2 concentrator plants to process the mined production, Amplats said.

A decision is also due in 2023 as to whether Amplats will press on with the mechanisation of Amandelbult “or adopt a modernised conventional method of mining”.

Speaking at Anglo American’s investor update today, the group’s CFO Stephen Pearce said “supply chain disruptions and high inflation” lay behind the decision to delay the construction of Mogalakwena’s third concentrator.

Amplats defended the delay saying there was minimal net present value impact because it would be timed to take the higher grade ore produced from the twin underground declines current under production. This “offsets the 18-24 months decision to start construction of the third concentrator”, the group said.