AFRICAN Rainbow Minerals has reported a 43% drop in headline earnings for the year to June as the downturn in the platinum group metals (PGM) market delivered a kick in the teeth to the group’s ambitious expansion plans announced just two years ago.
In September 2022, ARM said it would invest R14.5bn in two platinum projects over the next three years because the group anticipated that a recovery in autocatalyst demand and tightening emissions standards will be “positive for the platinum group metal demand in the short to medium term”.
The two projects were the development of the Bokoni Platinum mine which ARM bought from Anglo American Platinum for R3.5bn and the expansion of the Two Rivers operation to mine the Merensky Reef.
ARM management was not alone in its misreading of the platinum market with the most glaring example being the battle between Northam Platinum and Impala Platinum for ownership of Royal Bafokeng Platinum (RBPlat) which has hammered the financial positions of both groups as PGM prices collapsed.
In March this year, Northam CEO Paul Dunne agreed with an assessment that neither group would have gone after RBPlat if they had realised what was coming down the track in terms of the deterioration in the platinum business.
Also in March at the interim results stage ARM announced it had deferred the proposed expansion of Bokoni taking a write-off of R1.74bn in impairments against its various platinum assets.
ARM has now announced that, as of July, it has placed the Merensky project at the Two Rivers mine on care and maintenance after spending some R6.2bn of the total estimated capital expenditure of R7.3bn on the development.
According to ARM executive chairman Patrice Motsepe, the decision was driven by “current depressed commodity prices in the PGM market. The Merenky concentrator plant construction and the first two mining levels have been completed. Long-term prospects for the Merensky project remain robust and accretive to Two Rivers mine and is planned to produce pgms at competitive costs.”
The Bokoni mine is now in operation using existing infrastructure but the mine lost R169m in the year to end-June. The plan is now to “conserve cash while ramping up production in a phased and measure manner given depressed commodity prices”.
Overall headline earnings for ARM Platinum decreased 162% to a headline loss of R910m in the year to June (2023: R1.46bn profit).
ARM’s total headline earnings dropped 43% to R5.1bn (R9bn) equivalent to R25.90 a share (R45.80/share) and the total dividend for the year amounted to R15/share (R26 a share).
“The current challenges posed by the downturn in the PGM market, along with lower iron ore and thermal coal prices necessitate a focus on preserving cash,” said Motsepe. “Management is committed to responsible capital allocation and will consider postponing capital expenditure where feasible.”
