Amplats’s special dividend was “not good governance”

Photographer: Chris Ratcliffe/Bloomberg via Getty Images

SPECIAL dividends are usually grounds for investor celebration. In the case of Anglo American Platinum (Amplats), however, there is reason for pause.

On February 17, the platinum group metals (PGMs) producer announced a R15.7bn payout, equal to R59 a share — a sum that no doubt delighted shareholders, including Anglo American, which is due to demerge its 66.7% stake in June. Combined with an ordinary dividend declaration of 300c a share (R800m), however, the total dividend speaks for nearly all Amplats’s net cash, totalling R17.6bn as of December 31.

“Parent Anglo has not made it easy for Amplats,” said Adrian Hammond, an analyst for Standard Bank Group Securities in a note to clients.

“Leaving the world’s largest PGM producer and employer in a net debt position (not since 2017), in a weak price environment, and in the midst of a major capex reinvestment phase, is not good governance, in our view.”

Amplats pointed to having established an “appropriate capital structure” for itself ahead of its demerger from Anglo. It will maintain leverage below 1 times net debt:earnings before interest, taxes, depreciation and amortisation through the cycle; maintain investment to support sustainable returns; and retain the dividend policy as a 40% earnings payout.

But it’s hard to escape the notion Anglo has influenced this largesse. Asked about this, Amplats CFO Sayurie Naidoo said the payout recognised the firm had been “reliant on Anglo from a balance sheet perspective”.

Included in Amplats’s cash balance is the R11.9bn balance of a customer prepayment which expires in 2027. Excluding this, the dividend is paid partially from debt.

There’s a 525,000 ounce inventory destock that will boost free cash flow this year, according to RMB Morgan Stanley analyst Chris Nicholson, but he added: “A key question for us is how this payment aligns with previous comments around maintaining a strong balance sheet into the demerger?”

Asked what he thought of some analysts implying Amplats had been left “high and dry”, Anglo CEO Duncan Wanblad said in an interview the special dividend followed “a long conversation” with Amplats CEO Craig Miller and his team on what the capital structure “could and should look like”.

“Definitely, in terms of business plans and the way we think about the markets, there is no way ‘high and dry’ could be applied to it,” Wanblad said. “It won’t have a lazy balance sheet, but it won’t be overworked given the capital structure taken on. It was a very thoughtful process and I’m very proud it ended up with the capital structure.”

Anglo will retain a 19.9% stake in Amplats after the demerger, which will also see Amplats take a secondary listing on the London Stock Exchange (LSE). Both the listing and residual stake are intended to minimise flowback of Amplats shares from investors not mandated to hold the stock once it becomes a standalone entity.

As Anglo’s stake in Amplats is noncore it raises the question of whether more bookbuilds are planned — Anglo last year raised R16.8bn by reducing its 79% stake — or an outright sale to a third party. Whatever route is taken, the Anglo stake could act as an overhang.

“The intention is to sell down the stake over time but we are also very cognisant that it needs to be at the right time and in the right way so that it works for all shareholders,” Wanblad said. “A lot of its shareholders will have been Anglo American shareholders.”

LSE comings and goings

As for Amplats’s secondary listing, it will probably come as cold comfort to UK investors who learnt this month that Glencore is the latest mining giant considering a move away from the City, probably to the US, though Sydney remains a possibility. Glencore CEO Gary Nagle acknowledged at the firm’s annual results presentation that the deeper pools of capital in the US were an attraction.

It’s becoming a crisis for the LSE, which is losing its mining behemoths.

BHP ditched its dual structure and London listing in 2022 and Randgold Resources left following its Barrick Gold merger. At Rio Tinto, activist shareholder Palliser Capital recently demanded the Anglo-Australian group take a leaf out of BHP’s book and end its dual listing as it would save Rio Tinto shareholders an estimated $50bn. The group urged shareholders to reject Palliser’s proposal.

Asked if Anglo had weighed up other listing options, Wanblad said: “We’ve never had the thought that this jurisdiction doesn’t work for us. But I haven’t spent a lot of time thinking about this as the focus has been on our transformation and all that goes into that.”

A version of this article first appeared in the Financial Mail.