Amplats unveils R3bn interim dividend, but plays cards cautiously as wage talks begin

Chris Griffith, CEO, Vedanta Base Metals

ANGLO American Platinum (Amplats) delivered on a widely anticipated increase in free cash flow by dint of six months of elevated pricing for platinum group metals (PGM), ending the year with net cash of R6bn (2018: +R477m).

It declared an interim dividend of R3bn, equal to R11 per share, after saying earlier this year it would pay 40% out of earnings, higher than the previous 30% payout policy. Interim headline earnings came in at R7.4bn, a 120% year-on-year increase. Free cash flow from operations was R4.3bn, an increase of 126% year-on-year.

The dollar PGM basket price was 16% stronger led by a record palladium price and strong rhodium pricing which was 47% higher. Amplats expected pricing would remain supportive with deficits remaining in palladium and rhodium. There might also be the emergence of a small deficit in platinum.

In addition to the stronger basket price for PGMs, Amplats’ operations had a solid time producing 2.15 million ounces of PGMs. This was a 2% decline taking into account metal from Sibanye-Stillwater that it now treats on a toll basis, but it was a production performance achieved in the face power supply interruptions, as well as a strike at the firm’s Mototolo mine in the period.

The numbers were also assisted by the absence of the previous year’s exceptional items related to technical write-downs on assets sold as the group applied the finishing touches to more than five years of restructuring.

“This is a very much stronger business today because of the actions we have taken in recent years,” said Amplats CEO, Chris Griffith in comments to the interim results announcement to the JSE. He raised the prospect of a further improvement in the second half of the group’s financial year as some cost pressures reversed.

For instance, group unit costs were up 13% year-on-year as a result of lower mined volumes. At Mogalakwena, the rand per platinum ounce unit cost was 12% higher as it mined more waste than previously.

First, though, Amplats had to negotiate wage negotiations with unions including the Association of Mineworkers & Construction Union (AMCU). Griffith said it was “very early in the process. Prices come up and prices go down”.

“We don’t want to embed unsustainable increases into the cost base of the business,” he said of union expectations of double-digit wage increases. On June 14, AMCU tabled wage increase demands of as much as 48%. A R17,000 per month minimum demand compares with about R11,500 currently earned by the lowest-paid workers.

Griffith said Amplats was already paying out R8,000 per employee in cash and shares in terms of the firm’s ESOP commitment.

Capital discipline would also be applied ahead of decisions to approve new projects, said Griffith. The company is working through a study to expand its Mogalakwena mine as well as at Mototolo, which is currently mining at the farm boundary, into Der Brochen.

“While we believe in the underlying potential of business, we need to take a long-term view and see what the down-cycle market looks like,” said Griffith of the firm’s capital development plans. “We can’t get too excited by existing prices and rush out and invest.

“Mining firms have got themselves into problems in the past doing this,” he said. “There is nothing we can do to fast-track these projects. but at the end of the year we will give more light on how far we are. We will only make an investment decision at the year-end.”