Amplats “driving without a spare” following closure of refining capacity for second time

Natascha Viljoen, CEO Anglo American Platinum

ANGLO American Platinum’s (Amplats’) decision to pre-emptively shut its only operating refining unit in Rustenburg would leave the company “driving without a spare” well into its 2021 financial year, and could pare back returns to shareholders, said analysts.

Amplats announced the closure of Anglo Converter Plant Phase B (ACP B) on Thursday after detecting further water leaks in the unit that resulted in its closure in February, downtime that last for several months. Amplats had signalled in third quarter production numbers that ACP B was “fragile”.

Its other converter plant, without which finished production of platinum group metals (PGMs) cannot proceed, ACP Phase A, was decommissioned in February following an explosion caused by coal dust. The unit is being rebuilt with expectations for recommissioning brought forward to the fourth quarter from an earlier forecast of a first quarter 2021 commissioning.

Analysts said the event would heighten Amplats’ operational risk.

“Amplats’ entire output of PGMs passes through the ACP and only having one phase fully operational at a time is high risk,” said Bank of America (BoA Global Research).

Amplats CEO, Natascha Viljoen, said ACP A would replace ACP B at some point this quarter, but production would switch back to ACP B when it was rebuilt to allow further maintenance on ACP A – a switching to and fro BoA considered risky.

“It looks to us as though risk will likely persist at least into 2022E until work on both phases is complete and there is redundancy in the system again,” it said.

Shares in Amplats were largely unaffected on the JSE following the news, but JP Morgan analysts, including Dominic O’Kane said in a research note that the Anglo American firm could “reign-in excess payout ambitions” given it had declared a 100% share earnings payout for the second half of its 2019 financial year and an overall 75% payout for the 2019 financial year.

There would also be an impact on working capital build into 2021 when the earlier expectation was that Amplats would actually release the build from the earlier interruptions. A $230m release in 2021 was previously forecast by JP Morgan whereas a build in working capital totalling $500m was forecast for the second half of this year.

Commenting on the impact to the balance sheet, RMB Morgan Stanley analyst, Christopher Nicholson observed: “While we maintain that this is likely to be transitory in nature and full reverse in 2021 to 2022, earnings downgrades and slower deleveraging are unhelpful.

“All else equal, this could drive FY20 net debt to more than $7bn” which compared to the bank’s net debt forecast for Amplats of $6.5bn.

There was also the added impact that Amplats’ rivals – Impala Platinum and Sibanye-Stillwater, would benefit from a tighter market, especially for palladium and rhodium – during the period.

Third party suppliers to Amplats would be unaffected by the latest interruption but in order to satisfy contractual supply agreements, Amplats may decide to buy metal from the open market, said analysts. Asked about that prospect, Amplats CFO, Craig Miller, told media it was under considerati

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