Falling Amplats Earnings Suggest We May Have Peaked Platinum

The fact that Anglo Platinum’s share price has fallen more than 50% since its peak in March this year shows us how dramatically the fundamentals of platinum group metals (PGMs) have changed in just a few months.

Falling PGM prices, 10% mining inflation and a 4% drop in production drove earnings down 43% for the six months to June 2022.

Amplats’ share price has returned to its pre-Covid level, suggesting that the post-Covid boom is well and truly behind us, and that we are now past the platinum peak.

“People got used to bigger numbers from precious metals producers and that wasn’t sustainable,” says Peter Major, mining director at Mergence Corporate Solutions.

“These are large, mature operations. I’m not sure they can do much better under the circumstances. There really isn’t much growth among precious metals producers, unless it’s Northam. They are all totally hostage to these commodity prices.

A worrying trend starting to show up in corporate income statements is inflation, especially for key inputs such as diesel and fertilizers, which have risen 61% and 55% respectively over the past year. .

This is according to Craig Miller, chief financial officer of Amplats, during a presentation to the media on Monday. Chemicals is up 17% over the last 12 months, which suggests that the pressure on margins will persist for some time.

Intermediate results

Earnings before interest, tax, depreciation and amortization (Ebitda) fell 32% to R43 billion in the six months to June 30, 2022.

The decline is due to an exceptionally good first half of 2021, when large inventories accumulated in previous months were processed, with a profit margin of 59%.

Read: Amplats returns R80 billion to investors with record profit [Feb 2022]

Maintaining performance like this is a difficult task, and there are now signs that Amplats is returning to more normalized performance.

The massive inventory build-up in 2021 happened as commodity prices skyrocketed.

It was a fortuitous moment for Amplats, says Terence Hove, senior market analyst at Exness.

“What we are currently experiencing, and which explains the fall in the Amplats share price, is the future expectation of weaker and less robust cash flows. Chinese economy due to its position of zero Covid cases. This has frankly dampened sentiment globally, as a slowdown in China translates into subdued demand globally, and is reflected in oil prices whenever an increase in Covid cases is reported outside of China.

The slump in first-half earnings should come as no surprise, given the spike in inflation triggered by the war in Ukraine and the ripple effect on oil prices, Hove adds.

“Our own local perils in constant power outages haven’t exactly alleviated these pressures on production. With inflation still high, [and] monetary policy tightening continues for what looks to be the remainder of 2022, output activity will remain subdued.

bright spots

Amplats CEO Natascha Viljoen highlighted some of the positives from the results, including reaching a five-year wage deal with unions at an annual cost to the company of 6.6%, and growing the green economy, which relies heavily on PGMs. .

Hear: Natascha Viljoen, Acting CEO of Amplats, on SAfm Market Update with Moneyweb

Amplats recently launched the world’s largest hydrogen truck, part of a fleet that will help decarbonize its operations and reduce greenhouse gas emissions from its Mogalakwena mine by 11%.

Lily:

Viljoen says the group is ahead of its target to roll out renewable energy projects to wean itself off the grid and further reduce its carbon footprint.

PGM prices jumped after Russia’s invasion of Ukraine in February, with palladium hitting an all-time high, but have since returned to pre-invasion levels. Russia accounts for about 22% of newly mined PGMs, but nearly 40% of palladium. PGM prices peaked in March, with palladium at an all-time high.

Fears of further price spikes have dissipated as no country has applied sanctions to Russian PGMs.

Prices fell as Russian metal continued to flow to end users.

Price of platinum, palladium and rhodium in USD

Source: ShareMagic

The first part of 2022 was characterized by supply chain bottlenecks following the war in Ukraine, while more recently the resurgence of Covid in China has put a damper on demand.

This took some of the shine out of production at the Mogalakwena mine, although the move to higher grade mining areas and longer concentrator run times at the PGM concentrator allowed for better performance for the second. semester of the year. Production was maintained at the Amandelbult mine, but substantial improvements were recorded at the Mototolo and Unki mines thanks to concentrator debottlenecking projects.

Sustaining investment required to continue operating in 2022 has been reduced to R8.8 billion-9.3 billion from the previous R9 billion-9.5 billion. Expansion investments are expected to be between R2.9 billion and R3.7 billion for the full year 2022.

Amplats ended the half with net cash of R41.8 billion, compared to R49.1 billion at the end of December 2021.

Cash generated from operations contributed R39 billion. The money was used to fund capital expenditure and capitalized waste stripping, collectively amounting to R6.1 billion; pay taxes and royalties of R9.5 billion; and pay dividends to shareholders of R33.1 billion.

An interim dividend of R81 per share, or R21.5 billion, has been declared for the first half of 2022. It includes a basic dividend of R41 per share and a special dividend of R40 per share. This compares to a dividend of R175 per share in the first half of 2021.

Listen to this MoneywebNOW podcast with Simon Brown on why not expect another knockout year from Amplats or Kumba (or read the transcript here):

Carol N. Valencia