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The suspension of refining of platinum group metals (PGMs) at Anglo American Platinum’s (Amplats’) Waterval facilities in Rustenburg following an explosion of the plant – and the subsequent technical problems with its backup unit – means different things to different companies.
For Amplats, the disruption means it will produce 900 000 ounces less PGMs in 2020 – roughly comprising of about 600 000 ounces in platinum and 300 000 ounces less palladium.
That will result in a hit to pre-tax earnings of $1.1bn, according to a report by RMB Morgan Stanley in the wake of Amplats’ announcement in early March.
The group, controlled by Anglo American, is adequately financed to cope with the working capital build-up brought about by not being able to sell refined platinum, which will be most severe over the first 80 days.
That’s the estimated time to fix the backup units. (It will take 12 to 15 months to repair the facilities affected by the explosion).
As of 31 December, Amplats had R17.3bn in net cash on its balance sheet (prior to R10.9bn in dividend payments), and R26bn in available facilities. Amplats is also working with its insurers in order to identify a potential claim.
For Impala Platinum (Implats) and Northam Platinum: happy days! Apart from adding further upward pressure on the palladium market – which is already in backwardation – it will almost certainly push the platinum market into a supply deficit.
In March, the World Platinum Investment Council forecast a narrow 110 000 ounces deficit for platinum, down from more than 800 000 ounces in 2018, indicating that the platinum market was already tightening.
Sibanye-Stillwater will also benefit from higher prices. The immediate future is less certain for the PGM companies that supply concentrate to Amplats for smelting.
Smelter facilities are expensive and specialised; in fact, only Amplats, Implats, and Sibanye-Stillwater are fully integrated from ‘mine to metal’. Therefore, a group of companies rely on Amplats to buy their concentrate, which is then smelted.
These are so-called purchase of concentrate (PoC) agreements which Amplats CEO, Chris Griffith, confirmed would be just as affected by the shutdown as its own mine and concentrate production.
Of these companies, the one likely to be least affected is African Rainbow Minerals (ARM), a diversified group with a strong balance sheet.
For the record, Amplats processes concentrate from ARM’s Modikwa mine, which contributes about 47% of ARM’s total annual production of platinum, palladium and rhodium.
Next is Royal Bafokeng Platinum (RBPlat), which sends concentrate from its Bafokeng Rasimone platinum mine and Styldrift mines to Amplats for refining.
In a worst-case scenario, and assuming no mitigation actions, there is potential for a R1.4bn working capital build over 80 days, which excludes expansion capital RBPlat is currently engaged on for Styldrift.
RBPlat halved its debt to R491m during the six months ended 31 December from R832m a year earlier and has cash of R883m on hand.
It also has some R1.45bn in facilities available to it. Hanré Rossouw, RBPlat’s chief financial officer, told finweek it was too early to comment on the strain placed on the company’s finances by the Amplats announcement as the company was in talks with Amplats about potential mitigation.
Additional strain on the balance sheet, however, would not be welcome. RBPlat recently announced a modest dividend resumption of 10% of cash flow before expansion, reflecting its caution; the buoyant PGM market notwithstanding.
Finally, there is Siyanda Resources, a black-owned company that bought the Union and MASA facilities from Amplats for R400m in 2017. It supplies base metals concentrate to Amplats.
Again, there is potential for mitigation while Siyanda Resources also derives income from coal and manganese mining so it’s not wholly reliant on the Amplats PoC agreement. But of the various companies affected, it looks the most vulnerable.
Amplats is playing a straight bat to the talks it’s having with suppliers. “We have issued force majeure notices to all PoC suppliers, including Siyanda,” said Jana Marais, spokesperson for Amplats.
“We are now in a period of discussion with all PoC customers on mitigation measures.“It is premature to comment at this stage on what those mitigation measures may look like as we have not yet had an opportunity to meet with all PoC suppliers,” she said.
This article originally appeared in the 19 March edition of finweek. Buy and download the magazine here or subscribe to our newsletter here.
