ANGLO American Platinum (Amplats) made light of production losses as a result of power rationing, saying today headline earnings could be as high as R17.5bn – some R10bn more than achieved during its 2018 financial year.
The outcome is positive for Amplats’ dominant shareholder, Anglo American, especially as Amplats adjusted its payout ratio to 40% of earnings last year from 30% previously. Whether Amplats will loosen the purse strings, including an investment decision on the expansion of Mogalakwena mine, remains to be seen.
In July, the company said that despite having R6bn in cash, it still had to traverse wage talks, and develop an understanding on the future direction of prices.
“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 Chris Griffith, CEO of Amplats of the firm’s capital development plans. “We can’t get too excited by existing prices and rush out and invest,” he said.
In mid-November, it detailed terms of a three-year wage deal that increased the total labour cost-to-company an average of 6.6% over the period. The agreement was achieved without strike activity or violence. Pricing for PGMs also remained robust, to say the least.
In early December, JP Morgan upgraded its two-year price forecast for palladium 27% and 25% higher in 2020 and 2021 to $1,556 and $1,250/oz respectively. It adjusted downwards its forecast for the platinum price which would average $925/oz in 2020 – a 10% decline.
Rand Merchant Bank followed suit later that month saying it saw “… a reasonable likelihood that prices and sector profitability will remain elevated and/or move higher in 2020”. This was based on a fundamental PGM market deficit of 500,000 oz to one million oz annually, and tightening emission standards that would drive demand.
In its trading statement, Amplats said the earnings improvement was down to a 38% increase in the rand basket of platinum group metals (PGM) and “… continued steady operational performance”.
The price improvement was largely down to rand weakness and significant increases in the dollar pricing of palladium and rhodium. During 2019, the two metals saw dollar price increases of 54.7% and 141% respectively. The rhodium price in particular has continued to power ahead this year and is at about $7,388/oz this month compared to $5,567/oz at the end of 2019, according to Kitco data.
Amplats said headline earnings and headline share earnings (HEPS) were likely to increase by between 131% and 151% respectively compared to the prior year. Headline earnings are likely to be between R17.545bn and R19.055bn (2018: R7.588bn), and HEPS will increase to between 6,689 cents and 7,265 cents (2,893 cents).
Basic earnings and earnings per share (EPS) for the period are likely to increase by between 157% and 177% respectively compared to the prior year. Basic earnings are likely to be between R17.545bn and R18.900bn (2018: R6.817bn) and EPS is expected to be between 6,689 cents and 7,205 cents per share (2,599 cents), it said.
Amplats said in a fourth quarter production update last week that platinum and palladium metal in concentrate production both increased by 10%, to 531,700 ounces and 360,400 oz respectively. Refined output was lower, however, as a concentrate purchase agreement ended. But there was also a build up of inventory totalling 45,000 platinum oz and 27,000 palladium oz owing to Eskom-related power interruptions.
Platinum sales volumes fell by 14% to 668,300 oz and palladium sales volumes decreased by 4% to 435,800 oz due to lower refined production in the period.
Amplats is due to report is full-year earnings on February 17.
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