Amplats H1 earnings slump from record levels, Mogalakwena mine hit by torrential rains

25 Jul 2022

Anglo American Platinum said on Monday that its interim earnings fell 43% from the record levels reached last year as prices softened and its cash-spinning Mogalakwena mine had been hit by torrential rains. The interim dividend of R21.5bn is less than half of what was paid out last year, but is the second-biggest in group history.

After last year’s gold medal performance, platinum producers are still posting podium finishes on the earnings front, but this year the medals will be silver.

Anglo American Platinum (Amplats), a unit of Anglo American, has kicked off the platinum group metals (PGM) mining results season, with earnings coming in near the top of the range that the company flagged to the market last week.

To wit, headline earnings per share dropped 43% to 101.4 cents, translating into an interim dividend of R81 per share or R21.5-billion in total. This is down more than 50% from last year’s R175 per share or a whopping R46-billion in cash that was returned to shareholders halfway through the year.

But last year was simply exceptional as PGM prices surged to record levels — rhodium hit $30,000 an ounce at one point — and so this is still a comparatively solid set of results. Indeed, it is the second-biggest interim dividend Amplats has paid out on the back of the company’s second-highest interim Ebitda — earnings before interest, taxes, depreciation, and amortisation — performance, which was almost R43-billion.

The PGM basket price of $2,671 per ounce that Amplats received for its product was also the second-highest on record. The trend here is gin clear.

In mining and commodities, price is pretty much everything. A rising price will swell your bottom line while a downswing will quickly deflate it.

Mogalakwena flooding

Amplats also had operational challenges in the period under review, notably at its cash-spinning Mogalakwena mine in Limpopo, which is open pit and mechanised. The mine was drenched by the heaviest rains in the area in 50 years, underscoring the impact that climate change can have on the sector.

“We have dedicated water-management systems around the open pit, but it is designed for normal rainfall levels. But what you get when you get higher-than-average rainfall is... an accumulation of water in the bottom of the pit and you need to pump that water out to gain access to affected mining areas again,” CEO Natascha Viljoen said on a conference call with journalists.

The company paid R9.5-billion in taxes and royalties, almost half of the R16.6-billion it paid in the first six months of last year.

This is also sure to be a theme this year. The mining industry last year was like an ATM for the Treasury as record profits produced a windfall in taxes and royalties. The Treasury cannot count on the mining sector to throw it a lifeline on that scale again this year, though the taxes paid will still be much higher than usual.

Falling earnings in the face of cooling commodity prices also bodes ill for the rand, which is trading near two-year lows, though it has managed to get back below 17/$.

Looking ahead, Amplats warned that inflationary pressures are raising mining costs, which will also hit the bottom line.

“In the PGM markets, the forecast is for platinum’s surplus to gradually move towards a deficit due to a significant increase in automotive platinum demand, as some platinum replaces palladium in gasoline catalysts. Palladium is likely to move into surplus for the opposite reason, though to what extent will depend on what happens to automotive production. Rhodium should head back into deficit after two years of surplus,” Amplats said.

A lot will hinge on auto production. “Pent-up” demand is seen driving sales worldwide, but supply-chain disruptions remain and forecasts for global economic growth are being scaled back as interest rates rise rapidly to contain inflation. PGM prices could remain perky, but further declines may be on the cards. DM/BM

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Mogalakwena flooding