The concentrator plant at at Anglo American Platinum's Unki mine in Zimbabwe. Picture: SUPPLIED
The concentrator plant at at Anglo American Platinum's Unki mine in Zimbabwe. Picture: SUPPLIED

Anglo American Platinum, the world’s second-largest source of the metal, said on Tuesday that it expected full-year profits to more than double on improved metal prices and mining performance.

Amplats, which is 80% owned by global diversified miner Anglo American, said a week earlier that due to electricity interruptions from state-owned power monopoly Eskom it was unable to mine R742m worth of platinum group metals (PGMs).

With 38,000oz of PGMs left in the ground and based on the average received price for the year of R19,534 an ounce of the basket of metals Amplats produced and sold during the year, this worked out to R742m of unrealised revenue that cannot be recovered.

The processing side was similarly affected and Amplats had 89,000oz of metals that will be refined and sold in 2020. The value of the metal, based on the average 2019 price, is R1.7bn.

Amplats, headed by Chris Griffith, advised shareholders on Monday to expect full-year headline earnings, which strip out one-off items, to increase 131%-151% to R17.55bn-R19.1bn for the 12 months to end-December.

Basic earnings were forecast to increase 157%-177% to R17.55bn-R18.9bn.

Special dividend

“The expected increase in headline earnings and basic earnings is primarily driven by a 38% increase in the rand basket price and continued steady operational performance,” Amplats said.

Amplats could declare a special dividend on top of a forecast final dividend of R24 a share, said Rene Hochreiter, analyst with Noah Capital Markets.

The results forecast from Amplats, which releases its full-year financials on February 17, were “perfectly in line”, he said in a note.

The price for PGMs remained above R1m per kg. Despite the downward blip in the prices of the metals due to concern about the coronavirus in China, the fundamentals would remain the main upward pressure on the cost of the metals, which have industrial applications apart from platinum, which is used to make jewellery.

“Fundamental shortages in the PGM package may be slightly modified by the corona outbreak, but the overwhelming deficits in rhodium and palladium in the coming years  will likely see the virus impact fade into history quite quickly,” Hochreiter said.

Move into surplus

The palladium market, he forecast, would remain in deficit until 2029 as demand for the metal to make autocatalytic devices for petrol engines remained higher than supply out of Russia, SA and North America.

Rhodium, the most favoured metal for autocatalytic devices because of its chemical properties and resistance to heat, is forecast to move into a surplus in 2024, he said.

The two strongest performers in the basket of PGMs over the past year were palladium and rhodium, both of which are primarily used to make autocatalytic devices fitted to engine exhausts to scrub out pollutants and greenhouse gases.

Eskom has been a major source of frustration for mining companies, with unprecedented levels of load-shedding late last year when six gigawatts were cut from supply due to faulty plants and a feeder belt for the coal-fired Kusile power station.

Eskom increasing its tariffs sixfold for its large industrial users since 2006 and erratic nature of supply has become a common theme running through the reasons given by large chrome companies in SA for the restructuring of their assets. The low global chrome price is the main driver.

The 38,000oz of lost PGM production is a relatively small number for Amplats, which generated 4.4-million oz of PGMs in 2019.

For a global market of more than 15-million ounces of platinum, palladium, rhodium, ruthenium and iridium supply, according to data from Johnson Matthey, the loss of mined production from Amplats is barely noticeable.