Amplats works towards dividend

• Platinum producer says it is strengthening its balance sheet and ensuring operations are sustainable before it resumes payouts to shareholders

Anglo American Platinum (Amplats) will ascertain in 2017 whether its operational turnaround of cash-generative mines is sustainable so that it can resume dividend payments after a hiatus since 2011.

Both CEO Chris Griffith and chief financial officer Ian Botha said the world’s largest platinum miner had benefited enormously from one-off cash inflows in 2016 and would do so again in 2017, but the board wanted to get a sense if the operations were performing in a sustainable way that would underpin the steady payment of dividends.

Amplats had free cash flow in 2016 of R3.5bn from its mines, which, combined with inflows from asset sales and advanced platinum purchases, contributed to net debt falling to R7.3bn at the end of 2016 from R12.8bn the year before. Amplats did not declare a dividend.

Amplats would reduce net debt to “comfortably below R5bn” by the end of 2017, with R1.25bn of inflows from asset sales, a $100m upfront payment from a client and cash from its assets, Botha said at a results presentation on Wednesday.

Griffith said Amplats had no debt target but it was strengthening its balance sheet so it could trigger growth targets once it thought the market was ready for extra platinum and, more importantly, the resumption of dividends. It had frozen any capital expenditure decisions for 2017 but would revisit its strategy at the end of the year, Griffith said.

“We want to reduce our debt so that we have the capacity when our time is right to increase project spend, but at the same time a big part of the capital allocation strategy is to start reintroducing a dividend. It’s been a long time and our shareholders have been patient with us,” Griffith said.

Amplats swung out of a deep loss in 2015, when financials were skewed by hefty one-off items, into profit in 2016 as it benefited from positive cash flows from all its mines for the second year running after three years of restructuring, asset sales and containing costs.

Amplats reported R696m profit for the year to endDecember after a R12.4bn loss the previous year, in which it recorded hefty impairments.

“The improvement in cost control was a key highlight. Also noteworthy was the much larger reduction in debt versus our expectations,” said Abdul Davids, head of research at Kagiso Asset Management, who pointed out that Amplats’ costs had increased 1.4% against SA’s inflation rate of 6.4%. The focus on debt reduction was correct, he said. “We are supportive of the current policy to direct cash into the reduction of debt.”

Amplats mined and purchased 2.38-million ounces of platinum during the year, up 2%, as its own mines increased output 5% to 956,000oz.

Joint venture production climbed 2% to 785,000oz. Amplats reported a 2% fall in refined platinum sales to 2.416million ounces as the company drew down on its inventories.

NDF