Amplats force majeure to hit global PGM supplies

• Both converter plants out of action while palladium and rhodium markets are already in deficit

Anglo American Platinum (Amplats), the world’s secondbiggest source of platinum group metals (PGMs), is scrambling to find spare refining capacity after declaring force majeure on supply contracts and lowered its full-year refined output forecast by a fifth, or 900,000oz.

A company declares force majeure, a clause in all supply contracts with customers, to allow it to interrupt that supply if an extraordinary event happens. It carries with it reputational damage and it is not something companies declare easily.

The news sent the Amplats share price 14% lower on Friday.

Amplats accounts for about 35% of global primary platinum and rhodium supplies, and a fifth of primary palladium supply from its mines, RMB Morgan Stanley noted.

After an explosion on February 10 at its Anglo converter plant, which treats smelted matte in preparation for putting it through a host of refining processes, Amplats started its second converter plant.

However, this second plant continues to have inexplicable water ingress, a dangerous situation when working with metals at very high temperatures.

“This poses a high risk of explosion and the company has determined that it has no other option but to temporarily shut down the phase B unit, to ensure the safety of all employees and avoid a catastrophic event,” Amplats said.

“It is anticipated that the repair works to fix the phase B unit will take approximately 80 days,” it said.

The first plant is expected to return to service by the second quarter of 2021.

Amplats expects full-year earnings before interest, tax, depreciation and amortisation (ebitda) to be about R18bn lower at current spot prices than it had been planning for, said Craig Miller, finance director. Amplats

posted a record ebitda of R30bn for 2019.

The company had not yet started talking to companies such as Impala Platinum (Implats) and Sibanye-Stillwater, the two PGM refiners in SA and, potentially, those abroad, CEO Chris Griffith said on Friday, but it was unclear how much spare capacity was available.

Implats has no spare refinery space and will spend two years working through its own inventories to realise the value of stockpiled metal, said spokesperson Johan Theron, pointing out the industry had a history of helping each other in times of processing difficulties.

“Sibanye has significant spare PGM processing capacity at the Marikana operations and at the Precious Metal Refinery in Brakpan and will be assessing how best to utilise this capacity. We are engaging with Anglo Platinum with respect to the various alternatives and will provide a further update once we have clarity,” it said on Friday.

Northam Platinum, the only other company with smelting and base metal refining capacity, is also full and dealing with backlogged inventory.

A hint of desperation could be heard when Griffith spoke about how broad Amplats would make its search for spare refining capacity.

Asked about refineries in

Europe and the US, Griffith said: “Generally, they are too small and they’re not really configured for the metal we have.

“Clearly, Gary [Humphries] will, over the next few days, be calling everybody, from [those with] a blowtorch to a furnace to see if there’s something we can do and get help with.”

Humphries, the executive head of processing at Amplats, is overseeing the repairs to the plants. Meanwhile, Amplats will continue mining and smelting concentrate, stockpiling material at the concentrators.

Amplats forecasts its fullyear refined production and sales of six metals — platinum, palladium, rhodium, ruthenium, iridium and gold — will fall by about a fifth, with the bulk of the loss coming in the first half.

In a market struggling with a shortage of palladium and rhodium to make antipollution devices for petrol engines, the news from Amplats of the failure of the plant in front of its refineries could not have come at a worse time.

The palladium market deficit could reach 2-million ounces this year, while the rhodium supply shortfall would grow to 250,000oz with the loss of Amplats output, said NOAH Capital analyst Rene Hochreiter in a note.

The platinum market could shift into a deficit of 400,000oz from a surplus, he said.

“Prices of PGMs will rise in the short term and likely longer as the deficits become worse.”

Amplats lowered its refined metal forecast for the six metals in the suite of PGMs it produces by 900,000oz to a range of 3.3million ounces to 3.8-million.

It would take two years to catch up the refining of all the metal stockpiled ahead of the refineries, Griffith said.

A HINT OF DESPERATION COULD BE HEARD WHEN GRIFFITH SPOKE ABOUT HOW BROAD AMPLATS WOULD MAKE ITS SEARCH FOR SPARE CAPACITY