Amplats to take R2.2bn impairment knock

Platinum producer expects its basic earnings to shrink up to 189% in half year to June

ANGLO American Platinum (Amplats), the world’s biggest platinum producer, said yesterday that it expected impairments totalling R2.2 billion to result in basic earnings shrinking by up to 189 percent in the half year to June.

Amplats said the plunge was primarily a result of posttax obligations, a write down of a term loan to Atlatsa Resources and a loan to the Bakgatla Ba-Kgafela community.

The impairments also included the Union Mine, which the company said in February it would sell to a subsidiary of Siyanda Resources for R400 million, R950m equity interest in Bafokeng Rasimone Platinum mine owned by Royal Bafokeng and the R45m equity for Bokoni Platinum.

It said as a result, basic earnings were expected to decline between R1.06 billion and R1.37bn, which was between 169 percent and 189 percent lower than the prior year’s restated figure of R1.54bn.

The loss translated to a basic earnings a share loss of between 405 cents a share and a loss of 520c a share, which was between 169 percent and 188 percent lower than the prior year restated figure of 588c.

Amplats said it also expected headline earnings to drop between R550m and R875m, which was between 67 percent and 47 percent lower than the prior year restated figure of R1.65bn and to between 210c and 335c a share, a decline of between 67 percent and 47 percent than the prior year restated figure of 629c.

The company blamed technical problems for lower refined production in the period.

It said the Waterfall Number 2 furnace had been refurbished, but there had been a backlog from 2016 of some 65 000 ounces of platinum which was expected to be made up during the second half of 2017.

It also said a high-pressure water leak at the converter planthad impacted one converter plant Phase A on June 4.

Last week Statistics South Africa said that while mining production increased 3.6 percent year-on-year in May, platinum group metals (PGM) were a significant negative contributor and shrank 17.5 percent in the period.

Seleho Tsatsi, an investment researcher at Anchor Capital, said the low earnings forecast and low production were no surprise. “It is no secret that the (platinum) sector as a whole is under pressure, due to low rand PGM prices,” Tsatsi said.

“Whilst everyone in the industry is struggling, Amplats has the relative advantage to peers of a generally lower cost base.”

The dim forecast came a day after Amplats competitor Lonmin, which is the world’s third biggest platinum producer, improved mining production and cut costs in the third quarter to June.

Tsatsi said Amplats earnings were less geared to rand PGM prices due to this lower cost base and because from next year a greater proportion of earnings would come from the refining business.

“Despite the pressure that they’ve been under recently, Amplats’ share (and all platinum miners’ shares) continue to reflect higher rand platinum prices and need higher platinum prices to justify the current valuations,” he concluded.

Amplats shares dropped 0.8 percent to R315.50.