Production cutbacks, rand weakness boost Impala
IMPALA Platinum’s plan to cut production amid a record shortage of the metal and the rand’s drop this year are boosting the bonds of the world’s secondbiggest producer and curbing its need to raise funds.
Yields on the miner’s $200m of bonds changeable into stock at an equivalent of $24.13 per share fell 152 basis points this month to 4.51% yesterday, while rates on Aquarius Platinum’s convertible dollar debt due December 2015 climbed 60 basis points over the same period.
Impala’s shares climbed 47% since reaching an almost eightyear low on June 25.
Rand weakness and an increase in the metal’s price has helped producers, who get income in dollars and incur expenses in the local currency, after aboveinflation cost gains and labour strikes prompted miners to trim loss-making output. The proceeds of the bonds Impala sold in February will last two years, Sean Ashton, chief investment officer at Anchor Capital, said in June.
“Given the recent moves in the platinum price and the rand, the risk that Impala will have to raise funds has certainly abated somewhat,” Mr Ashton said this month. “These improvements augur well for a lower risk premium on those bonds.”
Impala had a cash balance of R4.5bn at the end of June and would not seek more funds in the 2014 financial year, CEO Terence Goodlace said last month. Net borrowing increased 61% to R1.6bn after the bond sale in February.
Impala spokeswoman Alice Lourens declined to comment fur- ther when contacted this week.
The platinum price has risen 9.3% since reaching a three-andhalf year low on June 26, to $1,426.95/oz yesterday, spurred by lower output forecasts from Anglo American Platinum, Impala and Lonmin, the world’s three largest producers.
Demand for platinum, used in catalytic converters that help to reduce emissions from vehicles, will exceed supply of the metal by about 844,000oz this year as output in SA declines, according to HSBC. SA accounted for about 70% of global output last year.
Anglo American Platinum, the world’s biggest producer of the metal, will fire about 3,300 workers as part of its plans to cut annual production by 350,000oz.
Impala’s refined output of 1.58million ounces in the year to endJune included 368,000oz treated for other companies, which was unlikely to be repeated, and it would trim capital spending by 14% in the year to end-June 2014, Mr Goodlace said.
“Finally, platinum companies are realising they cannot bank on higher prices to bail them out, so there’s a structural change in the businesses,” Neill Young, an analyst at Coronation Fund Managers, said last week.
Future primary-supply growth would remain constrained, which would result in a tighter market and lead to higher platinum prices, Mr Goodlace said.
“All the majors tell us there’s a platinum deficit of a couple of million ounces,” said Mr Ashton at Anchor, which manages R2.5bn in investments. Trying to predict the timing of a jump in prices because of the shortage “is almost impossible”, he said.
Platinum and the rand surged on September 18 after the US Federal Reserve said it wanted more evidence of an economic recovery before reducing its $85bn-amonth bond-buying programme.
Mr Young said Impala and other producers might still see supply interruptions if pay talks with the biggest representative of employees at their mines lead to strikes.
The Association of Mine- workers and Construction Union (Amcu) is seeking to have basic pay for entry-level workers more than doubled. The annual inflation rate was 6.4% last month.
The biggest gold producers and all unions except Amcu this month settled on wage rises of as much as 8%. The National Union of Mineworkers is the biggest union in the gold industry.
“We have seen very elevated demands but have seen some very reasonable settlements,” Mr Young said.
Concern that Impala would need to raise more money from capital markets has been alleviated, said Investec analyst Albert Minassian. “For most of the last year there was fear they will have … to raise money.”