Amplats steels itself for a mechanised future

THE announcement that Anglo American Platinum (Amplats) will put four mines, and possibly two joint ventures, up for sale has had little effect on its share price. In fact, whether Amplats is a good share pick or not comes down to investor views on the platinum price.

According to Ian Woodley, mining and resources fund manager at Old Mutual Investment Group, the announcement wasn’t news.

Amplats said a year ago that it was planning to restructure.

“There are various ways in which Amplats could structure the sales. It’s still early days, and it hasn’t disclosed the book value of the mines it intends to sell. If it doesn’t get the price it wants, the company has said it will simply list the mines,” said Woodley.

He believed potential buyers for the unprofitable assets would build a buffer into their offers because staffing levels were probably not commensurate with production, and labourforce militancy was an issue.

“It’s a matter of seeing how many buyers with the money are interested.”

Amplats is not desperate for the cash just yet, and it can make up any shortfall in revenue from unsold mines on the processing side. The company is also aiming to mechanise as far as possible at the mines it will keep, which include its large Mogalakwena open-cast mine, three other mines and several joint-venture operations.

“Mechanisation works in the right ore body,” Woodley said.

Amplats plans to hold onto its smelters, which it needs for “flexibility and winning other contracts to process materials”, he said.

Company can better allocate time and capital on fewer and better mines

Amplats’s 2014 first-half profit fell 88% because of the fivemonth strike at its Rustenburg mines, which contribute about 40% of the company’s output.

Wayne McCurrie, senior portfolio manager at Momentum Asset Management, said Amplats’s decision to hold onto its smelters was logical.

“The smelters serve all its mines — I don’t even know if it could sell them off.

“They already do a lot of contract smelting — a lot of private operators send their ore to Amplats for refining.”

If all this is old news, is Amplats still a good buy?

McCurrie said Momentum AM bought Amplats shares soon after the platinum strike ended — its first purchase of platinum shares in six years. This seems shrewd if you agree with McCurrie on the long-term outlook for the platinum price.

McCurrie said Amplats has been mining unprofitably because of the cost of getting the platinum out of the ground.

“Once the company spins off, sells or unbundles these mines the remaining [operations] will be returned to profitability, even at the current platinum price.

“At this price, it is essential for the sustainability of the company. It cannot continue operating at a loss,” McCurrie said.

He said he was bullish on the platinum price because there was a shortage of the metal worldwide and continuing demand, particularly from the automotive industry.

Woodley was more circumspect though.

“Amplats says it can better allocate its capital and management time by focusing on a smaller number of higher-quality assets.

“Over the longer term, companies that do that successfully tend to outperform. But you’d need a helpful commodity environment,” he said.