Platinum sees resurgence in SA

Things are clearly looking up for Anglo American Platinum (Amplats), which at the end of October finally packed off its Rustenburg Platinum Mines (RPM) to Sibanye Gold in a transaction that immediately releases R1.5bn from its debt pile.

The platinum firm, which is 80% owned by Anglo American, had already agreed to sell mineral rights to Northam Platinum for R1bn, therefore the deal would see net debt reduced to R7.4bn. It was at R12bn to R13bn at the end of 2015.

Another piece of good news is that the hit to production from a furnace leak at its Waterval refinery was not as bad as feared. The group said last month that it would lose some 75 000 ounces from the breakout, worth R750m at the pre-tax level, but it was earlier scoping for a worst-case scenario of 100 000 ounces.

Now comes news the group has signed a new wage agreement with the Association of Mineworkers and Construction Union (Amcu), thereby avoiding a repeat of the strike action in 2014 where tools were downed for five-and-a-half months.

“The new agreement envisages a 6.74% average annual increase in the labour cost over the three-year period, which is broadly in line with our and industry expectation of 6% to 8%, but is less than the 10% agreements seen in previous years (reflecting the current downturn in the mining industry),” said Ed Sterck, an analyst for BMO Capital Markets.

“The conclusion of the wage agreement removes the overhang on the wage-related uncertainty in the platinum belt and allows the company to focus on its restructuring and cost optimisation initiatives,” he added.

Focusing on cutting costs will prove all important to Amplats, and not just because it’s a key deliverable for its main shareholder. The fact of the matter is that there's plenty of new production due to come on stream from SA.

Northam Platinum said recently the purchase of minerals from Amplats will allow it to increase production to 870 000 ounces/year, 70 000 ounces more than expected annually and helping it to track its ambition to reach output of 1m ounces/year.

On top of that, Royal Bafokeng Platinum said it would pick up the pace on its 300 000 ounces/year expansion at Styldrift 1 following a heartening improvement in the rand price of platinum. It had earlier decelerated the project until further notice.

With so much new production potentially coming on line – supporting Goldman Sachs’ contention that the platinum price was set to remain subdued given new production in the offing – it’ll be more important than ever to remain among the cheapest and most robust of producers.

This article originally appeared in the 10 November edition of finweek. Buy and download the magazine here.

 

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