Lower metal prices and rising costs over several years have had a devastating impact on the PGM industry’s profitability, triggering significant reductions in capital expenditure, as well as shaft and mine closures. Western Limb producers have been most severely impacted, driven by the costs associated with operating deep, labour-intensive, conventional mines with older infrastructure. Despite the best efforts of the PGM industry to weather the storm, the industry lost around 800 000 ounces of platinum production since 2009 due to the closure of unprofitable mines. This was particularly hard felt in the Western Limb – which accounts for 520 000 of the 800 000 lost platinum ounces per annum. Conventional producers are fundamentally restructuring loss-making operations to address cash burn and create lower-cost profitable businesses.
Anglo American Platinum (AngloPlats) was the first PGM producer to react to this changing reality, exiting high-cost conventional mining operations. This strategy, together with the continued prioritisation of its low-cost Mogalakwena operation, has proven successful enabling the recent reinstatement of dividend payments despite persistently low metal prices. As a result, AngloPlats significantly outperformed industry peers and has been leading the industry on a relative share price performance basis over one, three and five-year periods. The only other producer that has performed relatively well over this period has been Northam, largely being spared the 2012 – 2015 Rustenburg-based labour disruptions and benefiting from an aggressive low-cost, mechanised growth strategy.
Implats, together with Lonmin, have been slower to react to this changing reality and therefore Implats has been one of the poorer performers over this period.
Impact on value
- The market has progressively raised concerns about a weakening platinum price and accelerated cash burn at Impala Rustenburg, impacting an increasingly pressurised Group balance sheet
- Lower metal price impact on a leveraged balance sheet > The low earnings and share price decrease optionality in terms of equity financing, when required
- Following the announcement of a strategic review of the Rustenburg operations, the market is watching for implementation risks
- The long restructuring implementation period (two years) and weakening balance sheet continue to raise the attention of short sellers on the JSE
- The short interest in the Company as a percentage of free float shares remains one of the highest on the exchange, indicating the market’s negative outlook on the share’s value
- To sustainably improve its competitive position, profitability and financial returns, Implats has committed to a value-focused strategy with the intention of reducing its exposure to high-cost, labour-intensive, conventional mining operations in a challenging market and operating environment
- The Group embarked on a radical restructuring of the Impala Rustenburg complex to creating a smaller, more focused operation, which will have six operating shafts in 2021 producing approximately 520koz platinum per year, down from the current 10 shafts ramping up to 750koz platinum per year
- The transition will realise improved operating costs, achieving an 8.4% reduction in real terms by FY2021; reduced capital expenditure of approximately 50% as the ramp-up shafts (16 and 20) near completion and stay-in-business capital declines in line with the reduced number of shafts; and the employee complement will reduce to approximately 27 000 employees, in line with the reduced output
- Returning Impala Rustenburg to profitability will not only improve the Group’s current financial performance but will, importantly, also contribute to a strengthened portfolio that will enhance the Group’s competitive position to create future and sustainable stakeholder value
- It is our concerted view that a break away from the negative price outlook will only materialise once meaningful progress is demonstrated in delivering the Impala Rustenburg review outcomes