It never rains but it pours: Sasol, coronavirus, and now Amplats

Written by Ciaran Ryan. Posted in Journalism

‘Force majeure’ shutdown of Amplats’ Waterval smelter complex batters its share price. From Moneyweb.

The group has indicated that its refined production for the year could be lowered by about 25% as a result of the explosion. Image: Waldo Swiegers, Bloomberg
The group has indicated that its refined production for the year could be lowered by about 25% as a result of the explosion. Image: Waldo Swiegers, Bloomberg

Anglo American Platinum’s (Amplats’) share price is down a third from its R1 395 high achieved just two weeks ago, bringing to an end one of the most magnificent runs for shareholders in recent mining history.

On Friday the company declared ‘force majeure’ (an unexpected calamity) as the reason for the shutdown of its Waterval smelter complex, which is likely to shave nearly one million ounces of platinum group metals (PGMs) off its 2020 production.

An explosion occurred at Phase A of the Anglo Converter Plant on February 10, forcing a shutdown of the plant and the immediate commissioning of the backup Phase B plant, which was also shut down when water was detected in the system – raising the likelihood of a second explosion. It may take 80 days to get the backup converter online, while repairs of the Phase A converter will be completed by about mid-2021.

Not that this is all entirely bad news for PGM prices, which have held reasonably firm amid the turmoil.

Palladium prices in US dollar per 100 oz

Amplats accounts for about a quarter of global palladium supply, mainly used in the production of petrol-driven cars, and a whopping 42% of global platinum and rhodium supply. Production of palladium is likely to take a 300 000-oz hit this year, with platinum production expected to be up to 450 000 oz lower, according to a company announcement on Friday.

The Amplats announcement added to the pre-existing volatility in the PGMs sector and had a knock-on effect on Northam Platinum and Sibanye-Stillwater. Northam’s share price jumped 10% in the last few days, just as it looked like the PGM “melt up” was topping out. Sibanye-Stillwater’s share price looked to be in freefall last week after falling nearly a third, before bouncing 12% on the news coming out of Amplats.

Royal Bafokeng Platinum is down nearly 30% in the last two weeks.

Knock-on effect

The shutdown of the converter plant had an immediate knock-on effect on other producers supplying concentrate for processing at Waterval. James Wellsted, senior vice president of investor relations at Sibanye-Stillwater, says the group has significant unutilised processing capacity at its Marikana operations (formerly Lonmin), which could provide an alternative processing option while Amplats’ converters are shut down.

In a statement on Friday the group said it has “significant spare PGM processing capacity at the Marikana operations and at the Precious Metal Refinery in Brakpan and will be assessing how best to utilise this capacity.

“We are engaging with Amplats with respect to the various alternatives and will provide a further update once we have clarity,” it said.

Sibanye-Stillwater’s Marikana and US PGM operations are not affected and will benefit from the commensurate short-term commodity price increases, due to the Amplats supply disruption.

“This is a real shock,” says Peter Major of Mergence Corporate Solutions.

“And I can’t believe the reaction in Northam, Implats’ [Impala Platinum‘s] and Sibanye-Stillwater’s share prices. This comes just as all the PGMs were topping out, finally, and starting to roll over. What timing for PGM prices. Too uncanny for words. I have never seen volatility like I have seen these past six months in gold and PGM metals, let alone in gold and platinum shares.”

“It never rains but it pours,” says David Shapiro, deputy chair of Sasfin Securities. “From the coronavirus to Sasol and now Anglo Platinum, which has indicated its refined production for the year could be lowered by about 25%.”

Sasol

Sasol’s share price has been in meltdown since September 2018, when cost overruns at its Lake Charles Chemicals Project first came to light. This was followed by a poor set of results for the six months to December 2019, with earnings before interest and tax down by more than half to R9.9 billion (R20.8 billion).

The impact on Amplats’ earnings before interest, depreciation and amortisation could be as high as R18 billion for the full year, though the platinum producer may have overstated the likely impact, with a view to restoring operations earlier than the projected 80 days.

In the meantime, its peers – notably Sibanye-Stillwater and Northam – can expect to pick up some of the production slack.

Ciaran Ryan

The Writer's Room is a curated by Ciaran Ryan, who has written on South African affairs for Sunday Times, Mail & Guardian, Financial Mail, Finweek, Noseweek, The Daily Telegraph, Forbes, USA Today, Acts Online and Lewrockwell.com, among others. In between he manages a gold mining operation in Ghana, and previously worked in Congo. Most of his time is spent in the lovely city of Joburg.