Anglo Platinum's operating cash flow fell by 94% in the first half of 2009, from ZAR 10bn in the year-ago period, underpinning the total collapse in earnings, as the group warned on 15 July. For years, Anglo Platinum, 80% held by Anglo American, has been a significant contributor to Anglo American's cash flow, but the dividend for at least the first half of this year has been passed up, in line with Anglo American passing its final 2008 dividend.
Platinum group metal (PGM) prices have been an issue for many months, and for most of this year, the inordinately strong rand has further undermined profits. Anglo American naturally had earlier and clearer sight on Anglo Platinum's plight, and the R13.8bn total dividend paid by Anglo Platinum in 2008, per its cash flow statements, is going to be sorely missed.
| Anglo Platinum |
|
|
|
| ZAR bn | 1H09 | 1H08 | 2008 |
| Operating cash flows | 0.642 | 9.975 | 17.345 |
| Investing activities | -4.620 | -5.602 | -14.556 |
|
| -3.978 | 4.373 | 2.789 |
|
|
|
|
|
| Dividends | 0.003 | 5.448 | 13.816 |
|
|
|
|
|
| Cash on hand | 1.603 | 4.466 | 2.870 |
|
|
|
|
|
| Net debt | -17.957 | -5.907 | -13.459 |
|
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|
It seems as if the smash that Anglo Platinum has encountered may just be reason enough for the beleagured world No 1 in platinum to reinvent itself. Specialist analysts have pointed out that the global platinum sector - about two thirds from southern Africa, and most of the rest from Russia's Norilsk and scrap - has continued to overproduce, relative to demand, leaving miners trashed up on the supply-demand equation for much of the past 12 months.
Even in its latest set of results, Anglo Platinum prides itself on a "strong" production outcome: "While production in the first half of 2008 was impacted by numerous ‘abnormal events such as flooding and electricity constraints, production in the first half of 2009 was managed, in line with our lower annual production target as planned. Anglo Platinum is pleased with the strong production performance, while implementing the restructuring, productivity and cost improvement plans". Clearly, profits and cash flows were not in line with expectations.
Refined platinum production at 1.056m ounces for the first half of 2009 amounted to an increase of 6% against the year-ago period, and the target of 2.4m ounces of refined platinum production for the full year "remains in place". Here, "refined platinum production" refers to the so-called 4E platinum group metals (PGMs), platinum (1.056m ounces in the first half of 2009, as noted), about 597,000 ounces of palladium, 164,000 ounces of rhodium, and 44,000 ounces of gold).
| Global PGM supply, 2008, Koz |
| |
| South Africa | 4767 | 66.3% |
| North America | 345 | 4.8% |
| Russian & other | 775 | 10.8% |
| Zimbabwe & other | 331 | 4.6% |
| Scrap | 970 | 13.5% |
| Total | 7188 | 100.0% |
| Of which: |
|
|
| 2387 | 33.2% | |
| 1907 | 26.5% | |
| 880 | 12.2% | |
| 732 | 10.2% | |
| 500 | 7.0% | |
| 59 | 0.8% | |
| 180 | 2.5% | |
Looking at the longer term, Anglo Platinum is budgeting on a platinum price of $1,350 an ounce, near double the low seen in the latter parts of 2008, and about $145 an ounce higher than the current quote.
| METAL PRICES | Low* | High* | Current | From low | From high |
| Precious, USD/oz |
|
|
|
|
|
| Gold | 682.41 | 1006.29 | 956.94 | 40.2% | -4.9% |
| Platinum | 744.25 | 1784.00 | 1205.20 | 61.9% | -32.4% |
| Palladium | 160.75 | 394.50 | 260.93 | 62.3% | -33.9% |
| Silver | 8.46 | 17.91 | 14.04 | 65.9% | -21.7% |
| * 12-month |
|
|
|
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Anglo Platinum's production plan is now to "set up operations to produce around 2.5 million platinum ounces per annum for the next three years, with a small but steady increase in production thereafter". While this may suit Anglo Platinum, to the extent that the group has missed production targets year in, year out, it may also comprise belated admission that as global "swing producer" of PGMs, Anglo Platinum is indeed crying out for reinvention.
The majority of miners impacted by the sudden collapse in most commodity prices during the latter parts of 2008 took drastic action, with most efforts aimed at cash preservation. Production and/or sales were cut, often by massive amounts. At De Beers, the world's biggest diamond digger, recovered carats of diamonds fell three quarters to 6.6m in the first half of 2009, compared to 24.2m carats in the first half of 2008.
Vale, the world's biggest miner of seaborne iron ore, and No 2 miner in the world, by market value, sold 49m tonnes of iron ore in the first quarter of 2009, compared to 68.3m tonnes in the first quarter of 2008. Vale remains one of the world's most profitable mining enterprises.
Anglo American, however, appears to have a "plan B", given its declared wisdom that "it is extremely difficult to forecast and plan for short term market changes, as we experienced over the past year". The plan here is an "intention to establish flexibility and increase our ability to react to these shifts more efficiently than was traditionally the case in underground hard rock environments".
The main sources of this flexibility have been identified as Mogalakwena, the large open pit mine "that can practically and cost effectively be ramped up or down". This is slated as a "unique attribute of Anglo Platinum and the largest open pit platinum mine in the world". The high volume of production from Anglo Platinum's large suite of underground mines are thought to be able to adjust volume "by up to 10% on a short-term basis".
In total, Anglo Platinum reckons its flexibility could amount up to 500,000 PGMs, "and allows us to adjust market requirements efficiently". There is also an admission that "there are shafts in Anglo Platinum that cannot be mined efficiently in the current and forecast environment"; a process is underway that "could lead to these shafts being put on care and maintenance, a process we intend to complete by the end of this year".
But while recognizing that there is a "market", the idea of losing production continues to rankle, apparently: "It should be noted that although a total of 140,000oz of high cost production is under threat, and likely to be stopped, we still intend to make up this shortfall by increasing production from our more efficient mines".
While Anglo Platinum has again rolled out the normal intentions to cut costs, increase efficiencies and productivity, and even do something about overheads, stay in business capital (SIB) expenditure is expected to remain around current levels of some R10bn a year. Anglo Platinum appears happy that "our capital management will achieve these objectives".
Production is marching on with the inevitable prospect, at least as Anglo Platinum puts it, of again increasing funding requirements in the second half of the year "largely due to lower cash from operations and capital expenditure".
After 30 June 2009, Anglo American nearly tripled its committed facility to Anglo Platinum by R7.1bn to R20.6bn, a bail out of R13.5bn. Anglo Platinum has indicated that on these metrics, it will probably not need a rights issue for at least a year, and possibly not at all. Without the bail out from Anglo American, Anglo Platinum would be a very different animal. Across the way, Anglo American has extended interest-free loans to 45%-held De Beers, amounting to $368m on 30 June 2009.
So far as capital expenditure is concerned, Anglo Platinum could well be in boom times, as "the following major projects are progressing without delay":
• Rustenburg Paardekraal 2 shaft replacement project (R2.3bn), which will produce 120,000 ounces of refined platinum a year by 2015
• Amandelbult East Upper UG2 project (R1.5bn), which will contribute 100,000 ounces of refined platinum per annum by 2012
• The Mainstream Inert Grind (MIG) projects (R1.4bn) to improve mineral liberation and PGM recovery
• Rustenburg Townlands Ore Replacement project (R1.0bn), which will contribute 70,000 refined platinum ounces a year from 2014
• The MC Plant capacity expansion (R0.7bn), and
• Unki Mine (R2.9bn) development in Zimbabwe, continuing as planned.
| Selected platinum stocks |
|
| ||
|
| Stock | From | From | Value |
| Tier I platinum | price | high* | low* | USD bn |
| ZAR 575.00 | -45.0% | 64.3% | 17.634 | |
| ZAR 182.35 | -28.5% | 110.7% | 14.206 | |
| GBP 12.91 | -61.3% | 152.2% | 4.113 | |
| Averages/total |
| -44.9% | 109.1% | 35.952 |
| Weighted averages |
| -42.5% | 88.2% |
|
| Diversified |
|
|
|
|
| GBP 19.01 | -36.8% | 109.8% | 42.109 | |
| ZAR 35.00 | -34.0% | 125.8% | 0.965 | |
| USD 10.16 | -56.8% | 189.5% | 19.368 | |
| ZAR 127.00 | -52.1% | 67.1% | 3.467 | |
| Averages/total |
| -44.9% | 123.0% | 65.909 |
| Weighted averages |
| -45.1% | 125.2% |
|
| Tier II platinum |
|
|
| |
| USD 6.37 | -39.8% | 261.9% | 0.600 | |
| GBP 2.50 | -52.8% | 226.5% | 1.710 | |
| ZAR 33.00 | -41.1% | 100.0% | 1.529 | |
| CAD 2.90 | -37.1% | 154.4% | 0.271 | |
| AUD 8.00 | -38.5% | 128.6% | 0.708 | |
| CAD 0.51 | -74.4% | 175.7% | 0.347 | |
| CAD 0.95 | -62.3% | 331.8% | 0.163 | |
| Averages/total |
| -49.4% | 197.0% | 5.328 |
| Weighted averages |
| -49.7% | 162.0% |
|
| Developers and explorers |
|
|
| |
| CAD 1.12 | -77.6% | 250.0% | 0.461 | |
| ZAR 2.36 | -60.7% | 133.7% | 0.178 | |
| CAD 1.47 | -57.4% | 237.9% | 0.210 | |
| CAD 2.02 | -70.9% | 180.6% | 0.141 | |
| AUD 0.94 | -63.3% | 159.7% | 0.213 | |
| GBP 0.18 | -62.0% | 16.7% | 0.024 | |
| GBP 0.69 | -21.7% | 185.4% | 0.201 | |
| CAD 0.16 | -83.3% | 121.4% | 0.048 | |
| GBP 0.90 | -21.1% | 328.6% | 0.137 | |
| CAD 1.18 | -61.7% | 66.2% | 0.101 | |
| CAD 2.20 | -51.1% | 71.9% | 0.060 | |
| CAD 2.90 | -21.2% | 574.4% | 0.154 | |
| GBP 0.39 | -35.3% | 447.4% | 0.077 | |
| AUD 0.30 | -71.1% | 195.0% | 0.124 | |
| GBP 0.02 | -68.7% | 135.0% | 0.031 | |
| Marathon | CAD 0.75 | -72.3% | 200.0% | 0.021 |
| CAD 0.06 | -63.6% | 140.0% | 0.028 | |
| CAD 0.10 | -84.6% | 17.6% | 0.006 | |
| AUD 0.65 | -10.4% | 207.1% | 0.086 | |
| CAD 0.25 | -76.2% | 150.0% | 0.014 | |
| AUD 0.11 | -8.3% | 450.0% | 0.012 | |
| CAD 2.19 | -4.4% | 642.4% | 0.141 | |
| Rusina | AUD 0.07 | -63.3% | 100.0% | 0.013 |
| CAD 0.11 | -87.9% | 133.3% | 0.019 | |
| Macdonald Mines | CAD 0.13 | -51.9% | 400.0% | 0.017 |
| Hard Creek | CAD 0.19 | -59.1% | 137.5% | 0.011 |
| CAD 1.40 | -61.5% | 133.3% | 0.178 | |
| CAD 0.14 | -80.1% | 125.0% | 0.006 | |
| Wallbridge | CAD 0.13 | -51.9% | 257.1% | 0.011 |
| CAD 0.33 | -37.5% | 195.5% | 0.021 | |
| Mustang Minerals | CAD 0.22 | -42.9% | 340.0% | 0.017 |
| Northern Shield | CAD 0.26 | -62.3% | 372.7% | 0.017 |
| Platina | AUD 0.28 | -48.1% | 100.0% | 0.013 |
| CAD 0.11 | -65.0% | 110.0% | 0.005 | |
| Pacific NW Cap. | CAD 0.09 | -67.9% | 80.0% | 0.005 |
| AUD 0.23 | -45.2% | 283.3% | 0.014 | |
| Starcore | CAD 0.10 | -50.0% | 100.0% | 0.006 |
| Huston Lake | CAD 0.25 | -61.5% | 78.6% | 0.008 |
| Goldplat | GBP 0.10 | -25.9% | 8.1% | 0.018 |
| CAD 0.07 | -40.9% | 550.0% | 0.003 | |
| AUD 0.13 | -13.3% | 1525.0% | 0.032 | |
| Premium Exp. | CAD 0.46 | -4.2% | 922.2% | 0.020 |
| Eurasia Mining | GBP 0.01 | -58.3% | 25.0% | 0.006 |
| Silvermet | CAD 0.12 | -40.0% | 700.0% | 0.013 |
| Andulela | ZAR 0.05 | -94.1% | 25.0% | 0.003 |
| Developer averages/total | -59.0% | 290.3% | 2.921 | |
| Weighted averages |
| -62.2% | 196.7% |
|
|
|
|
|
|
|
| Overall averages/total | -53.1% | 251.3% | 44.201 | |
| Overall weighted averages | -45.3% | 99.8% |
| |
| * 12-month |
|
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|
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| Source: market data; table compiled by Barry Sergeant
Mineweb is a web-based international mining publication focusing on mining financial and corporate news and comment. | ||||
www.proactiveinvestors.co.uk
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