Amplats receives 80% increase in the rand PGM basket price

Anglo American Platinum has reported that total PGM production (expressed as platinum, palladium, rhodium, gold, iridium and ruthenium metal in concentrate, including joint ventures and third-party purchases) declined by 25% year-on-year in the first half to 1,619,900 ounces, mainly due to the impact of Covid-19 lockdowns in South Africa and Zimbabwe.

At the end of June, production levels at its managed operations were at around 80% of normal capacity in aggregate, and the company expect this to increase to over 95% by the end of the year as it benefits from a high proportion of open-pit and mechanised production.

Total refined production, including tolling, declined by 46% to 1,246,900 ounces, as the temporary closure of the Amplats Converter Plant (ACP) and load-shedding in the first quarter impacted production.

Work is well under way to repair Phase A of the ACP, which is expected to be completed by the year-end. A cautious approach has been taken with the ongoing operation of the Phase B unit during this period, with increased monitoring likely to result in intermittent stoppages to inspect the plant until the repairs to Phase A are completed.

As a result of the ACP process interruptions, there was a build-up of work-in-progress inventory of around 500,000 PGM ounces. It is expected that approximately 45% of this build-up in inventory will be released in the second half of 2020.

In line with the 25% decrease in mining production, the unit cost of production per PGM ounce increased by 26% to R12,555 (H1 2019: R9,951). Excluding the costs associated with unproductive labour amounting to R1.2 billion, or R1,057 per ounce, unit costs would have been R11,498, or 16% higher than H1 2019.

PGM prices were volatile as the Covid-19 pandemic hit both the demand and supply sides of the PGM markets. In dollar terms, the average realised basket price was 56% higher year-on-year at $1,956 per PGM ounce (H1 2019: $1,255 per ounce).

The rand weakened 15% against the US dollar, leading to an 80% increase in the rand basket price to R32,166 per PGM ounce (H1 2019: R17,901 per ounce). As a result of higher prices, net sales revenue increased by 28% to R54.8 billion.

Considering the strength of the balance sheet, the support provided to employees and communities to limit the impact of Covid-19, and the discretionary capital options available, the Board has declared an interim dividend of R10.23 per share, or R2.8 billion, in line with the policy to pay out 40% of headline earnings.

On recommendation from the Nominations Committee, the Board approved the appointment of Thabi Leoka and Roger Dixon as independent non-executive directors with effect from 27 July 2020.

OUTLOOK

PGM production guidance (metal-in-concentrate) is between 3.1- 3.6 million PGM ounces for 2020, with refined production and sales volumes expected to be in the same range.

While the early stages of recovery are under way in many geographic regions, there remains a great deal of uncertainty, with limited visibility beyond a few months. Mine supply is expected to be sharply lower this year due to the impact of Covid-19, while global recycling volumes are expected to be less affected.

PGM demand will be impacted by the decline in global car and commercial vehicle sales and production, weaker sales of platinum jewellery, and softer industrial demand. Despite the impact on demand, Amplats expects platinum, palladium and rhodium to remain in deficit this year.

Longer-term, the Company remains committed to expanding the role PGMs can play in enabling a lower carbon economy and it continues to lead the industry’s demand creation efforts across the industrial, investment and jewellery demand segments.

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