Amplats Faces Steep Earnings Decline Due to Load Shedding and Weaker Prices

Anglo American Platinum, also known as Amplats, saw a significant drop in its shares on Monday morning, falling by 6%. The drop came after the company issued a warning about its interim earnings, blaming the expected drop on a combination of factors such as lower metal prices, asset maintenance, and South Africa’s power outages.

The platinum mining company revealed in a voluntary update that its headline earnings for the first half of the year, ending in June, are expected to be between 65% and 75% lower than the previous year. This translates to a potential drop in profit from R26.7 billion to as little as R6.7 billion.

The primary cause of this drop was a decrease in platinum group metal (PGM) prices. According to Amplats, both rhodium and palladium prices have been under significant pressure, with declines of 47% and 29% in dollar terms, respectively.

Furthermore, the company cited inflationary pressure and exchange rate volatility as contributing factors, resulting in higher mining and processing costs. The weakening of the South African rand, on the other hand, partially offset the impact of falling dollar prices on the overall rand basket price, which fell 15% year on year.

In the first half of 2023, Amplats reported a 12% decrease in sales volumes from its own production compared to the same period in 2022. The company explained that the lower output was due in part to the Polokwane smelter having to restart operations in January after undergoing a rebuild.

In addition to the maintenance work, the company experienced production delays at its processing operations due to scheduled annual maintenance and asset integrity work. The impact of load shedding by Eskom, South Africa’s state-owned electricity utility, also resulted in the postponement of 66,400 PGM ounces.

The market reacted strongly to the news, with Amplats’ shares falling 6% to R865 in early trading on Monday. This drop is consistent with the company’s overall performance in 2023, as its shares have already dropped by more than 40% since the start of the year. It is worth noting that other mining companies’ stocks fell as well, with Impala Platinum losing more than 2% and Northam Platinum losing more than 3% on the same day.

As a result of these difficulties, Amplats is faced with the difficult task of navigating turbulent market conditions, such as low metal prices and ongoing power outages. In the coming months, the company will need to implement effective strategies to mitigate the impact of these factors and work towards restoring stability and profitability.