Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The use of platinum as a substitute for more costly palladium is likely to accelerate amid concerns about supply from top palladium producer Russia and a drive among carmakers to cut costs, Anglo American Platinum said on Monday.
Palladium is used in emission-reducing catalytic converters in gasoline engines, but the metal’s price surge has driven automakers to replace it with platinum.
The market could see up to a million ounces of palladium switched for platinum, Amplats finance director Craig Miller told investors on a call. He told Reuters this level could be reached in four to five years.
Amplats last year estimated around 75,000 ounces were substituted, and expects 200,000 ounces to be switched this year.
Amplats is getting calls from prospective platinum group metals (PGM) buyers looking to find alternatives to Russian metal, CEO Natascha Viljoen said, adding many of its supply contracts run on a yearly basis and will be reviewed at the end of this year.
Amplats reported a 43% drop in half-year profit due to weaker metal prices and lower production compared with record sales a year ago.
Its shares closed down 2.18% after headline earnings per share (HEPS) – the main profit measure in South Africa – fell to 101.4 rand ($6.02) for the six months ended June 30, from 176.47 rand a year ago.
The company reported a 10% increase in mining input costs during the period and said inflationary pressures and tightening monetary policy would continue to impact the industry.
“Diesel prices are 61% up year on year, explosives are up 55% and chemicals are up 17% year on year. Those three components have significantly contributed to the increase in costs for us,” Miller said.
Amplats kept its unit cost of production guidance for 2022 at 14,000-15,000 rand per PGM ounce, based on oil at $100 per barrel. That would represent a year-on-year cost increase of between 9.1% and 16.9%. It cut its capital expenditure guidance for the full year to 16-17.5 billion rand from 18-18.5 billion.
PGM prices have come off their early 2021 highs, but Amplats said the basket price in the first half of 2022 remained the second-highest average price on record, showing strong underlying market fundamentals despite price volatility.
Amplats ended 2020 with a backlog of around one million ounces of PGM as it rebuilt and recommissioned its converter plant. Most of this inventory was refined and sold during 2021, resulting in higher-than-normal sales and earnings.
The company declared an interim dividend of 81 rand per share, compared to 175 rand per share last year.
($1 = 16.8452 rand)
(By Nelson Banya; Editing by David Evans and Mark Potter)
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