After a year in which precious metals prices have shot the lights out, JSE-listed platinum and gold producers this week alerted the market that they will be announcing stratospheric earnings increases as they report their financial results over the next couple of weeks.
The JSE requires companies to issue trading statements as soon as they are certain their earnings will change by more than 20%. Companies such as Impala Platinum and Gold Fields this week told the market they will be announcing earnings increases upwards of 300%.
That comes after Sibanye-Stillwater, the world's largest producer of platinum group metals, said last week its earnings would be at least five times what they were the previous year. Even Anglo American Platinum, which was bedevilled by production problems last year, will report an earnings increase of 49%-69%, with the rand basket price for its platinum group metals up 71% for the year.
Gold has benefited from the flight to safety during the pandemic, and PGM prices have benefited from their "green" role in cleaning vehicle emissions, as well as from supply constraints, which analysts say are unlikely to ease soon given the dearth of investment in the sector.
Strong commodity prices have meant strong sales revenue from SA's mining sector, despite last year's Covid-related marked decline in mining production volumes.
Latest data from Stats SA this week shows total mining production was down almost 11% for the year, though the declining trend started to turn in December, with total volume expanding 0.5% during the month. But for the platinum and gold sectors, output was still down for the fourth quarter and the year, analysis by Nedbank's economists shows.
Opinion is divided on whether and for how long the precious metals price rally will continue.
"The price-earnings multiples for these businesses are very low and one can interpret from that, that investors are cautious about the sustainability of these prices," said Anchor Capital analyst Seleho Tsatsi. "But even if prices move sideways it will be a great outcome for the sector", with miners generating a lot of cash at these prices.
Ninety One portfolio manager Unathi Loos said the basket prices of platinum group metals were back at six-year highs and prices were the big driver of earnings growth in the PGM sector. But the latest trading updates indicated miners such as Anglo Platinum and Impala have also done surprisingly well on the cost line. Sibanye-Stillwater - which mines both gold and PGMs - has also done much better than expected.
Importantly, said Loos: "At these prices shafts such as Impala Platinum's old Rustenburg shafts, that were going to be shut, are now economical to mine, so people will not lose jobs after all."
But after a decade in which there's been very little investment in the sector, it's still difficult to see much new capital spending to expand capacity, Loos said.
That's not only because of the difficulty of investing to expand deposits that are already quite mined out, but also because of concern about the future of internal combustion engines - which need PGMs for the autocatalysts used to clean their emissions - and their replacement by electric vehicles.
Loos said PGM basket prices could stay at current levels for some time due to a lack of supply. Palladium is testing record highs and might be peaking, but platinum could go higher. In the case of gold, however, a less volatile world could weigh on the price, unless inflation becomes a threat.
Anglo American Platinum said in its trading statement on February 8 that basic and headline earnings per share are likely to increase by 50%-70% for the year to end-December compared to the previous year.
The increase is driven primarily by a 71% increase in the rand basket price, partially offset by the impact of Covid on production as well as the temporary closure of the Anglo Converter Plant during the year, which resulted in lower refined production and sales from own production, the miner said. The rebuild of the converter was completed in November.
Impala Platinum cited "robust dollar pricing for PGMs, together with rand depreciation and sustained operational delivery", in a February 9 trading statement in which it said it expects headline earnings per share to increase by between 316% and 336% for the year to December.
Gold Fields, which last month appointed former Anglo Platinum CEO Chris Griffiths as CEO, advised in a February 10 trading statement that headline earnings per share are expected to be 305%-325% higher for the year to December thanks to "slightly higher production and higher gold prices received, despite the hedges in place during 2020".
AngloGold Ashanti, which is looking for a new CEO after the sudden departure last year of Kevin Dushnisky, said it is reasonably certain that headline earnings for the year to December will be between $962m (R14bn) and $1bn, up from $379m the previous year. The gold price received increased by 27%.
Nedbank's economists said the outlook for mining in SA remains mixed.
"Globally, improving industrial activity and firmer commodity prices creates conditions for higher production. Domestic factors, however, remain major constraints, with the uncertain legislative framework and persistent power shortages being the key obstacles. The threat of new waves of Covid infections could also still undermine the build-up of momentum in mining activity," said Isaac Matshego and Nicky Weimar in a note.
