After bumper earnings at the height of the Covid pandemic, precious metals companies are feeling the pinch of cooling platinum group metals (PGM) prices and faltering profits.
Weaker palladium and rhodium pricing, coupled with lower sales volumes, had a knock-on impact on Impala Platinum (Implats) and Sibanye-Stillwater, which reported posted financial results this week.
Implats’ profit for the year ended June declined 81.4% to R6.1bn, and while Sibanye-Stillwater’s profit fell 37% to R7.8bn in the six months to June, a turnaround at its South African gold division cushioned the impact.
Implats CEO Nico Muller said this week the company could reduce capex should prices fall further.
“We will curtail the forecast or guided capital expenditure, which is between R12.5bn and R13.5bn for the next year. We have the ability to ramp that down to the extent that prices require us to do that.”
Implats said lower dollar metal prices resulted in a 17%, or R20.7bn, reduction in annual revenue. However, Muller said major restructuring or suspension of operations was unlikely in the near term.
We will curtail the forecast or guided capital expenditure, which is between R12.5bn and R13.5bn for the next year. We have the ability to ramp that down to the extent that prices require us to do that
— Implats CEO Nico Muller
“We have a number of other options available to us. We also will not stop an operation if we have a loss in one day or one month,” he said.“We will have to have a direction that suggests the inevitability of continued negative cash flows for us to make such a big decision. As you know, stopping or suspending an operation or restructuring has a material impact. We won’t support loss-making [operations], but it is not something we will do over one day’s loss-making.”
Still, the company said that should current prices persist or if there was a regression in operational performance, the sustainability of its Rustenburg operation would come into sharp focus.
“But this would be true for most of the PGM mining industry under such scenarios,” it said.
Muller said that in terms of Implats’ long-term metal price forecasts, the group wasn’t surprised by the decline in PGM prices.
“The one thing we were surprised by is the rate at which the prices have declined. If you do a historical analysis, you find that the last six months earmarks a period with one of the most rapid declines in metal prices,” he said.“It is a consequence of the thinly traded rhodium combined with palladium. It was the speed at which it happened that I think surprised us, not necessarily that the record highs we experienced in 2021 have not been maintained,” he added.
Diversified precious metals miner Sibanye-Stillwater said in its interim results that the decline in commodity prices had been severe and the company was preparing for a lower commodity price cycle by cutting costs.
Sibanye-Stillwater spokesperson James Wellsted said the company may consider restructuring in areas where commercially viable operations cannot be sustained.
“We will have to relook at our operations, and we have the operational guys looking at optimisation of those assets, where they can reduce costs,” he said.
Wellsted said the company had experienced headwinds at Sandouville, its nickel refinery in France, which lost 50 production days as a result of equipment failure at its electro-winning circuit, supply chain constraints and nationwide strikes, while New Century in Australia was hit by a severe storm. “We need to get [these] operations to break even and hopefully profitable.”
Lower PGM prices and challenges in Europe resulted in a 14% drop in revenue to R60bn in the six-month period.
Seleho Tsatsi, an investment analyst at Anchor Capital, said Sibanye-Stillwater has announced significant downgrades to its 2023 guidance, which “is consequently leading to higher unit costs in certain parts of the business”.
“Margins at the South African PGM business, the group’s largest profit contributor, are getting closer to trough levels and earnings continue to be under pressure.”
Muller said Northam’s decision to sell its stake in RBPlats to Implats was a plus for the PGM industry after a “lengthy and contentious” takeover.
“I think Northam made a prudent decision at the right time. We think it is a decision that served their company, their shareholders well and in my view it served the industry well because it provides sustainability for a very critical PGM producing region.
“Of course, we are a company that participates in that, but I think it was a smart decision after 18 months of fewer smart decisions. I think sanity prevailed in the end. I think it is really a constructive outcome for the entire industry and for all shareholders invested in the PGM industry,” Muller said.
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