Amplats loses platinum worth R742m to Eskom blackouts
Anglo American Platinum (Amplats) lost 38,000oz of platinum group metals (PGMs) to Eskom-related blackouts during 2019, costing the company more than R742m in lost production that cannot be recovered.
Amplats, the world’s second-largest platinum miner that is 80%-owned by Anglo American, said it had lost production of 18,000oz of PGMs in the first half of the year to blackouts that forced the closure of mines. Amplats lost a further 16,800oz in the second half of the year. Its joint ventures lost 3,200oz.
At an average rand basket price, which is a measure of all the PGMs Amplats produces, of R19,534/oz for the year, the value of the unrecoverable lost production is R742.3m.
Some analysts point out that against production of 4.4-million ounces of PGMs that carried a value of R86.75bn, the losses were relatively small. Against the overall revenue line and group metal output, the loss of mined metal “pales into insignificance”, said Noah Capital Markets analyst Rene Hochreiter.
“If power outages are kept to three or four hours, the mines can keep going without a hitch. Smelters can keep liquid for a week on low power. Ventilation and cooling is the main thing and most mines have back generators for this,” he said.
“Maybe a shift has to wait a couple of hours to get out but to me Eskom is not an issue unless the outages go on for a 24- or 48-hour period. This has not happened and is unlikely to happen,” he said.
“I think therefore that Eskom is used as an excuse for bad production.”
For a global market of more than 15-million ounces of platinum, palladium, rhodium, ruthenium and iridium supply, according to data from Johnson Matthey, the loss of mined production from Amplats is barely noticeable.
For the mining industry, the high cost of electricity, which has increased more than six-fold since 2006, and the erratic nature of supply, continues to be a concern for the market.
“Eskom continues to present downside risk in 2020,” JPMorgan Cazenove said in a note.
“Although refining activities were strong in 2019, Eskom power cuts interrupted operational activities and has led to a build-up in 89,000 PGM ounces to be processed in financial year 2020,” it said.
The news of the production losses overshadowed the strong safety performance at Amplats’s operations, which recorded a fatality-free year during 2019, a remarkable achievement in the SA mining environment.
Amplats has sold deep-level, labour-intensive mines to JSE-listed Sibanye-Stillwater and privately held Siyanda Resources. It now focuses on open-pit or shallow mines that are highly mechanised, operated at a low cost and safe.
Eskom has struggled to keep electricity supply steady. Its erratic power provision and six-fold price increase since 2006 have been among the major factors in SA’s slowing economy and rising unemployment. SA’s chrome industry is in the throes of restructuring because of low commodity prices and Eskom.
On the refining side of the business, where the base metals and each of the six metals making up the PGMs are extracted, the blackouts delayed the processing of 216,000oz of PGMs. However, Amplats can refine these metals as they are already mined and have been concentrated.
During 2019, Amplats refined 127,000oz of the 216,000oz of PGMs, and said it would refine the remaining 89,000oz during the course of 2020.