Johannesburg, South Africa — 27 July 2012 – It seems incomprehensible that the question of cash flow and liquidity should raise its head in the South African platinum industry, after years of basking in the glow of record prices and ambitious expansion plans.
“But that’s exactly what’s happening,” reports Miningmx. Aquarius Platinum has 12 months of cash left, and while Lonmin is unlikely to break any bank covenants, it’s nonetheless looking to refinance its balance sheet.
But the most potent signal that a large slice of the platinum industry is unfeasible at current production levels is provided by Anglo American Platinum, whose balance sheet has swung into a level of precariousness within months.
In the six months to June, Amplats recorded a cash outflow of R1.8 billion which, coupled with capital expenditure of R3 billion, has increased net debt to R9.5 billion from R3.7 billion at the end-December point. At current production – which is likely since any restructuring will not take effect until next year – and assuming similar pricing levels, Amplats will remain cash-flow negative by the year-end.
In fact, analysts estimate Amplats could be cash negative to the tune of R4.2 billion by the year-end, partly owing to full-year capex of R7.3 billion (which was adjusted downwards recently). Amplats has R15 billion in balance sheet headroom, but it’s unclear whether there are material convenants it might break along the way, especially as earnings remain pressured.
Amplats argued in its interim statement earlier this week that in 2008, it had recorded gearing of between 40% and 50% and that current gearing was only 19% by comparison. This is quite true and valid, but it does remind one that Amplats, and Anglo American, have trodden a road of restructuring and recapitalisation before; very recently, in fact.
From 2008 to 2010, some 19,000 jobs, mostly contractors, were taken out of the Amplats system. There was also deep-vein surgery on the balance sheet with a R12.5 billion rights issue, fully underwritten by Anglo American, the aim of which was to cut then-debt of R22.8 billion.
One only supposes Anglo American will ride to its subsidiary’s rescue again now should it become necessary.
In any event, another downsizing exercise is necessary at Amplats and within the rest of the industry. The expansion plans of several years ago, along with the explosion of junior mining efforts, now appears to have constituted a period of decadent excess and unchecked over-confidence. One wonders, however, just how profound the restructuring will be from an industry-wide perspective?
At a platinum price of US$1,400/oz, analysts suggest some 300,000 to 400,000 ounces could be cut from industry output. This would comprise 200,000oz from Amplats; 140,000oz from Aquarius Platinum, while Lonmin, has deferred between 100,000oz and 200,000oz of future production, in terms of its ramp-up programme, over the next two to three years. Impala Platinum is still to report.
Source: Miningmx. For more information, click here.