WITHOUT the burden of one-off restructuring costs and write-downs, Anglo American Platinum’s headline earnings would have increased by about 37% for the past year to December, when compared with 2014.
Including the costs of adapting to a weak platinum price, its headline earnings will instead drop by about 90%. The comparison with 2014 looks good only because there was a five-month strike in that year.
The costs of restructuring, to shareholders and to employees losing their jobs, is painful, but it is an indication that the platinum industry — in which the company is the biggest producer — is scaling down production to meet demand after four years of declining prices.
Amplats shares responded uncertainly to this week’s trading update, first falling, then rising, then falling back again to around R186, even as the platinum price gained 2.3% to US$852/oz on a weaker dollar.
Amplats CEO Chris Griffith said annual headline earnings would be between 25c and 55c a share, compared with 301c last year. Basic earnings will show a loss of between R46.30 and R46.65/share, from a profit of 239c in 2014.
Anglo Platinum is making a R14bn after-tax impairment and write-off on assets, of which R1.8bn will affect headline earnings. Other items affecting headline and basic earnings alike are R850m of costs to scale down support and services functions and other retrenchment costs.
Abdul Davids, head of research at Kagiso Asset Management, says the trading statement mentions reductions in contractors and employees but Kagiso believes more can be done to reduce excess supply in the current volatile platinum group metals (PGM) market.
“Recent steep rand weakness has also assisted in improving the absolute and relative cost position of Amplats, and it remains one of the few platinum companies that are cash-flow positive at current spot PGM prices, in our view,” he says.