PGM PARTY IS OVER
Commodities party is winding down, Amplats & Kumba trading updates show
Anglo American Platinum and Kumba Iron Ore both expect interim earnings to fall by up to 50% or more when they unveil results next week. It seems there will be no repeat in the mining sector in 2022 of last year’s record prices on record earnings, and the consequences for the wider economy will be significant.
Anglo American Platinum (Amplats) and Kumba Iron Ore, both units of Anglo American, flagged their sour earnings outlooks in trading statements on Thursday. The companies had record earnings last year on record prices, but that party is winding down now and the consequences for the wider South African economy will be significant.
Let’s start with Amplats, which has been knocking earnings straight out of the park the past couple of years.
It said that its headline and basic earnings were likely to “decrease by between 40% and 50% compared to the six months ended 30 June 2021. Headline earnings and basic earnings are likely to be between R23-billion and R28-billion (R46.4-billion in H1 2021)”.
That’s still a pretty tidy profit and a lot more than the company was making a few years ago. But it’s a sharp decline from last year in the face of falling sales volumes and a 14% decrease in the combined basket price of platinum, palladium and rhodium from the record levels in 2021.
As for Kumba, its performance was adversely impacted by heavy rains in the first part of the year and a “safety intervention” at the Kolomela operation in the second quarter, which the company did not provide details about. Iron ore export prices also softened.
The upshot is that the company said it expected headline earnings for the period were likely to fall by between 48% and 53%.
Food and fuel prices have been surging this year, while metals prices have been cooling — the outlook is generally bearish amid inflation and recession fears on a global scale.
This will translate into generally lower earnings this year for South Africa’s mining sector, which threw the Treasury a lifeline last year in the form of significantly higher tax and royalty payments. That is a windfall the fiscus cannot rely on this year. It also means smaller dividends for shareholders and the crumbling of one of the key props that supported the rand, which is currently around two-year lows of about R17/dollar.
Mining has been one of the few bright spots in this frail economy. If its light is now dimming, there is not much left to shine. DM/BM