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  • Can a demerged Amplats enliven SA PGM sector?

    Mon June 17 2024

    There was little to celebrate when the world’s platinum industry gathered in London last month. The past two years have been chastening ones for the once high-flying sector, during which time the platinum group metal (PGM) basket price fell 60%. Despite forecast deficits for some of the metals, prices had stirred a mere 9% this year.

    One talking point, however, was the impact of a demerged Amplats — a carved-in-stone event, whatever may eventually happen to its parent, Anglo American.

    “This would not be the first demerger we have done, certainly not in South Africa,” says Anglo American CEO Duncan Wanblad who in May announced the demerger along with a series of other restructuring events, including the sale of De Beers.

    Wanblad cites previous streamlining of the South African business empire, including the unbundling of its shares in paper manufacturer Mondi in 2007. “They have been extremely value-accretive to shareholders when they have been done in the right way and by the people who understood how to do these things in that country and in that jurisdiction.”

    It took Anglo just over a year to demerge its South African coal assets into Thungela Resources, from April 2020 when the rumours about the transaction first emerged, to its July 2021 JSE debut, just as Europe was plunged into an energy security crisis after Russia’s invasion of Ukraine. The listing proved a major success. Shares in Thungela doubled in the first three months of listing to about R60 a share — the level of its final dividend a year later, by which time its shares were more than 700% higher.

    PGMs in need of impetus

    The PGM market has no such impetus, despite estimates that most of the physical selling pressure on metal prices is over. Prices will trade “broadly sideways” in 2024 as physical deficits “will likely have a great impact on prices this year”, says Metals Focus, a UK consultancy.

    But a standalone Amplats, stripped of its parent balance sheet, is expected to think differently about its portfolio, potentially furthering the current bout of production cuts. “Essentially, this would enable Amplats to invest more in the business and send less cash up to the centre,” says Arnold van Graan, an analyst for Nedbank Securities.

    Amplats CEO Craig Miller says the need for capital discipline “doesn’t change as a standalone company. We will need to be able to stand on our own two feet in terms of capital deployment.

    “We need to operate efficiently but we also need to invest capital diligently,” he says in an interview. “But it will also create opportunity for us to critically evaluate some of the projects we have, and how they compete for capital internally in business instead of across the group in Anglo.”

    One suggestion is that the unbundling of Amplats might create scope for industry collaboration. “A fit-for-purpose, streamlined operation would be positive for the industry,” says Phoevos Pouroulis, CEO of Tharisa, a Joburg-listed PGM company. While he doesn’t believe Tharisa would bid for any of Amplats’s assets, such as its Amandelbult mining complex, part of which has struggled to be profitable, the prospect of broader collaboration has been heightened. “Certain assets need a rethink and restructuring,” he says.

    Amplats might be cautious of handing away optionality, however. Miller says that while there “has to be a role for us to collaborate”, the group has strong assets that will be supported by R10bn worth of cost-cutting unveiled in December. Says Miller: “We will grow when the time is right and extract most value for shareholders.”

    The biggest challenge for Amplats, at least in the short term, is the implication of a flowback of shares from largely index investors, estimated in a recent JPMorgan Cazenove report to be $4.3bn, including the possibility of Kumba being unbundled as per BHP’s proposal. A secondary listing of Amplats shares in London is designed to achieve it.

    Miller says it’s still an option that “has to be considered” collaboratively with Anglo, and in the interests of all shareholders “including our minorities”. How a UK listing is viewed might also have to be tested with the South African government.

    “I don’t believe the UK listing will be a problem for government,” says Van Graan, who points to offshore listings for Pan African Resources, which is even domiciled in London. But he acknowledges there will always be a level of overhang. “Anglo would like to do the demerger sooner rather than later but now is not the right time,” he says.