You almost wonder why Anglo American Platinum (Amplats) needed a capital markets day ahead of its unbundling from the no-longer warm embrace of parent Anglo American in June.
After all, as CEO Craig Miller told analysts during a four-hour presentation on Monday, the company has the single largest PGM endowment in the world, equal to 30% of the entire global supply. No wonder he describes the company’s asset base as “outstanding”. The sheer size of Amplats’s reserves – 150-million ounces – means it has, conservatively, 80 years of life left from its mines. At its flagship Mogalakwena mine alone, for example, Amplats reckons it’s touched just 14% of the ore, after 30 years of open-pit digging.
“We’ll still be mining when your grandchildren, or great-grandchildren, are getting ready to retire,” quipped Miller to journalists.
Yet, clearly, life outside of planet Anglo American will be a singular change for the platinum group. For a start, it’ll have a new name: Valterra (meaning value and terra, Latin for earth). It’ll also have a fresh set of shareholders as it’s unbundled to Anglo’s investors – many of whom are based outside of South Africa with little feel for the country or the platinum asset that at times was a major money spinner for the parent.
Now, however, is not one of those times. PGM prices – especially palladium and rhodium – have been in steep retreat since 2023 (though rhodium has enjoyed a recent fillip). Platinum has been stuck at about $1,000 an ounce for a decade now.
Yet Amplats’s top management painted a compelling picture of a market that should be seeing far higher prices than what PGM producers are fetching now. Prices are so tepid, in fact, that of 15 PGM mines that were opened between 2000 and 2011, only nine are still in production.
This is, in some ways, good news. Such is the brutality of mining’s supply and demand dynamics that the closure of competitors will enable the success of others as supply is drained from the market. According to Amplats head of corporate development Martin Poggiolini, primary platinum supply – that is, metal produced by mining and not recycling – is expected to decline 16% by the end of the decade from South Africa.
Current spot prices and consensus prices suggest a near-zero return on capital, said Poggiolini, while historically the return on capital for PGM miners has been between 10% and 20%. “So we expect supply to remain constrained until we see meaningful price recovery.”
That right there is a positive development if, like Amplats, you find yourself on the lowest half of the cost curve, with an all-in-sustaining cost target of $950 per PGM ounce, and plenty of resources to ride out the trough while other miners go bust.
Demand drivers
The other side of the equation is demand, where the picture has been incredibly murky, thanks to the rise and rise of battery electric vehicles (BEVs).
This is crucial because the automotive sector – that is, internal combustion engine (ICE) and battery hybrid vehicles – accounts for 66% of all PGM demand thanks to the use of autocatalysts to curb emissions. Industrial usage for PGM metals is far lower at 26%, followed by jewellery demand at 5% and investor demand at 3%.
Hilton Ingram, Amplats’s head of marketing talks of “unprecedented change” for automakers, but said the “mood music” around BEVs has changed too, and is adamant that the market still favours the ICE. Stricter emissions standards and improved testing – especially in China – are likely to lead to higher use of PGMs in autocatalysts and so he’s of the view that the consensus demand for PGMs is lower than where it might actually end up.
BEVs had 10% global market share in 2024, according to stats cited by Ingram, while in China they accounted for a quarter of new car sales, which “implied that this is the path other [markets] might take. But China is different – it has limited experience and less affinity for ICE vehicles … and the state has the capacity to invest in charging infrastructure.” This is a major factor for electric vehicle users – and a major deterrent.
It’s one reason that the share of BEVs has been revised down to 33% by 2030 from 40% previously – while Amplats’s own stats suggest a market share of closer to 25%. For it, that means an extra 1-million ounces of demand at least for PGMs per year that has not been accounted for.
“We are not dismissive [of BEVs] we just believe catalysed vehicles will have a greater share for longer,” said Ingram.
As for jewellery, yellow gold is now three times as expensive as platinum – the biggest gap since 1900, according to Amplats. But, again, Ingram believes 2024 marked a “turning point” for platinum jewellery demand and argues that if the sector can regain 10% of white gold sales “that’s an additional 1-million ounces of demand”.
Competing for capital
Asked why the company and its executives felt the need to put on a four-hour show, Miller said: “A lot of people in South Africa are very familiar with Anglo Platinum and how we think about the business, but we’re going to have a whole new set of shareholders that were part of Anglo American who don’t necessarily know some of the detail.”
That detail includes an earnings before interest, tax, depreciation and amortisation margin of more than 25% and a promise to pay at least 40% of headline earnings out as a dividend to investors, while cutting R4bn from costs this year.
“Life in Anglo is not terrible”, joked Miller when asked what going it alone will be like.
“The real opportunity is that we compete for capital within the Anglo American group.”
Instead, as a standalone entity, “the competition is within ourselves so we can now very confidently invest back into the assets and realise [their] full potential. But as we articulated, we’re going to be disciplined about where we’ll deploy those returns. We’re not looking at new M&A, we’re not looking at massive capital projects.”
Indeed, “Valterra” won’t actually have piles of cash to do anything given that its last parting gift is an immense R11bn dividend to its parent as part of an overall R16.5bn, which gets paid out in April (a base payout of R3 a share plus a cash dividend of R59 a share), which leaves it in a net cash position of just R1.1bn.
Anglo embarked on a set of radical changes after fending off a buyout bid from BHP group last year, of which the unbundling of Amplats is part. It will retain a 19.9% stake in the group (it presently owns 67%), though for how long is not clear.
Oystercatcher Investments director and portfolio manager Mark du Toit, who attended the presentation, tells Currency that Amplats “has the longest life and lowest-cost PGM mines outside Russia [Norilsk]”.
Whatever management may or may not do, the cruel reality for any mining company is that the prices of the metals they mine will determine returns. At present prices, Du Toit says Amplats’s share price of R708.49 (down almost 11% over 1 year) is fairly valued, “but the company is well placed to survive the current low PGM price environment”.
Top image: Anglo Platinum’s Mogalakwena mine. Picture: supplied.
Sign up to Currency’s weekly newsletters to receive your own bulletin of weekday news and weekend treats. Register here.
