South Africa: Impala Platinum Has Dropped More Than 40% For The Year

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Bad news from SA’s platinum belt has pushed shares of the world’s number two producer of the metal to the lowest since 1999.

Impala Platinum (Implats) has dropped more than 40% this year as investors fret over glitches at its Rustenburg operations and cost ratios that compare unfavourably with some peers. On April 26, the biggest producer after Anglo American Platinum cut its production forecast for this year by about 3% and said it’s taking steps to improve output and cost performance.

Some investors are pricing in a profit warning and a potential capital raising by Implats, said Ryan Seaborne, a money manager at 36One Asset Management. “They have cut guidance by 100,000 ounces to 560,000 ounces for full-year 2018 and this is only a few months after they already lowered guidance,” he said, referring to the Rustenburg operations.

The reduced production at Rustenburg could mean Implats has reached its break-even rate and the “operation is sailing close to the wind”, René Hochreiter, an analyst at Noah Capital Markets, said in an April 26 note. In rand terms, platinum prices have dropped by about 15% since mid-November.

The company shut a shaft at Rustenburg in January, flagged three more to be closed once mined out, and shed 1,400 workers. While the miner has closed 10 shafts since 2013, some investors aren’t convinced the company has contained its cost crunch.

“Net debt to earnings before interest, taxes, depreciation, and amortisation (ebitda) has been creeping up to double and could breach that level soon,” Seaborne said. Most South African peers, excluding Sibanye Gold, operate a ratio of less than 1:1, he said.

Implats has attracted the attention of short sellers, who bet on declines in stocks. As of May 9, the short interest in Implats as a percentage of shares outstanding is 9.8%, according to Markit data, making Implats the most-shorted mining stock among members on the JSE.

Implats spokesperson Johan Theron said he couldn’t speculate on actions taken by investors, but the company had noted an increase in short positions following a sale of 2022 convertible bonds. “One would naturally expect some convertible bond holders to cover their equity exposure through short positions,” he said by e-mail. “As to the impact that this has on the present combined short position relative to, say, the recent drop in metal prices, is obviously difficult to assess.”

Implats fell 6.5% by 3.16pm on Thursday, declining for a sixth day to the lowest since May 1999. The stock is the worst performer among the five members of the index of platinum producers, which has dropped 23% in 2018.

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