Our opinion on the current state of AMS

Anglo American Platinum (AMS), also known as Amplats, stands as the world's second-largest platinum producer, trailing only Sibanye, and it generates a significant portion of the global platinum supply. Owned 77.62% by Anglo American, Amplats has pioneered a shift from deep-level mining to shallower, more mechanized operations in South Africa. Over the past five years, the company has streamlined its operations from 18 mines to just 7, halved its overheads, and reduced its workforce by 50%, a transformation that has yielded considerable financial benefits. The Mogalakwena open-cast operation, notable for its palladium-rich deposits and low production costs, stands in the industry's lowest cost quartile worldwide. An upcoming project at Mogalakwena is set to increase platinum and palladium production significantly.

Further expanding its operations, Amplats acquired Glencore's 40.2% interest in the Mototolo mine and the adjacent Der Brochen property for R1.5 billion, enhancing its mechanized mining capabilities and allowing for the expansion of the Mototolo mine without new surface infrastructure. However, the platinum market faces challenges from a robust recycling industry, which recovers around 2 million ounces annually from old auto catalysts, influencing platinum prices.

Despite being considered the premier choice among platinum group metals (PGM) shares on the Johannesburg Stock Exchange, AMS's value remains subject to the inherent volatility and unpredictability of commodity shares. The company's initiative to relocate 1,000 employee families to facilitate production at Mogalakwena could potentially lead to unrest. On 10th December 2021, Amplats announced a significant R3.9 billion extension to extend the life of the Mototolo/De Brochen mines beyond three decades.

For the six months ending 30th June 2023, Amplats reported a 24% decrease in revenue and a 71% drop in headline earnings per share (HEPS), with both rand and US dollar prices of PGMs falling significantly. The production report for the quarter ending 30th September 2023 showed a slight decrease in PGM production but an increase in sales volumes. The company maintains its production guidance for 2023 but anticipates unit costs to be at the higher end of its forecasted range.

Amplats' share price has been declining since March 2022, impacted by industry-wide challenges such as loadshedding and falling product prices. The potential recession could further reduce demand for auto catalysts and PGM prices. Amidst these challenges, Amplats faced a legal dispute with the Zimbabwean government over royalties at its Unki mine, which it is contesting. Additionally, on 15th February 2023, the company announced the resignation of CEO Natascha Viljoen, who will serve out her 12-month notice period. A trading statement for the year ending 31st December 2023 projected a significant decrease in HEPS, largely attributed to a 35% reduction in the realized US dollar PGM basket price compared to the previous year. As such, investing in AMS shares is speculative, dependent on the fluctuating international prices of the platinum group metals it produces, highlighting its volatility.