Amplats results. Not good.

There would be some irony if Chris Griffith could take over at Amplats at the bottom of the market, and leaving Kumba Iron Ore near the top of the market. Some folks might attribute a turn around to him, even if it was just the market. Of course a very good manager can make an enormous difference.


And he (Griffith) will have this as a starting point: Anglo American Platinum Limited posts decreased headline earnings due to lower sales and weaker prices. That is just this morning, perhaps as I heard once, you can only go forward with your backs to the wall. But that obviously implies that you have hit the wall. Operationally "things" are looking tough. Gross sales fell 22 percent (5.4 billion Rand) to 19.53 billion Rands. Lower sales volumes accounted for the bulk of the revenue fall, whilst prices received accounted for 1.1 billion Rands less. Platinum sales fell 21 percent in the first half to 967,400 ounces, whilst equivalent refined platinum production (own mines and JV's) increased by 1.1 percent to 1.18 million ounces. Wow. In 2006, in the era before the iPhone, the company for the comparable half produced 1.34 million ounces. And back then the average platinum price received was 1104 Dollars per ounce. In 2006. And Amplats managed to earn 4.5 billion Rands. Right now, for the first half 2012, Amplats made 2.73 ZAR per share. Back then, in 2006, there was enough in the kitty to pay 14 Dollars a share worth of dividends.


There is no mileage in comparing the past and now, other than to say that the well documented costs issues are known to the market. You can improve labour relations over time and as such improve productivity. Amplats said as much, in the release: "labour productivity improved by 11% to 6.54m2 over the same period." Excellent, whatever Amplats are doing at a productivity level, it is going in the right direction. Costs are a massive issue though with "Cash operating costs up 11% year-on-year to R14,478 per equivalent refined platinum ounce on above inflation increases in the cost of electricity, diesel, caustic soda, steel balls and reagents" Raw materials costs increasing, I suppose that goes both against and for you, depending where the cycle is.


So we know that, they are struggling to keep pace with production targets, those are getting revised downwards almost every time that they report. The market is looking ropey for their product and the price has told you that, but that has been an opportunity for jewellery demand, although strong, was not able to offset weak autocat (Europe accounts for 47 percent of autocat platinum demand) and investment demand. Industrial demand is unchanged. I suspect that autocat demand will come back in the next 18 months, perhaps a little stronger than anticipated.


But buying single commodity stocks come with a health warming, when the going is good, it is very good, when it is bad, well, it turns out like this. Badly. The stock is down 2.6 percent this morning, trading at the worst price in an absolute age. The dividend has been suspended again sadly. But this is a company that accounts for roughly 40 percent of all global production. They are the price maker. If there is a serious review of their operations (ongoing) then we could well see the platinum price rally into the close of the year, in anticipation of future projects being placed on hold. There is already some of that, spending has been ratcheted back and grand plans are not in place for now. Like I said in introducing this piece, this might well turn out to be another genius piece of timing.