Thursday, May 10, 2018

Impala Platinum (Implats) investors fret over glitches

Bad news from South Africa’s platinum belt has pushed shares of the world’s second-largest producer of the metal to the lowest since 1999.

Impala Platinum (Implats) has dropped 40% so far in 2018 as investors fret over glitches at its Rustenburg operations and cost ratios that compare unfavourably with some peers. The biggest producer after Anglo American Platinum (Amplats) on April 26 cut its production forecast for 2018 by about 3% and said it was taking steps to improve output and cost performance.

Some investors were 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 100,000oz to 560,000oz 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 had reached its break-even rate and the "operation is sailing close to the wind", Rene 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 retrenched 1,400 workers. While the miner has closed 10 shafts since 2013, some investors are not convinced the company has contained its cost crunch.

"Net debt to ebitda [earnings before interest, tax, depreciation and amortisation] has been creeping up to double and could breach that level soon," Seaborne said.
Most South African peers, excluding Sibanye Gold, operated 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%, Markit data shows, making the platinum miner the most shorted stock among members of SA’s benchmark index.

Implats spokesman Johan Theron said he could not speculate on actions taken by investors, but said 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 1.9% on Wednesday, declining for a fifth day. The stock is the worst performer among the five members of the JSE’s platinum index, which has dropped 22% in 2018.


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