The fallout from the platinum industry’s woes is spreading far and wide. The latest casualty is Royal Bafokeng Platinum (RBPlat), which warned on Friday that headline earnings a share for the first half of the year could be down by between 52 percent and 62 percent.
The impact of the platinum crisis has already seen Anglo American Platinum, Aquarius Platinum and Eastern Platinum also warning of job cuts. This is likely to be a major strain for Royal Bafokeng Holdings (RBH), which has a very high exposure to platinum mining assets.
RBH is the primary investment vehicle of the Royal Bafokeng Nation, a community of about 300 000 Tswana-speaking people with substantial minerals-rich land holdings in North West Province.
RBH owns RBPlat, and has stakes in various companies including Impala Platinum, Merafe Resources, and Vodacom South Africa.
Even though RBH has diversified over the years, its investment exposure to platinum assets makes it vulnerable.
Due to market forces including the drop in the platinum price, the rise in input costs such as power and labour and economic uncertainty in the euro zone, platinum shafts have become uneconomic to mine, complicating the outlook for an increasing number of platinum producers.
The price of platinum was $1 410 (R11 551) an ounce on Friday, compared with a high of $1 916.10 last August and slightly better than the low of $1 371.30 in December.
RBH said on Friday that the effect of the fragile platinum sector on the community would be felt through lower dividend flow and hence less money to spend on social programmes.
In the 2011 RBH-integrated report, Kgosi Leruo Molotlegi, king of the Royal Bafokeng, said: “Our primary objective of diversifying geographically and reducing the current portfolio’s exposure to the risks associated with one dominant sector, platinum, is on course.”
Even so, the latest platinum sector woes might just prove too challenging to overcome if demand does not pick up and prices do not recover soon. A weakening global economy makes matters worse. As of the close on Friday, RBPlat had R7.84 billion in market capitalisation, down from R11.3bn when it listed in November 2010.
In its trading update on Friday, RBPlat forecast earnings a share and headline earnings a share for the first half of the year to be between 40c and 50c, compared to R1.05 for the previous corresponding period.
Normalised earnings per share for the six months ended June, after adjusting for an additional amortisation and depreciation charge related to a fair value adjustment, were expected to be between 55c and 70c compared with R1.26 for the previous corresponding period.
It said the expected drop in earnings was mainly due to lower sales volumes, lower realised revenue basket prices and increased costs. Sales volumes were also lower, mainly because of an increased number of safety-related stoppages,
“Sales volumes for the period were lower primarily due to an increased level of safety related stoppages, caused largely by a fatal accident and a fall of ground shortly thereafter, together with lower grades primarily due to the processing of low grade above-surface ore,” the company said.
Due to difficult market conditions, RBPlat halted drilling at the Bafokeng Rasimone Platinum Mine north shaft as part of a replacement project, which is scheduled to be completed by August 2017.
RBPlat expects to release its interim results on August 20.
RBPlat’s shares rose by 0.74 percent to close at R47.37 on the JSE on Friday. Meanwhile, the platinum index rose by 2.19 percent on the day.