Shares of World’s second largest metal producer, Impala Platinum Holdings Ltd. (Implats), has dropped by 40 percent in 2018, its lowest since 1999 as investors fear its Rustenburg operations are sailing close to the wind
In April, Implats cut its production by about three percent saying it is in the process of improving output and cost of performance. Due to this, investor confidence in Impala Platinum began to waver, especially as the cost ratio at its Rustenburg operations compared unfavorably with some other mining companies in the country.
Prior to the production cut in January, Implats shut a shaft at Rustenburg, flagged three more to be closed once mined out and fired 1,400 workers. Between 2013 till date, the company has closed 10 shafts and since November 2017, platinum prices have dropped by about 15 percent. And some investors aren’t convinced the company has contained its cost crunch.
According to Ryan Seaborne, money manager at South Africa’s 36One Asset Management, the production cut forced investors to begin estimating a profit warning and a potential capital raising by Implats. “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 stated.
Seaborne also noted that “Net debt to Ebitda has been creeping up to double and could breach that level soon,” and most South African peers, excluding Sibanye Gold Ltd., operate a ratio of less than 1:1.
Investors translate Rustenburg reduced production as Implats reaching its break-even rate and the “operation is sailing close to the wind,” said Rene Hochreiter, an analyst at Noah Capital Markets, Bloomberg reported.