
Creating and realising value depends on successfully negotiating a changing operating environment where several issues have important implications for our business model.
In October 2018 the International Monetary Fund (IMF) estimated that the global economy will grow 3.7% in 2018, the same as in 2017 but down from the 3.9% it was forecasting for 2018 in July. It slashed its outlook for the 19 countries that use the euro currency and for Central and Eastern Europe, Latin America, the Middle East and sub-Saharan Africa. The IMF highlights that expansion is becoming less even, and risks to the outlook are mounting on the back of trade tensions, which it warned could “significantly harm global growth”.
Among emerging markets and developing economies, growth prospects are also becoming more uneven, amid rising oil prices, higher yields in the US, escalating trade tensions, and market pressures on the currencies of some economies with weaker fundamentals.
The IMF highlights that the announced and anticipated tariff increases by the US and retaliatory measures by trading partners have increased the likelihood of escalating and sustained trade actions. These, they suggest, could derail the recovery and depress medium-term growth prospects, both through their direct impact on resource allocation and
Impact on value
Our response
The socio-political context in the countries in which we operate – South Africa and Zimbabwe – remains dynamic. There is considerably more optimism and regulatory certainty in both jurisdictions. The newly gazetted Mining Charter has provided some level of certainty in the South African policy and regulatory framework There remains some ongoing policy uncertainty in both countries.
Impact on value
Our response
Metal prices have remained muted for a protracted time. Negative sentiment related to anticipated weaker supply/demand fundamentals has been largely informed by slower diesel vehicle growth expectations, the projected rate with which the vehicle fleet could be electrified, slowing platinum jewellery sales in China and inflated perceptions of aboveground metal stocks.
For the most part of the past decade, the platinum market has been oversupplied. While sentiment towards platinum has weakened over the past five years, palladium fundamentals have strengthened significantly. Palladium is principally used to clean exhaust emissions in gasoline vehicles, which experienced strong sales growth over the period. Platinum, on the other hand, has lost market share to palladium in this key application, based on a lower palladium price and more diversified global supply.
Consensus forecasts are for softer platinum demand for at least the next three years. The immediate fundamentals for both palladium and rhodium remain strong, largely due to expected growth in the global internal combustion engine automotive market and tighter emissions regulations. In what is currently a close-to-balanced market, forecasts now see palladium and rhodium moving into relatively deep deficits sooner than previously expected.
Impact on value
Our response
Platinum demand declined by 3.8% during 2017 due to the declining platinum jewellery market in China and the waning diesel share of the automotive market in Western Europe.
The continued decline in the Chinese platinum jewellery market is an ongoing concern. The market continues to be in decline because of changed underlying market fundamentals. Consumer preferences have changed, while most retailers’ products and business models have not. The change in consumer preferences is hurting generic jewellery business models, yet the PGI expects long-term growth opportunities as the retailers adapt to the changing demand environment, with revised designs and collections.
Simultaneously, there is an increasing call from civil society to reduce emissions and limit public exposure to harmful gases. Cheating scandals in the automotive sector have done little to encourage public confidence in internal combustion engines and, together with the increasing cost of compliance with emission standards, pure battery electric vehicles (EVs) will soon be economically attractive, despite issues with cost, range anxiety, battery disposal and fast-charging infrastructure.
Impact on value
Our response
Lower metal prices and rising costs over several years have had a devastating impact on the PGM industry’s profitability, triggering significant reductions in capital expenditure, as well as shaft and mine closures. Western Limb producers have been most severely impacted, driven by the costs associated with operating deep, labour-intensive, conventional mines with older infrastructure. Despite the best efforts of the PGM industry to weather the storm, the industry lost around 800 000 ounces of platinum production since 2009 due to the closure of unprofitable mines. This was particularly hard felt in the Western Limb – which accounts for 520 000 of the 800 000 lost platinum ounces per annum. Conventional producers are fundamentally restructuring loss-making operations to address cash burn and create lower-cost profitable businesses.
Anglo American Platinum (AngloPlats) was the first PGM producer to react to this changing reality, exiting high-cost conventional mining operations. This strategy, together with the continued prioritisation of its low-cost Mogalakwena operation, has proven successful enabling the recent reinstatement of dividend payments despite persistently low metal prices. As a result, AngloPlats significantly outperformed industry peers and has been leading the industry on a relative share price performance basis over one, three and five-year periods. The only other producer that has performed relatively well over this period has been Northam, largely being spared the 2012 – 2015 Rustenburg-based labour disruptions and benefiting from an aggressive low-cost, mechanised growth strategy.
Implats, together with Lonmin, have been slower to react to this changing reality and therefore Implats has been one of the poorer performers over this period.
Impact on value
Our response
Platinum miners face heightened stakeholder expectations on a range of fronts: communities protest for economic opportunities and improved local service delivery; governments push for rapid transformation and employment creation; labour unions exert pressure for higher wages and jostle for power; while a cautious investment community maintains its call for enhanced cost efficiencies, capital management and dividends. In addition, the size of the restructuring at Impala Rustenburg means labour rationalisation is inevitable, and in this instance, may impact approximately 13 100 employment opportunities. The bulk of the anticipated labour reduction programme is aligned to the shaft closure or divestment and is phased in over the two-year implementation period.
Impact on value
Our response
Our activities associated with the exploration, extraction and processing of Mineral Resources result in the unavoidable disturbance of land, the consumption of resources and the generation of waste and atmospheric and water pollutants. We also operate in a region afflicted by power and water shortages and an ever-increasing cost for their supply.
Impact on value
Our response