Founder: Turnaround Talk
I have always been of the option that a person has every right to highlight and discuss a problem that they are experiencing. However, they need to sweeten this with a solution on how to address the problem/challenge. This frames the conversation in a productive way and allows interested parties to plan on how they are going to work together to resolve the issue.
Turnaround Talk has published many articles discussing the challenge of loadshedding and the economic impact that the scourge is having on the country. Not only is South Africa losing an estimated R900-million/day that the country spends in Stage 6 loadshedding, but companies have also made significant upfront investment in alternative power sources such as generators and have continuous costs to run these generators. South Africa is not alone in its energy crisis. Many countries in Europe are experiencing similar problems as the sanctions against Russia intensify.
This means that, globally, companies need to be agile enough to adapt to an immediate threat to their operating model. Amplats has long been one of the biggest mining houses in the country. It seems as if its innovation – which the company is well known for – is not limited to its operations. A few smart decisions have been made to diversify the company’s revenue stream. This was brought about by the loadshedding challenge.
Operational headwinds
A News24 article points out that despite the highest rand-dollar platinum group metals (PGM) basket price on record, Anglo American Platinum reported a 38% drop in annual headline earnings as operational challenges hit production and sales in 2022.
The platinum miner reported annual headline earnings had dropped from R79 billion in 2021 to R48.8 billion for the year ended in December 2022. Amplats’ earnings before interest, taxes, depreciation and amortisation (Ebitda) declined almost a third to R74 billion.
The article adds that the group’s total PGM production – comprising platinum, palladium, rhodium, iridium, ruthenium and gold – decreased by 6% to 4 million ounces, principally due to lower grade at Mogalakwena and the impact of planned infrastructure closures at Amandelbult, partially offset by increased production from Mototolo and Unki.
A delay in the completion of the rebuild of the Polokwane smelter because of substandard materials, as well as Eskom load-shedding, resulted in total refined production falling 25% to 3.8 million PGM ounces.
Photo By: Canva
Lower sales
The article points out that the company’s profitability was also impacted by above-inflation cost increases in utilities and consumables, in line with inflationary trends globally. Unit cost performance increased to R15 300, up from R12 831 in 2021.
“This financial year has seen us navigate a complex operating environment, with macro-economic challenges, supply chain disruptions, socio-economic unrest, and electricity load-curtailment, as well as some operational headwinds of our own,” said CEO Natascha Viljoen in a statement. “However, we have seen good levels of resilience across our operations, and the team has worked through these challenges to deliver our mined production, refined production, and sales numbers for the year.”
The article adds that the Amplats board declared a gross dividend of R9 billion or R34 per share, for the second half of the year, bringing the total dividend to R30 billion or R115 per share, translating to a total payout ratio of 62%, and well below the R300 per share for 2021.
The response
Amplats did not let this get them down and planned a perfect response to these challenges.
The News24 article points that while it’s still “early days”, Viljoen said the team is intently focused on this aim.
Amplats is keen to mitigate the impact of Eskom-imposed load curtailment on its operations, which, it said, could shave 5% off production in the year ahead. The company’s refined production guidance is between 3.6 million and 4 million ounces of platinum group metals (PGMs).
“Over the last year, we’ve seen curtailment impacts from Eskom, and we’ve seen that curtailment impact increasing since probably over the last three months,” Viljoen said.
CEO Anglo American Platinum
The article adds that the 5% production impact is based on assumptions linked to current load curtailment levels. One day of Stage 4 load curtailment means 100MW must be cut, while two days of Stage 2 curtailment would mean 30MW must be cut.
Amplats, which uses intensive energy in its processing facilities, said it would update the market if the outlook on the effect of load shedding worsened.
The article points out that power disruptions are also taking a toll on the Amplats processing business. “Any piece of equipment likes to run stably … [and] any interruptions on stability will impact on reliability in the long run,” Viljoen said. While the company was diligently working to take the load off equipment, “it’s not ideal,” she said.
Amplats said it continuously works to optimise its operations despite curtailment and has substantial business continuity plans to deal with the worsening power crisis.
This includes backup power that will ensure workers are brought to the surface safely during a sudden outage.
Solar plans
The Anglo group has also partnered with EDF Renewables to create Envusa Energy, which will break ground on 600MW of green power projects this year, with broader ambitions of generating up to 5GW of renewable energy capacity by 2030.
The Envusa projects are expected to eventually provide between 30% and 35% of Amplats’ power requirements.
“Now, this is important because the more we can do as a big player in the industry, the more we obviously support the stability of the grid,” Viljoen said.
A 100MW solar plant at Amplats’ flagship Mogalakwena mine is also expected to come online by the end of next year.
“But we are also looking at nearer term gas options, or battery options, that we can bring forward at the same time just to offset curtailment as best as possible and to have an additional backup available for us,” she said.
Amplats said it continues to work closely with several business forums to engage government on policy and other measures to bring renewables online.
Fortune favours the brave
As they say in the classics, fortune favours the brave.
Most South Africans, businesses and consumers alike, are taking the view that they need to they need to invest in alternative energy sources now before the electricity crisis worsens.
While this may be a case of short-term pain for long term gain, it will be quickly forgotten if the gains are more than the pains. In the case of Amplats, anything is better than the current status quo.
