South Africa’s ongoing energy crisis is only worsening as Eskom struggles to meet demand requirements amid a collapsing power supply. One industry is specifically under threat from the nation’s persistent load shedding – the mining industry. We turn our eyes to Anglo American Platinum Limited (JSE: AMS) to gauge how the world’s largest platinum producer will perform amid a collapsing state of energy supply.
SA’s Energy Crisis – A Gloomy Outlook for the Nation’s Mining Sector
Africa’s most industrialized nation, South Africa, has seen its economy slump amidst the ongoing energy crisis and rolling blackouts that have plagued the country’s productivity since 2008, more than fourteen years ago. The nation’s primary electricity supplier, Eskom Holdings SOC Ltd., has been unable to meet power demands due to old and poorly maintained electricity plants. This phenomenon has severely disrupted several industries and their ability to remain productive, efficient, and profitable. From exacerbating the country’s food crisis to stunting the mining sector’s growth and productivity, load shedding is tearing its way through several industries, negatively impacting its economic growth potential.
South Africa’s rolling blackouts and power disruptions are doing no favours for the general mining sector, and seeing that the nation’s energy crisis is expected to persist for at least another two years, market participants are questioning whether South Africa can remain a competing nation amongst the top platinum and palladium suppliers. Seeing that “South Africa mines roughly 70% of the world’s platinum and about 40% of all palladium”, the output curb caused by the nation’s ongoing energy crisis could have significant effects on the already-present global platinum shortage and add to the palladium deficit. Analysts expect the most considerable worldwide platinum shortage in approximately two decades, and South Africa’s persistent load shedding is exacerbating the issue at hand.
Anglo American Platinum Limited (JSE: AMS)
Many market participants, traders and investors alike, are turning their eyes to Anglo American Platinum Limited (JSE: AMS) to gauge whether the world’s largest primary producer of platinum will be able to navigate its way through South Africa’s energy crisis and persistent loadshedding. With mining companies already scaling down on surface operations and unable to remain fully productive during power disruptions, the outlook appears rather gloomy for South Africa’s mining sector. 2022 marked one of South Africa’s worst years concerning platinum-group metals production, with output coming in at 6% below initial expectations.
Technical Analysis:
With a 52-week high of ZAR2 675.38, Anglo America Platinum Ltd. has seen its share price fall substantially from its high point in March 2022. The price action has seen AMS fall significantly from the ZAR1 732.26 resistance level (green line), last tested in December of 2022.
The bears could see the price action decline further to test the ZAR1 106.18 support level (red line), especially if the nation’s energy crisis and rolling blackouts continue to curb platinum output levels. For the bulls out there, the price action may see AMS rise to test the ZAR1 532.77 resistance level (dotted black line) before declining again. Alternatively, the price action may possibly see AMS surpass the ZAR1 532.77 resistance level to ultimately test the major resistance zone at ZAR1 732.26 (green line).
Fundamentals:
Despite disruptions in productivity amidst an ongoing energy crisis, Anglo American Platinum Ltd. is devoted to maintaining its position as a leader within the space of ESG best practice, launching the pilot nuGenTM Zero Emission Haulage Solution, a hydrogen-powered ultra-class mine haul truck aimed at eliminating the use of diesel-powered trucks. The world’s largest hydrogen fuel-cell mining truck will “enable [Anglo American’s] truck fleet to be zero emission, saving 120 000 tonnes of carbon emissions per annum”.
Looking closely at the mining giant’s financial performance, gross revenue declined by approximately 20%, from ZAR107,538 million for the six months ended 30 June 2021 to ZAR85,586 million for the same period ended 30 June 2022. More specifically, gross platinum sales declined by a steep 25% year-on-year, from ZAR18,631 million to ZAR14,026 million for the six months ended 30 June 2022. Moreover, gross palladium sales fell by a similar 24% year-on-year, from ZAR27,608 million to ZAR21,043 million for the six-month period that ended 30 June 2022, highlighting the country’s persistent load shedding has disrupted the group’s financial performance.
Headline earnings per ordinary share (EPS) have declined by a significant 43% year-on-year, from ZAR176.47 to ZAR101.40 for the six months ended 30 June 2022. Furthermore, the group’s net cash generated from operating activities has decreased by more than 48% year-on-year, from ZAR56,975 million for the six months ended 30 June 2021 to ZAR29,475 million for the same period ended 30 June 2022.
Dividend-conscious shareholders would have been relatively disappointed with the group’s significant dividend per share (DPS) figures decline. The mining giant’s DPS figure fell from ZAR175 per share for the six months ended 30 June 2021 to ZAR81 per share for the six months ended 30 June 2022, representing a steep 54% year-on-year decline in DPS.
Summary:
Market participants will keep their eyes on how the nation’s ongoing and persistent load shedding crisis will affect the mining sector and whether some of the mining giants will be able to navigate the turbulent market environment. If power disruptions continue and productivity falls short of capacity, we may see the AMS share price continue to fall towards the major resistance zone at ZAR1 106.18 (red line).
Sources: Anglo American Platinum Limited, Trading View, Bloomberg
Disclaimer: Trive South Africa (Pty) Ltd, Registration number 2005/011130/07, and an Authorised Financial Services Provider in terms of the Financial Advisory and Intermediary Services Act 2002 (FSP No. 27231). Any analysis/data/opinion contained herein are for informational purposes only and should not be considered advice or a recommendation to invest in any security. The content herein was created using proprietary strategies based on parameters that may include price, time, economic events, liquidity, risk, and macro and cyclical analysis. Securities involve a degree of risk and are volatile instruments. Market and economic conditions are subject to sudden change which may have a material impact on the outcome of financial instruments and may not be suitable for all investors. When trading or investing in securities or alternative products, the value of the product can increase or decrease meaning your investment can increase or decrease in value. Past performance is not an indication of future performance. Trive South Africa (Pty) Ltd, and its employees assume no liability for any loss or damage (direct, indirect, consequential, or inconsequential) that may be suffered from using or relying on the information contained herein. Please consider the risks involved before you trade or invest.
