Anglo American Platinum shuts plant, declares force majeure

Anglo American Platinum said on Friday that it has declared force majeure and cut production guidance after temporarily shutting down the Anglo Converter Plant.

The ACP phase A converter plant at the Waterval smelter complex in Rustenburg was damaged after an explosion within the converter on 10 February. Anglo said work has started to repair phase A, which is expected to be completed by the second quarter of next year.

As per normal business procedure, the phase B unit was commissioned to take over from the phase A plant and was in the process of ramping up to steady state when water was detected in the furnace, it said.

"Notwithstanding extensive testing being conducted to determine the source of the water, and a number of circuits being isolated, water continued to be observed in the furnace. This poses a high risk of explosion and the company has determined that it has no other option but to temporarily shut down the phase B unit, to ensure the safety of all employees, and avoid a catastrophic event."

The repair works on the phase B unit will take approximately 80 days.

As a result of the temporary closure, Anglo American Platinum has had to declare force majeure to customers, suppliers of third-party purchase of concentrate and suppliers of tolling material. It also cut its total platinum group metals guidance for this year to between 3.3m and 3.8m ounces from between 4.2m and 4.7m ounces.

At 1430 GMT, Anglo American shares were down 9.2% at 1,671.80p.

RBC Capital Markets said: "This is a clear negative for Anglo’s PGM division, something that we have been pointing out as being a key differentiator and cash flow generator, and was poised to help to offset some of the weakness we are seeing in other commodities, especially as Anglo American moves through its peak capex at Quellavecco.

"We think there is the potential that prices rise on the back of this lower supply, mitigating the impact of this to some extent, especially where palladium and rhodium supply/demand balances remain extremely tight (already palladium is circa 10% in deficit) however this must also be considered in the context of potentially lower demand because of COVID-19.

"PGMs account for $4.2bn of our 2020E EBITDA, or 35% of our 2020E product group EBITDA. This would be a 11% downgrade to consensus EBITDA, using management’s guidance."

We will need to fully assess the potential impact, especially on the balance sheet and cash flow outlook, however we think Anglo remains fundamentally inexpensive trading at 0.64x NAV and 3.5x our unadjusted 2020E EBITDA.