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Amplats profits dropped by an alarming 86%

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February 9
8:07 AM 2016

Anglo American Platinum Ltd. reported a record loss of 86% in its 2015 earnings. The world's largest metal producer has put its capital spending and expansion plans on hold as it expects the market prices to remain depressed for some time.

 Amplats, as the metal producer is better known as, is controlled by Anglo American. Last Monday, the company revealed its dismal status by announcing a loss of $12.2 billion for the year ended December 2015 - a shocking state of affairs as the same company had recorded a profit figure close to $372 billion the previous year, according to ENCA. This goes to show exactly how much the drop in platinum group metal prices has affected this Johannesburg-listed miner.

Its headline earnings were reportedly down from R786 million and stood at R107 million mainly because dollar prices plunged, as per MarketWatch. At the same time, it spent R900 million for one-off restructuring and impairments; of the company's R14 billion in impairment costs, R1.8 billion brought down the headline earnings. However, the company had generated around R4 billion of free cash flow which brought down the net debt from R14.6 billion to R12.8 billion.

CEO Chris Griffith has inserted a positive note in this otherwise grim situation. He said, "In this low PGM price environment we have managed the business for the current prices and ensured all operations remained cash flow positive by improving our operational performance and efficiencies, reducing costs and capital expenditure, and cutting out unprofitable ounces."

Amplats is indeed on a major cost-cut-down spree - keeping all its expenses in check, closing mines, or moving certain operations under 'care and maintenance', thereby affecting thousands of jobs. South Africa, which produces more than 70% of the world's platinum, has become the most impacted zone in terms of employment, as one out of four miners have lost their jobs in the process. According to Moneyweb, Rene Hochreiter, an analyst at Noah Capital Markets, said in a telephonic conversation, "The fact that they're putting some of those operations on care and maintenance is the right thing to do. It's been undervalued for a while and is probably readjusting at the moment."

Additionally, the Union mine's operations, employing 6000 people, are also under consideration.  "If it doesn't generate cash and a sale cannot be progressed in the first half of 2016, then the company will consider alternative options including plans to place Union on care and maintenance," Amplats stated.

The metal, widely used for making jewelry as well for limiting car emissions, has seen a steady decline by almost 50% since 2011. However, now the company feels "the platinum market is expected to move closer to balance in the short term before primary supply is constrained in future years by closures and reduced capital expenditure." For the current financial year, the struggling metal producer is looking to produce 2.3-2.4 million ounces of platinum concentrate, keeping up with 2015 production numbers. 

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