Anglo American Platinum (JSE: AMS), also known as Amplats, has temporarily shut down its Anglo Converter Plant, declared force majeure and cut its 2020 output.
The South African miner, the world’s top platinum producer, now expects to churn out between 3.3 and 3.8 million ounces of platinum group metals, 900,000 ounces short of its previous guidance of between 4.2 and 4.7 million ounces.
The company’s ACP phase A converter plant at the Waterval smelter complex in Rustenburg was damaged after an explosion on February 10. Amplats then started its second converter plant, which continued to have inexplicable water presence, a dangerous situation when working with metals at very high temperatures.
“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,” it said in the statement.
Amplats expects the repair works on the phase B unit to take about 80 days.
As a result of the temporary closure, the miner has had to declare force majeure to customers, suppliers of third-party purchase of concentrate and providers of tolling material.
The company, majority owned by Anglo American (LON: AAL), noted that mine production will continue as usual, while smelting of concentrate will be done at one of the four complexes it owns.
Amplats said that output from its mines, as well as third party material, will not be able to be converted to refined production while the plant is undergoing repairs.
The company may need about two years to clear the metal inventory build-up as a result of the shutdown, chief executive officer, Chris Griffith, said on a conference call.
“Our first pass analysis is that group [earnings before interest, tax, depreciation and amortization] could decline by 15%, before allowing for any potential price increases as a result of the reduced supply,” Edward Sterck, analyst at BMO Capital Markets, said in a note to investors.
“However, PGM prices are running well above our base case forecasts and it seems likely that production cuts of these magnitudes are likely to stimulate further positive price responses,” Sterck wrote.
The news comes at time of global shortages of palladium and rhodium, used in catalytic converters attached to vehicle exhausts to reduce harmful engine emissions.
Tougher environmental regulations are forcing auto makers to use more of those commodities, which are by-products of platinum and nickel mining. This makes it difficult for companies to quickly increase production.
The shutdown will also affect other producers, including Sibanye Stillwater and African Rainbow Minerals, which sent some metal to Amplats.
(With files from Bloomberg)