Iconic South African company set to kiss platinum goodbye

Anglo American will spin off its platinum business next week, in a test of both its restructuring strategy and the viability of a standalone firm facing headwinds over long-term demand.

The London-based mining giant will distribute its controlling interest in Johannesburg-listed Valterra Platinum to shareholders as part of a streamlining announced last May to fend off a $49 billion approach from BHP.

Anglo is also exiting coal, nickel and diamonds.

The spinoff comes after more than two decades during which platinum-group metals were a core driver of both the fortunes of Anglo and South Africa.

The industry eclipsed gold — the historic foundation of the country’s wealth — 25 years ago, just after Anglo strengthened its grip on the sector by taking control of what was then the world’s biggest platinum producer.

Now Anglo — having received a rich parting dividend from the company that until Wednesday was called Anglo American Platinum — is shifting its focus to iron ore and copper. 

That leaves Valterra to address a prolonged slump in PGM prices, especially those of palladium and rhodium, which have declined 43% and 56%, respectively, since the start of 2023.

It’s a sharp turnaround from the record earnings generated by South African platinum miners at the start of the decade.

South Africa’s platinum deposits were found by geologist Hans Merensky in 1924 in a rock structure known as the Bushveld Igneous Complex.

They still account for a large majority of the world’s reserves, but the optimism that pervaded the industry at the turn of the millennium has been tempered.

Against that backdrop, Valterra has taken steps to minimize so-called flowback, when foreign investors sell shares due to higher perceived risks: Anglo will retain a 19.9% stake for an unspecified period and the firm will add a secondary listing in London.

The team heading the transition at Valterra is confident there won’t be a fire sale as the world’s No. 4 platinum miner becomes an independent company.

“I’ve seen over 90% of Anglo’s shareholders,” CEO Craig Miller said in an interview on May. 22. “The majority of those have said that they intend to hold or potentially increase.”

Valterra’s management is keen to stress that its assets in South Africa and Zimbabwe remain profitable, and that it controls 30% of the world’s PGM resources, including the vast, low-cost Mogalakwena mine, where reserves will last more than 80 years. 

Those assets have contributed to Valterra being named the top platinum stock of analysts at Nedbank Group Ltd. and UBS Group AG in notes this month.

However, profit at Amplats last year shrank to less than 10% of its 2021 peak, as developments in the auto sector shake up the future of PGMs mining.

Two-thirds of the demand for the metals in 2024 came from their use in catalytic converters, which reduce harmful emissions from gasoline and diesel-powered engines.

The rise of electric vehicles is undermining that market, with Valterra acknowledging in an April prospectus the “uncertainty about long-term PGM demand.”

Palladium, which lacks platinum’s industrial and jewellery applications, is the most vulnerable, with 80% of the metal ending up in combustion engines.

While Russia is the biggest producer, palladium also accounts for about 40% of Valterra’s output and is the industry’s No. 1 challenge. 

“What in the hell are we going to do with all this palladium?” said Matt Watson, founder of Precious Metals Commodity Management, a consultancy. 

Amplats has spent about $500 million in the last seven years on developing new markets for PGMs, including hydrogen-powered transport, cloud computing and food preservation, according to Miller. It’s also invested in a firm trying to reduce the weight of EV batteries by introducing palladium. 

Valterra will continue those efforts, but it’s also hoping that auto demand will hold up better than many previously expected, buoyed by hybrids and as EV penetration slows.

“We just believe that catalysed vehicles will have a greater market share for longer,” Hilton Ingram, Valterra’s executive head of marketing, told investors and analysts earlier this year. 

There are signs that some of Valterra’s biggest investors agree that the pessimism around PGMs is overdone.

Both South Africa’s state-owned Public Investment Corporation and BlackRock have increased their stakes in the miner over the last year, while another shareholder Invesco recently said there was “mounting evidence” that PGM prices “are unsustainably low.”

Valterra is well placed to capitalise on a sustained recovery, partly due to its “more mechanised, higher-margin portfolio,” UBS analysts wrote in a note this month.

Platinum has already rallied more than 20% this year, as a market deficit is projected for a third year in a row.

“I fundamentally believe that PGM prices should be higher than where they are today, just given the deficits we see within the market and a positive outlook for PGMs given the changes in the nature of the energy transition,” Valterra CEO Miller said in a TV interview on Wednesday.