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Incisive Insights: Implats

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Implats

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In the case of Implats, the sensitivities are similarly stark. The net margin on revenue of R32,5 billion was 0.68% for the year ended June 2015. The exchange rate was R11,44/$ and the average price of platinum was $1,241/oz.

However, for the first six months of F2016 Implat’s net margin was 2.0% with the exchange rate at R13,45/$, compared with R11,01/$, and the average price of platinum $963/oz or 27% lower than the average of $1,320/oz in H1 F2015. Implats though only had a 0.78% operating margin with costs before depreciation up by 14.7%.  

Implats is roughly breakeven for the 2016 fiscal year at $1,050/oz and R14,75/$ and profitable at $1,100/oz and R14,25/$. If the platinum price went to $1,200/oz at an average exchange rate of R14,25/$ then Implats would generate earnings of around R1,6 billion in F2016 and R2,2 billion in F2017. A $200/oz difference makes all the difference.    

Implats has guided full year 2016 production at 1,42 million platinum ounces but costs are slightly higher than previously anticipated at R22 000 per Pt/oz. For the first half, adjusted cost was $1,575 per Pt/oz or R21 185 at an average exchange rate of R13,45/$.  

Given the production profile of Impala Platinum sales revenue per Pt/oz sold of $1,700/oz would equate to a platinum price of approximately $1,000/oz.   

Compared with Amplats, Implats is the more vulnerable to a deteriorating commodity price environment. Funding too is under more pressure. The company raised R4 billion of equity wef 7 October 2015 and therefore net debt, excluding leases, as at December 2015 was R291 million compared with R4,1 billion at June 2015.

However, capex of R4,1 billion is flagged for F2016 which given the low free cash flow (R0,7 billion in H1) means net debt will move out by June 2016.  

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Total attributable mineral reserves are 46 million ounces with attributable platinum ounces at 26 million ounces. Estimated total attributable mineral resources are 367 million ounces with total attributable platinum ounces at 196 million ounces.

Implats sources a proportion of metals externally and has both managed operations and non-managed operations. Impala Refining Services is the largest contributor to profits, contributing R1,257 million in earnings for the year ended June 2015 and R1,138 million in 2014 compared with group earnings of R221 million and R523 million respectively.  

If the platinum price increased to $1,500/oz with a rand at R14/$, then earnings of over R5,7 billion or 800 cents per share would be feasible. But Implats would make only R1,2 billion or 175 cents per share at a platinum price of $1,200/oz and a currency exchange rate of R13,50/$. I anticipate a loss on a clean basis for the year to June 2016.

The range is variable to say the least. An equity value of between R50/share and R80/share is defendable but that depends on the variables aligning. With positive momentum in the commodity fundamentals for the time being the stock has further upside but this is an opportunity to lighten. Any weakness in platinum will have a disproportionate impact on the Implats share price.

My updated estimates follow and predicated on conservative assumptions. Earnings per share outcomes are at differing currency and platinum price points.

Estimates for Implats - EPS on differing platinum and currency assumptions

Source: company and MN Ingham

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Implats share price in ZA cents

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