PLAYING THE RAND
THE GYRATIONS in the nickel price will do little to take the steam out of platinum stocks, which are expected to have another good year of strong cash generation and expansion. “They’re the most defensive way of playing the rand,” says Mark Smith. “Roughly 70% of world platinum production comes from SA.”
There’s also significant comfort that platinum prices will stay above the $1 000/oz level for the next 18 months. “That’s created confidence in the cash flows of the platinum producers and they’ll soon begin to attract a multiple for that,” says Smith.
Merrill Lynch, in a 15 January report, said that further updated trading state- ments were likely from SA’s platinum producers. Special dividends may also follow. “Again, without exception, free cash flow generation at the PGM producers is at record levels, and we believe all companies have the potential to surprise with lower-than-trend dividend cover and/or special dividends,” the broker reported.
And while the platinum price settles at around $1 000/oz – down on its $1 140/ oz last year – the palladium price could begin to regain ground. “The outcome is that we forecast the average palladium price in 2008 to be $455/oz, well up on the 2006 average of $320/oz,” said Steve Shepherd, an analyst at JP Morgan, in a recent report.