PLAY­ING THE RAND

Finweek English Edition - - Companies & markets -

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.

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