All that glitters…

Plat­inum min­ers out­shine their gold coun­ter­parts

Finweek English Edition - - Companies & markets - BY MICHAEL COUL­SON

IT’S SOME YEARS since rev­enue from gold first fell be­low that from plat­inum, and though the bal­ance has sub­se­quently fluc­tu­ated in line with metal prices, one has to won­der why South Africans are still so ob­sessed with gold to the ex­clu­sion of ev­ery­thing else.

Take a look at the latest 12-month re­turns from the three top gold min­ers, An­gloGold, Gold Fields and Har­mony. An­gloGold’s an­nual rev­enue is R21,1bn and op­er­at­ing profit (I’ve taken that yard­stick to elim­i­nate dis­tor­tions caused by fi­nan­cial in­stru­ment value ad­just­ments, tax dif­fer­en­tials and the like) R1,35bn; Gold Fields, rev­enue of R15,7bn and op­er­at­ing profit of R6,82bn; and Har­mony, R8,5bn and R1,99bn. Gross th­ese up and you get a to­tal of R45,3bn rev­enue, R10,16bn op­er­at­ing prof­its.

Then re­peat the ex­er­cise for the three big­gest listed plat­inum min­ers: An­glo Plat­inum R39,4bn and R16,62bn; Im­pala R24,4bn and R11,0bn, and Lon­min R13,0bn and R5,81bn. Gross th­ese up and you get a to­tal of R73,8bn rev­enue and R33,43bn op­er­at­ing profit.

Now I know that re­ported prof­its aren’t an in­fal­li­ble in­di­ca­tor. The com­pa­nies have dif­fer­ent year-ends, so al­though th­ese are all rolling 12-month fig­ures, the ef­fect of yearend ad­just­ments may dif­fer. And I haven’t rec­on­ciled for any pos­si­ble dif­fer­ences in ac­count­ing pro­ce­dures, which can still be found, de­spite at­tempts to make re­ported re­sults more com­pa­ra­ble.

More­over, Lon­min re­ports in US$ and doesn’t give any in­di­ca­tion of ef­fec­tive av­er­age ex­change rates, so I’ve ar­bi­trar­ily used the rate at which the 2006 fi­nal div­i­dend was con­verted.

So let’s take an­other mea­sure: mar­ket cap. Here we have An­gloGold R91,5bn, Gold Fields R78,7bn and Har­mony R37,2bn. To­tal, R207,4bn. For the plat­inums: An­glo­Plat R225,9bn, Im­pala R109,8bn, Lon­min R65,0bn. To­tal, R400,7bn.

Once again, the pri­macy of the plat­inum min­ers is con­firmed, and the gap will widen fur­ther with Im­pala’s takeover of AfriOre. That deal, which has now reached a stage at which Im­pala can pro­ceed with com­pul­sory ac­qui­si­tion of all the AfriOre shares, is val­ued at R3,5bn.

And that for a com­pany whose Leeuwkop project, which will pro­duce 300 000oz/year of plat­inum group met­als in its first phase, is ex­pected to come into pro­duc­tion only in slightly more than four years and will be one of the deep­est op­er­at­ing plat­inum mines, so it won’t be a straight­for­ward op­er­a­tion.

Com­pare that val­u­a­tion with those of some of the de­vel­op­ing gold mines I’ve writ­ten about re­cently, like Pamodzi Gold (mar­ket cap: R738m) and Great Basin (R1,6bn), both of which should come into pro­duc­tion much sooner.

But the AfriOre val­u­a­tion is not out of line with that of other plat­inum mi­nors, like Wesizwe (R2,9bn), Eland (R2,6bn) or even the long-time dog Barplats, at R2,7bn. Th­ese may be the pick, and I haven’t done a count, but there are said to be some­thing like 30 com­pa­nies hop­ing to de­velop plat­inum mines on SA’s Bushveld com­plex. They won’t all suc­ceed and there’s a gen­eral view that the in­dus­try has to con- sol­i­date if the re­source is to be cost-ef­fi­ciently ex­ploited.

While there are also a num­ber of ju­nior gold min­ers around who’re also look­ing to con­sol­i­date, the fact that com­pa­nies with the mar­ket caps of Pamodzi and Great Basin are hop­ing to be lead­ing play­ers in the process shows that here too the val­ues will be much smaller.

And the plat­inum seek­ers are all look­ing for long-life projects, with life ex­pectan­cies of up to 50 years, from hith­erto un­ex­ploited de­posits; the gold hunters are fo­cus­ing more on the ex­ten­sion of ex­ist­ing ore bod­ies – all right, I know the Bushveld com­plex has been known for decades, but it’s so vast that it’s not fair to see the tar­gets sim­ply as ex­ten­sions of ex­ist­ing mines. Most of them are many kilo­me­tres away from cur­rent min­ing op­er­a­tions.

The gold min­ers’ long-term am­bi­tions lie largely out­side SA, and even be­yond the African con­ti­nent.

In the light of all this, it’s less sur­pris­ing that An­glo Amer­i­can should en­vis­age ex­it­ing its his­toric core gold min­ing op­er­a­tions, now held through An­gloGold, and en­trench it­self even more firmly in the plat­inum sec­tor.

And maybe we should en­cour­age news or­gan­i­sa­tions to stop telling us the gold price at ev­ery avail­able op­por­tu­nity, and keep us in­formed of the plat­inum price in­stead. Af­ter all, it’s much more sig­nif­i­cant to our pros­per­ity.

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