All that glitters…
Platinum miners outshine their gold counterparts
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.