JSE at a record: Top managers’ share picks
Anglo American Platinum ( Amplats) CEO Chris Griffith expects to have finalised plans for the sale of the group’s non-core Rustenburg and Union section mines by the middle of the year. If the truth be told, however, the longer the process takes, the better for Amplats.
Analysts believe that as 2015 moves from winter to autumn, the fortunes of platinum group metals (PGMs) will improve and therefore support the bullish price forecasts Amplats is no doubt building into its models for the assets due to be sold.
“We’ve once again revised our PGM price outlook, but retain our conviction that metal prices will begin to improve from the middle of this year,” said JP Morgan in a recent report.
“For us, the question is ‘when’ rather than ‘ if ’ platinum prices move higher, with the timing of this call determined by the direction of the dollar and US interest rates, available stocks of metal in the market and the global macro- economic outlook,” it said.
It’s a view shared by Amplats. Speaking at the Mining Indaba where it presented its full-year f igures, Griff ith said above-ground inventories of metal that had been previously plugging the supply def icit in platinum over the last three years would soon be diminished.
“The f undamentals of t he market will recommence their role in the platinum market,” said Griffith in his presentation. According to Amplats, inventories supplied the market with PGMs through the f ive-month strike last year in which the price of platinum barely moved (in fact it fell) even though most of South Africa’s major producers weren’t mining any metal.
Estimates are that inventories fell to 2.2m ounces from 4.1m oz over the last three years. Investment holdings in platinum have fallen, it’s true, but an increase in autocatalyst production and the revival of the US economy are edging platinum back to health.
Amplats is also the choice pick of Investec Asset Management, but the company is sceptical of the platinum sector in general. While it expects the price of the metal to improve throughout the year “...platinum shares seem to be pricing in an almighty leap in earnings”. This will only come about if the platinum price is signif icantly higher which Investec believes would have to be $1 500 to $1 600 per ounce.
“As mentioned, while we do expect the metal price to rise, it is not sufficient to justify the current share prices,” said Investec. “Some of the higher-cost platinum producers, such as Impala and Lonmin, are under strain,” it said. It’s also noteworthy that at a current price of about $1 220 per ounce, most of SA’s platinum shares are not producing any free cash.
Remember, Lonmin recently said it hoped to support its growth projects on the generation of free cash, which raises the risk that further production cuts are in the pipes for at least one of SA’s major platinum producers.