Is plat­inum’s per­for­mance go­ing to hold? 2016 has been much bet­ter for plat­inum pro­duc­ers. The un­be­liev­able rally this year has many won­der­ing how long it will last.

Finweek English Edition - - THE WEEK - Editorial@fin­week.co.za

ther­ally in plat­inum pro­duc­ers An­glo Amer­i­can Plat­inum (Am­plats), Im­pala Plat­inum (Im­plats), and Lon­min has been noth­ing short of strato­spheric this year. The ob­vi­ous ques­tion is: how long can it con­tinue?

An­a­lysts were say­ing as long as four weeks ago that the plat­inum equities were pric­ing in im­prove­ments in the price of plat­inum group me­tals (PGMs) that were out of whack with what most were fore­cast­ing.

For in­stance, Mac­quarie in a note on 14 April ac­knowl­edged the pos­i­tive im­pact of Am­plats’s re­struc­tur­ing ef­forts, which it said would sup­port pos­i­tive cash flows, but it thought the price im­prove­ment in the com­pany’s share had been over­cooked.

“The metal prices re­flected in the share prices, how­ever, ex­ceeded our as­sump­tions sig­nif­i­cantly and we main­tain our un­der­per­form rat­ing on the share,” said Ger­ard En­gel­brecht, a min­ing an­a­lyst for the bank. To put this into numbers, En­gel­brecht lifted the tar­get price on Am­plats to R235/share from R165/share in recog­ni­tion of the re­struc­tur­ing – which has seen it an­nounce the sale of its Rusten­burg Plat­inum Mines to Sibanye Gold – but at the end of April the share price was around R411/share. That’s an im­prove­ment of 149% in three months.

Other plat­inum coun­ters have recorded a sim­i­lar im­prove­ment. Im­plats is trad­ing at R59/ share, a 40% im­prove­ment in the last month, while Northam Plat­inum and Lon­min are 40% and 20% higher in the last month.

The fac­tor be­hind the share price in­creases is mostly the plat­inum price which was last at $1 081/oz. This is nearly $200/oz more than the av­er­age spot price – $892/oz – es­ti­mated by RMB Mor­gan Stan­ley in a re­port writ­ten around the same time as Mac­quarie’s.

Given an ex­change rate of R14.25/$, this trans­lates into rev­enue of R15 404 per plat­inum ounce. This gives the in­dus­try the blush of more prof­itabil­ity, al­though a sig­nif­i­cant swathe of the sec­tor re­mains cash flow neg­a­tive af­ter cap­i­tal ex­pen­di­ture, even with a plat­inum price close to $1 000/oz.

Writ­ing in March, Citi an­a­lyst Jo­hann Steyn said down­ward pres­sure on plat­inum and its sis­ter me­tals pal­la­dium and rhodium would re­assert it­self be­fore long, ow­ing to some long-term struc­tural is­sues in the in­dus­try that have formed over a pe­riod of years.

One fac­tor is the growth in above-ground stocks, which the World Plat­inum In­vest­ment Coun­cil es­ti­mated stood at 2.32m ounces at the end of 2015. An­other is growth in au­to­cat­a­lyst re­cy­cling, which sup­plies about 18% of de­mand as well as sup­ply growth. SA plat­inum min­ers may be eco­nom­i­cally con­strained, but tech­ni­cally there is over­ca­pac­ity.

“We be­lieve these four fac­tors will con­tinue to cap a sus­tained rise in PGM prices above our fore­cast pro­file over the next three years,” said Steyn in his re­port.

Im­plats is trad­ing at R59/share, a 40% im­prove­ment in the last month, while Northam Plat­inum and Lon­min are 40% and 20% higher in the last month.

The Rusten­burg Base Me­tals Re­fin­ery (RBMR), part of An­glo Amer­i­can Plat­inum’s op­er­a­tions.

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