Up quality, say platinum producers
A number of miners are planning to ramp up production in order to control costs.
goldmanSachs, the US bank, has joined the debate regarding prospects for South Africa’s platinum group metal (PGM) stocks. While comments from industry participants lately have been supportive – essentially the view that supply discipline from South African miners will improve – Goldman Sachs only sees increases in production.
In fact, it believes that the supply deficit forecast by the World Platinum Investment Council (WPIC), a research and marketing company financed by the likes of Anglo American Platinum (Amplats) and Impala Platinum (Implats), was optimistic.
“We think tightness in the market has been overestimated by up to 800 000 ounces (about 10% of the market) and see a surplus of 200 000 ounces” said Goldman Sachs in its report, which was published on 9 June. It is different to WPIC, and another research house, the UK’s Johnson Matthey, in its view partly because it is bullish on new production.
Toronto-listed Platinum Group Metals’ project, WBJV, and Northam Platinum’s Booysendal projects were due to ramp up while Amplats’ Rustenburg Platinum Mines would also expand, taking primary metal output from SA up some 120 000 ounces per year.
Justin Froneman, chief financial officer of Sibanye Resources’ platinum division, said at a mining conference recently that the improving state of platinum producer balance sheets removed the pressing need for more ounces as a means of controlling costs.
Steve Phiri, CEO of Royal Bafokeng Platinum, said platinum producers would increasingly target quality or profitable metal output over volume. “Well, if it is not planned, it is forced on us,” he said. “Circumstances force us into that direction. You cannot just produce for the sake of volumes. “To say I’m Number One producer, and I’m Number Two producer, I’m producing 2m ounces or more, that doesn’t fly,” he said. “You need to produce more quality and lower volumes,” said Phiri. However, Goldman Sachs was not convinced SA production would fall and that the consequences of rising supply would heavily affect metal pricing. “This oversupply is likely to decouple PGM prices and PGM equities stocks from the recent gold price strength. “In the longer term, new production is still being added as producers look to spread fixed-cost bases over more units, secondary supply looks set to be robust and the Volkswagen controversy and increasing efficiency from auto manufacturers remain as headwinds to demand,” it said. The recent strong performance of platinum shares was “unjustified” and it recommended selling Amplats, Lonmin and Anglo American, which it forecast would be about 36%, 33% and 62% weaker respectively. Commenting in its latest quarterly update, the WIPC said the forecast platinum deficit for 2016 of 135 000 ounces of platinum would increase to 455 000 ounces. South African primary production totalled 4.1m ounces in 2015, the highest output number since 2013. Platinum stockpiles, which are thought to be a major reason for sluggish platinum prices, were forecast to fall a hefty 19% to about 2m ounces this year, the WPIC said.
Platinum stockpiles, which are thought to be a major reason for sluggish platinum prices, were forecast to fall a hefty 19% to about 2m ounces.
been moderated as a consequence. “The key risk to Implats achieving its Rustenburg Lease plan lies not in the numbers/targets themselves, but execution of project ramp-up and operational delivery,” said Christopher Nicholson, an analyst for RMB Morgan Stanley in a note dated 3 June. A “CEO overhang” and “... a lack of a clear succession plan”, provided further uncertainty, said Nicholson. Bernard Swanepoel, a former CEO of Harmony Gold and Village Main Reef, and a current non-executive director on the Implats’s board, laughed off suggestion earlier this month that he might take the post. As a result, the valuation gap in Implats’s share price against the sector has narrowed, also partly informed by the improvement in the share prices of Implats’s peers such as Anglo American Platinum.