Up qual­ity, say plat­inum pro­duc­ers

A num­ber of min­ers are plan­ning to ramp up pro­duc­tion in or­der to con­trol costs.

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

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.

Ter­ence Good­lace

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