Tech­ni­cal study:

Mar­ket flogs Sibanye over Still­wa­ter

Finweek English Edition - - Market Place - Ed­i­to­rial@fin­week.co.za Lu­cas de Lange is a for­mer ed­i­tor of fin­week and an author of two books on in­vest­ment. * fin­week is a pub­li­ca­tion of Me­dia24, a sub­sidiary of Naspers. By Lu­cas de Lange

it's Sibanye’s lot to ap­pear weaker in Au­gust’s ta­bles than even Lon­min, which has been at the top of the list of the weak­est shares for some time. Only the prob­lem­atic ArcelorMit­tal SA is weaker than Lon­min among the top 100 largest shares on the JSE.

Sibanye is be­ing pun­ished by the mar­ket for its takeover of Still­wa­ter Min­ing in Mon­tana in the US, which forced it to is­sue a large num­ber of new shares in a rights is­sue. The gen­eral con­sen­sus is that it paid too much for the min­ing group. But now Still­wa­ter is in the Sibanye sta­ble, which makes the lat­ter a ma­jor in­ter­na­tional re­sources player. Its CEO, Neal Frone­man, must be pleased that the pal­la­dium price is still ris­ing and that he now has con­trol over the cash flow gen­er­ated by Still­wa­ter.

The price of pal­la­dium in­creased by 84% to its cur­rent level of about $870/ ounce since Jan­uary last year. This can be at­trib­uted to a short­age of the pre­cious metal, which could con­tinue for the fore­see­able fu­ture, ac­cord­ing to sev­eral analy­ses. There is a pos­si­bil­ity that the high of $907.80 of Septem­ber 2014 will be tested. It will give Still­wa­ter’s cash flow a ma­jor boost, which could give a new per­spec­tive on the price Sibanye paid for it. The metal reached a record high of $1 072.80 in Jan­uary 2001. Its low­est price was reached dur­ing the 2008 cri­sis, when it dropped to $164/ ounce, which shows just how ex­tremely volatile com­mod­ity prices can be.

Still­wa­ter cur­rently pro­duces about 550 000 ounces of plat­inum group met­als (PGMs) a year, of which 78% is the highly prof­itable pal­la­dium. The de­posits it mines are re­garded as the rich­est in the world, while its pro­duc­tion costs are the low­est of any PGM min­ing group. Its pro­duc­tion costs for the fi­nan­cial year to De­cem­ber came to $509 per PGM ounce mined. The group is cur­rently plan­ning ex­pan­sions that could in­crease its pro­duc­tion by more than 50% by 2021. Still­wa­ter is also the big­gest re­cy­cler of PGM met­als in the world, which gives Sibanye valu­able ex­po­sure to this im­por­tant mar­ket.

More than 50% of pal­la­dium pro­duc­tion is used in cat­alytic con­vert­ers in ve­hi­cle ex­haust sys­tems to re­duce the emis­sion of harm­ful car­bon and ni­trous gasses.

Other plat­inum shares still of­fer in­vestors very lit­tle to smile about, with Im­plats in par­tic­u­lar that is again test­ing lows in the re­gion of R35.

In the past month, there has been a con­sid­er­able im­prove­ment in the num­ber of shares that lie above their 200-day ex­po­nen­tial mov­ing av­er­ages (EMAs). Nev­er­the­less, most shares still lie below their EMAs, and this sends warn­ing sig­nals about just how last­ing the cur­rent strength­en­ing in the mar­ket could be. Naspers*, fol­low­ing the suc­cess of Ten­cent in China, is still the mar­ket’s win­ner, fol­lowed by Capitec which, de­spite dif­fi­cult eco­nomic con­di­tions, is reach­ing one high af­ter the other. Among the shares that are break­ing through, Lib­erty Hold­ings looks in­ter­est­ing.

It gives a buy­ing sig­nal on its price/vol­ume trend (PVT), which is also the case with KAP. (PVT is cal­cu­lated by mul­ti­ply­ing the per­cent­age change in the price by the vol­ume and by de­pict­ing the re­sult – weekly or daily – in graphic form. Thus a small change in the price in the midst of an ex­cep­tion­ally high vol­ume gives a buy­ing sig­nal be­fore it’s no­ticed on the price graph.)

ARM also seems to be worth­while as it has also bro­ken through on its PVT, to­gether with higher lows on its price graph. ■

Still­wa­ter Min­ing Com­pany is the only US miner of plat­inum group met­als.

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