Platinum is enticing again
Some platinum stocks are looking attractive again as oversupply that depressed prices for years subsides, says money manager Allan Gray.
Companies that Allan Gray has invested in include world number two producer Impala Platinum and Royal Bafokeng Platinum, the best-performing stock in the sector this year in Johannesburg, analyst Rory Kutisker-Jacobson said. Impala said on February 21 that the money manager had increased its stake to 20%.
SA miners, which account for about 70% of the world’s known primary platinum resources, have cut back on spending, gradually erasing an excess of the metal, according to Kutisker-Jacobson.
Anglo American Platinum said last week it would pay its first dividend in six years after reducing debt and more than doubling profit. “You see the structural decline in South African platinum production and, given where share prices are at the moment, we think it’s a relatively attractive proposition,” he said.
The FTSE/JSE Africa Platinum Mining Index has lost 15% in the past year, compared with the 15% advance in the market’s main benchmark index. Platinum is likely to be in a small surplus again in 2018, Amplats said on February 19.
Here are more views from Kutisker-Jacobson on mining:
Outlook for mining stocks:
February’s African Mining Indaba was marked by optimism among delegates. “Ironically, from an investor perspective, what you really want is how it was last year. You want to go to the indaba and have everyone depressed and almost have no one there.
“That would be a very strong sign we’re at the bottom of the market; that’s when we say it’s a buying opportunity. From an investment perspective, it’s less attractive than a year ago and yet, if you look at what happened at the Mining Indaba, there’s a lot more excitement.
“On balance, it’s a negative sign, not from an industry perspective, but an investment perspective. We’re not heavily overweight on resources, because we think there are one or two resource prices at this point in the cycle which are above normal now.”
Mining industry balance sheets:
Subsequent to 2015 and 2016, when pessimism was high, quite a few commodity prices have risen and balance sheets have been restored due to strong free cash flow. “It’s a lot more healthy. When there’s a lot of optimism and you can see a lot of movement in the industry, it’s probably a negative sign.”