Metals on the up – but caution needed
Platinum group producers urged to be restrained as prices rally
THE INVESTING In African Mining Indaba yesterday heard how South Africa’s Platinum Metals (PGM) producers had to exercise restraint amid the palladium and rhodium price rally that is expected to boost revenues.
Public Investment Corporation (PIC) portfolio manager Mdu Bhulose said an upswing in the commodity price environment was positive for the mining industry. However, caution was paramount.
“When commodity prices rally in a short space of time, you start seeing management getting adventurous with money. The question is, is it the right time to build? It must be measured so that value is not destroyed,” said Bhulose.
Palladium has become more valuable than gold after surging to a record high of $2 500 (R37 000) an ounce last month due to a global shortage of supply and increased demand in China, where carmakers have been compelled to meet strict air pollution standards.
The PIC, one of the biggest investors in the mining industry, manages R1 trillion of assets on behalf of government employees.
Recently, the corporation was faced with the dilemma of rescuing Lonmin, and later approving Sibanye-Stillwater’s
acquisition of Lonmin last year.
Bhulose said that the PIC had to strike a balance between the need for the return of investments and the sustainability of the industry.
“Lonmin at the time had 35 000 employees, and the PIC had to step in, because none of the fund managers wanted to help Lonmin,” Bhulose told delegates, adding that the PIC supported Lonmin’s three rights issues.
“We had to, because everybody knows what happened in Marikana,” said Bhulose, referring to the Marikana massacre in mid-August 2012 where more than 40 people were killed in violent clashes.
Chris Griffith, the chief executive of Anglo American Platinum, said that the business of mining had to be driven by strong fundamentals and not price cycles.
Griffith said the group was not planning to bring unnecessary ounces on stream.
“The most important thing is to fix the underlying business, and drive a solid strategy,” said Griffith
South Africa accounts for 80 percent of the world’s PGM production, which includes palladium and rhodium.
The metals are used to produce autocatalytic converters in a bid to reduce the carbon footprint of cars.
Arnold van Graan, an analyst at Nedbank CIB said that the global supply shortage was because there was not enough metal in the market.
“We have not invested in production in the last few years.
“We have not invested money into the business,” said Van Graan, adding that regulatory uncertainty, labour unrest and power constraints were among the reasons for the lack of investment. Van Graan also commented that the palladium price was currently too high.
“My advice for mining companies is to be prudent. Fast money comes in quick, but it goes out even quicker.”