More good news for Messina fever,...to go along with our SUFfering.
http://196.36.119.130/miningwebplatinum.nsf/Current/422567D9004530E342256824007164EB?OpenDocument
SA's platinum producers could lift earnings by more than a third assuming the impressive hike in platinum group metal (pgm) prices of the past two months continues. This is the feeling among analysts and company directors who believe the gain in the palladium price is the sweetest part of the recent price volatility. The average palladium price for November so far of about $393/oz is more than $100/oz higher than last year's average of $285/oz. Moreover, the average for the first three quarters of this year is about $350/oz. Based roughly on these figures, Anglo American Platinum Corporation (Amplats) financial director Roeland van Kerckhoven calculates his group will receive $80 more per ounce produced of palladium. The group produces about 900 000 ounces a year of palladium which at an rand dollar exchange rate of 6,12, presents additional revenue of R440m over last year.
It seems it can only get better for palladium. The metal, used predominantly in autocatalyst fabrication, has a promising future. According to one analyst, there is a 2,1-million ounce palladium supply shortfall each year which is satisfied by metal drawn from Russian stockpiles. However, these stockpiles are now thought to be in decline and forecast to run dry in up to five years. This will have a significant effect on SA platinum businesses. At last year's prices, Amplats derived about a fifth of its revenue from palladium. Rival Impala Platinum derived some 18% from the metal.
Then there is platinum. Annual growth rates are expected to be 3% a year. Theoretically, this increase can support a new mine every year taking into account total annual demand of 5,2-million ounces. The producers can't keep up and there's no sign of the bubble bursting. Platinum has averaged $416/oz over the last two months compared to $372/oz for the whole of last year. By way of further comparison, the average platinum price for the first ten months of this year is $365/oz. Amplats derives 68% of its income from platinum and Impala 62% at last year's prices. Rhodium, too, has touched levels in excess of forecasts while the nickel price ? of which Implats derived a not insignificant 7% of revenue in its last financial year ? has doubled. Nickel can be bought at a cash price of $8 070 per ton currently compared to an average of $4073/t in 1998.
As a result, analysts believe the share prices of the two majors, Amplats and Impala, still have significant room to grow. According to Barnard Jacobs Mellet analyst Rene Hochreiter, Impala could reach R300 a share from its current ruling price of R219 ? a massive re-rating on the R50 level of about 14-months ago when the group was struggling to shake off a serious of litigation issues, including a long-standing mineral rights battle with the Bafokeng Nation.
The rand has been stronger than many analysts expected, a development which will take the gloss off earnings for Amplats and Impala. But then revenue gains will flow through to the bottom line in the absence of inflationary pressures. To put the forecasts in perspective, a one third increase in earnings for both groups is an amazing statistic as both companies are coming off a high base. Amplats reported headline earnings of R1,2bn at the interim stage this year, its third successive increase in earnings above 70%. Impala, meanwhile, more than doubled headline earnings in its financial year ended June.
Impala CEO Steve Kearney says the pgm dollar prices are "wonderful" and he is fairly confident of another improvement in earnings in the group's new financial year, notwithstanding having to absorb a higher wage bill. The price environment and continued good demand also increases the chances of new projects coming on stream. He says the company is "trying hard to turn what it has got (in terms of mineral reserves) into market sense". Crocodile River, a project the approval of which hinges on achieving better recoveries, is "starting to look promising", Kearney says. Then there is the Marikana project, a venture controlled by Australian exploration company Aquarius, but in which Impala has a 12,8% stake. East of Kroondal, Marikana is an 18-million ton resource which Kearney says is now being fast-tracked.
There are other new platinum prospects. SouthernEra, essentially a diamond miner, bought the rights to develop Messina platinum mine. Details of its somewhat overdue feasibility study is to be tabled any day soon. Then there are any number of possible expansions being considered by Amplats which has, by far, the widest choice of mineral rights. Amplats is bringing an additional 800 000 ounces of platinum to the market over the next few years, but if Russian supply remains spotty and stockpiles are being depleted, the SA group's expansions will not completely plug the supply deficit.
So where will the renaissance in pgms all end? Not in the short-term is the view of most analysts and industry players. Platinum and palladium prices normally have a boost at the end of the year as the severe Russian winter prevents metal shipments. This factor is likely to be exacerbated by the well-documented ongoing politicking within Russia. Base metal producer Noril'sk (which produces pgms as a by-product) is also thought to be losing its recently granted 10-year export permit introducing further uncertainty over the regularity of pgm shipments from Russia.
This is good news for Kroondal Platinum Mines, the venture controlled by Aquarius, which is the only pgm miner currently unable to participate in the price gains. In line with KPM's metal supply agreement with Impala, there is a four-month lead time from offtake of its first concentrate to payment. Income for KPM will therefore be based on the average prices of platinum and palladium in December. Thereafter, receipts will be calculated on the average price of the metals in the preceding month.
Dave Evans, MD of KPM, is still bullish as the metal prices remain comfortably above the price assumptions contained in the company's prelisting prospectus. The prospectus bases part of its earnings on a forecast palladium price of $170/oz. Although the company is focusing on bringing its operation into full production (100% design mill throughput ought to be achieved this month), Evans concedes his company is keen to "entice Impala into ground around them".
A final thought is the relative performance of platinum over the last 18-years. According to John Dreyer, executive director of Amplats' business development, the value of the platinum industry has grown by R11bn from its base of R75m in 1960. At that time, the SA platinum industry employed just under 12 000 people. It now employs 90 000 people, much less than the 260 000 people employed by SA's gold industry. However, the local gold industry has been involved in a much documented fall from grace. Its value has shown slower growth rising to R24bn in 1998 compared to R536m in 1960.
By: David McKay |
