[I still think in this market buying bullion is safest. But, SWC and PAL are interesting, leveraged alternatives]
David McKay | Fri, 13 Dec 2013 10:16 – WHILST there is a high degree of pessimism about the platinum
market, it’s interesting to note the upbeat tone of a recent report by
CIBC Capital Markets. It believes the seeds of a revival in the platinum
group metal (PGM) market have been sown, partly because economic
conditions globally are improving.
For PGMs, economic growth is exceptionally good news since roughly half
of total PGM demand is from the automotive market which uses the metals
in catalytic converters. No cars can be made without having a converter
fitted to its exhaust owing to the remarkable ability of PGMs to absorb
noxious fumes and therefore remove them before we can breath them.
This means that demand is not affected by price of the metal. In fact,
the key point to remember about PGMs is the importance placed on
security of supply, says Leon Esterhiuizen, an analyst for CIBC Capital
Markets in a recent report.
Some 4% to 5% in economic growth implies an automobile market of about
80 million vehicles. Given the average loading of PGMs per vehicle
(catalytic converter) is 4 grammes per car, new demand for PGMs will
total 1.3 million ounces over the next three years.
Interestingly, the market would appear to have taken this on board.
Over the next three years, production expansion – mostly from South
Africa which controls 75% of platinum production – will be about 900,000
oz, with a further 200,000 oz from North America and elsewhere. The
market is, therefore, roughly in balance although there is the chance of
mine closures as they age, or turn unprofitable.
Investment demand for platinum is also adding pressure on supply.
our current metal price forecast is for a significant escalation in the
PGM basket price into 2014 and 2015,” says Esterhuizen in his report.
Surprisingly, however, Esterhuizen’s view on investment opportunities
ignores the major South African equities such as Anglo American Platinum
and Impala Platinum which he believes price in an improved PGM market.
Rather, says Esterhuizen, consider buying a North American producer,
such as Stillwater Mining or the metal itself through an exchange traded
Aquarius Platinum is also a possibility, he says. It “… represents a
junior operator in South Africa that could deliver a significant geared
increase in the share price if the metal prices were to increase
meaningfully,” he says.
Alternatively, Ivanhoe Mines which is due to take a secondary listing on
the JSE, is another option while Eastern Platinum (Eastplats),
currently placed in mothballs, is “a very clean option”.
some C$100m in cash on its balance sheet and a share price trading at
less the implied value of the cash, says Esterhuizen.