In-favour Amplats unlikely to suffer major flowback

ANGLO American’s restructuring has lift-off. Despite doubts over its complexity, the group has sold its Australian coal mines for $4.8bn and last month agreed terms for a diamond sales contract with Botswana that boosts the chances of selling its 85% stake in De Beers — the trickiest part of this corporate riddle.Sandwiched between these events is the unbundling of Anglo’s stake in Anglo American Platinum (Amplats) which was reduced last year to 66.7% after two share placements worth R16.8bn. The expectation is that the big unbundle will be in April or May. A detailed schedule may be announced at Anglo’s full-year results, scheduled for February 20.Anglo CEO Duncan Wanblad may also confirm a proposed listing of Amplats shares in London aimed at minimising the flowback of shares from investors. For the same reason, a share buyback of Amplats shares might also be in the works.The prospect of these events will put Amplats in the crosshairs of analysts. Is Amplats worth keeping, they will ask.Swiss bank UBS thinks it is. “In our opinion, Amplats is the highest-quality PGM [platinum group metals] operator in South Africa,” said Myles Allsop, an analyst at the bank. He argues Amplats has the best long-term PGM assets anywhere, with less labour intensity than peers and the ability to grow unlike any other rival. Mogalakwena, Amplats’s 300,000 ounce a year mine, is the growth option. An expansion via a third smelter has been parked for the time being, but it has scope to double.But the main reason for keeping or even buying Amplats shares is that PGM prices are unsustainably low, Allsop argued. Metal inventories are depleted while supply could be further curtailed. He expected the platinum, palladium and rhodium markets to be in deficit from now until 2027. “In our opinion, a modest pick-up in demand has the potential to trigger restocking and a material lift in the basket price.”So far, PGM prices have been pedestrian after heavy selling over the past two years. What signals exist are tenuous, such as elevated lease rates for platinum in the first three weeks of the year, which normally indicate tightness in the physical market. Triggers of this ilk were a feature of palladium last year without it leading to a serious price recovery. One thing is clear, though, say analysts: roughly 30% of PGM miners are losing cash — an unsustainably large portion of supply.Investors may also want to take a longer-term view of the PGM industry. According to a report by RMB Morgan Stanley last month, Nato published a list of 12 raw materials in December it considered critical for defence. The list includes platinum.Platinum is used in the extremely hot and corrosive conditions of jet and rocket engines as well as in the nose cones of missiles and rocket motors that manoeuvre satellites.“Over the past number of years, this diversification has supported overall market demand with growth in industrial and heavy-duty automotive segments, which has offset demand weakness in other parts of platinum demand, such as Chinese jewellery and in light-duty diesel vehicles,” said RMB Morgan Stanley.“At the same time, platinum supply side is both highly concentrated and constrained, given marginal sector economics. We continue to think this dynamic is not reflected in today’s price,” it added.Platinum as a strategic (as well as an industrial) metal may give it more investment cachet in the North American market. Amplats CEO Craig Miller told the FM last year that his share was starting to win the attention of US investors after a roadshow there. Southern Palladium, a JSE-listed exploration firm, also reported uplifting interest after visiting banks and investors in Canada.So there are grounds for optimism in the PGM sector even if prices have tended to indicate stability after last year’s sell-off rather than rally.Standard Bank analyst Adrian Hammond said he’s yet to see enough signals to support a case for price recovery in PGMs. “We expect earnings to materially decline in 2025 across the sector,” he said in a report.“What the past few months have told us is that original equipment manufacturers’ demand has not yet returned this season. Our green flags still remain absent. Unless there are supply cuts there is little to get excited about for the next six to 12 months.”But he added that Amplats was an option in the current market with short-term upside. Amplats is also more defensive at spot prices. “We expect improvements at its core assets over time.”A version of this article first appeared in the Financial Mail.The post In-favour Amplats unlikely to suffer major flowback appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com