[miningmx.com] — PLATINUM shares have taken a pounding across the board along with the metal since early September, when the platinum price was sitting around $1 850/oz.
It then plunged to as low as $1 440/oz by October 5.
The world’s number one platinum producer is Anglo American Platinum (Amplats) which, over the past 12 months, has seen a 33% drop in its share price from R762 to around R510 before recovering to current level of around R563.
The number two global platinum producer is Impala Platinum (Implats) which has seen a 37% shift in price over the same time period from R243 to R152 before recovering to around R172.
The main reason for the weakness of platinum metal and shares is investor paranoia over a “doubledip’ recession, which will result in a repeat of the 2008/2009 collapse in the global car manufacturing sector.
The main use of platinum is in autocatalysts required to clean up vehicle exhaust emissions.
The current modest recovery in the share prices has been driven by renewed investor hopes of a solution to the Eurozone sovereign debt.
So, right now the two top platinum shares are currently trading at bargain basement prices – but which one should you buy?
JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke reckon the answer is Amplats, which they point out has the largest minerals inventory of all the world’s platinum group metal (PGM) producers by a factor of two.
But there’s a problem. They also point out Amplats “did not achieve any of its growth ambitions in the past decade. Indeed, it has a poor track record for efficiencies and hence cost control.’
By contrast, Implats over the past decade “has, more often than not, delivered on its promises’ and “probably has the most defensive mix which has tended to make it the “go-to’ platinum stock in uncertain times’.
There was a “serious wobble’ at Implats’s core Rustenburg mine between 2007 and 2010 but the analysts reckon “we are impressed by the recovery so far’. But Implats also has a problem – where to find major, longterm growth – because it doesn’t have the endowment of mineral resource wealth in South Africa that Amplats enjoys.
That’s why Implats took the risk of going into Zimbabwe in a big way through the acquisition and expansion of Zimplats, but the Zimbabwean situation is now fraught with political uncertainty.
The JP Morgan analysts’ conclusion is that “outside of Zimplats, Implats has little, if any, attractive organic options for growth.
“We cannot emphasise enough the importance we attach to the outcome in Zimbabwe. A poor outcome could lead to a structural derating of the group, just as a positive outcome could have the opposite effect.
“We’ve learnt over the years just what an unpredictable place Zimbabwe can be, which makes valuation risk high.’
So, investors’ options are to play safe and go for Amplats or, if you are prepared to take a higher level of risk on board, opt for Implats looking for a positive outcome from the highly confusing situation in Zimbabwe.
– The article first appeared in Finweek. If you want to subscribe to the digital format of Finweek visit www.zinio.com.
