UK bank forecasts rising trend for SA platinum output

GOLDMAN Sachs, the UK bank, has weighed into the debate regarding prospects for South Africa’s platinum group metal (PGM) stocks.

Whilst comments from industry participants lately have been supportive – essentially the view that supply discipline from South African miners will improve – Goldman Sachs only sees increases in production.

In fact, it believes that the supply deficit forecast by the World Platinum Investment Council (WPIC), a research and marketing company financed by the likes of Anglo American Platinum (Amplats) and Impala Platinum (Implats), was optimistic.

“We think tightness in the market has been over-estimated by up to 800,000 ounces (about 10% of the market) and see a surplus of 200,000 oz,” said Goldman Sachs in its report which was published on June 9. It is different to WPIC, and another research house, the UK’s Johnson Matthey, in its view partly because it is bullish on new production.

Toronto-listed Platinum Group Metals’ project, WBJV, and Northam Platinum’s Booysendal projects were due to ramp up while Amplats’ Rustenburg Platinum Mines would also expand taking primary metal output from South Africa up some 120,000 oz/year.

Justin Froneman, CFO of Sibanye Resources’ platinum division, said at a mining conference recently that the improving state of platinum producer balance sheets removed the pressing need for more ounces as a means of controlling costs.

Steve Phiri, CEO of Royal Bafokeng Platinum, said platinum producers would increasingly target quality or profitable metal output over volume. “Well, it if is not planned, it is forced on us,” he said. “Circumstances force us into that direction. You cannot just producer for the sake of volumes.

“To say I’m Number One producer, and I’m Number Two producer, I’m producing two million ounces or more, that doesn’t fly,” he said. “You need to produce more quality and less volumes,” said Phiri.

However, Goldman Sachs was not convinced South African production would fall and that the consequences of rising supply would heavily affect metal pricing. “This over supply is likely to decouple PGM prices and PGM equities stocks from the recent gold price strength,” it said.

“In the longer term, new production is still being added as producers look to spread fixed cost bases over more units, secondary supply looks set to be robust and the Volkswagon controversy and increasing efficiency from auto manufacturers remain as headwinds to demand,” it said.

The recent strong performance of platinum shares was “unjustified” and it recommended selling Amplats, Lonmin and Anglo American which it forecast would be about 36%, 33% and 62% weaker respectively.

Commenting in its latest quarterly update, the WIPC said the forecast platinum deficit for 2016 of 135,000 oz of platinum would increase to 455,000 oz. South African primary production totalled 4.1 million oz in 2015, the highest output number since 2013.

Platinum stockpiles, which are thought to be a major reason for sluggish platinum prices, were forecast to fall a hefty 19% to about two million ounces this year, the WPIC said.