[miningmx.com] — CALL it what you like – anomaly, disconnect or just plain out of whack – but what’s happening to the Impala Platinum (Implats) share price makes little sense given the results the world’s second largest platinum producer has delivered.
Implats has bumped up its total dividend payout for the year to end-June by 46% to 570c a share (2010 – 390c) on the back of achieving a 41% rise in headline earnings to 1105c a share (786c) and a gross profit margin of 35% (32%).
Those results were earned from a platinum price that averaged $1,691/oz and a palladium price that averaged $670/oz.
Currently, the platinum price sits around $1,830/oz and palladium is trading around $760/oz. You have to go back to July 2008 to find platinum trading at levels above $1,800/oz.
Yet the shares have had a choppy time, plunging from a 12-month high of R243 to a low of R152,5 on August 8 just ahead of the release of the results from where they have since recovered to current levels around R172. The share shed more than 2% on Wednesday following news it could lose its permit to mine its Zimplats operation.
Implats is not alone. The entire platinum sector has taken a pounding as investors sold out for two main reasons.
They don’t like holding equities in general during such volatile market conditions and they believe the platinum sector is going to be hammered if the world goes back into recession because of its dependence on the automobile industry.
Anglo American Platinum has fallen from R762 to a low of R510 before recovering to current levels around R544 and Aquarius Platinum has dropped from R51 to R25 before moving up marginally to R26 at present.
The juniors have taken even more punishment with Eastern Platinum down from a high of R13.50 to a low of 504c compared with 526c currently.
But those investors who have abandoned the sector in droves fearing Armageddon should take note of Implats CEO David Brown’s latest assessment of the market.
In a nutshell, Brown reckons that, “it ain’t necessarily so’.
Implats expects the platinum market to move into a deficit of 135,000 oz during 2012 compared with an estimated surplus of 45,000 oz for 2011 and an actual surplus of 25,000 oz in 2010.
Reasons are the continuing growth of the developing economies combined with tightening emission standards which require more platinum and palladium in the autocatalyst mix.
On top of this the heavy duty diesel market is expected to grow “robustly’ which is good news for platinum in particular.
It’s also been made abundantly clear that jewellery demand from China is going to underpin platinum during any periods of pullback in the price.
Implats marketing executive Derek Engelbrecht reckons that “the bar has been raised’ on the Shanghai Gold Exchange where in the first half of 2011 almost the same volume of platinum – about 17,500 kg – was bought as in the first half of 2009.
The key difference is the price which this year – at an average of $1,784/oz – is just over $650/oz higher than the average of $1,107 that rule in the first half of 2009.
Engelbrecht also reckons palladium will remain in deficit which he estimates at 405,000 oz for 2011 and 570,000 oz for 2012.
Then there are the constraints on the supply side where – as Brown puts it – “supply challenges and under-investment will haunt the market.’
A brief review of the results produced by the various juniors so far this year will show that producing platinum is a tough nut to crack at the best of times while Implats also reported a number of missed operating targets.
Now open up the Pandora’s Box of South African specific mining challenges on rising power costs; rising labour costs and all the government bureaucratic hassles and uncertainties hitting production and investment.
The rewards look good for those investors prepared to put money into the platinum companies that can deal with this situation.
