[miningmx.com] — PLATINUM investors should buy into the platinum group metals (PGM) – specifically platinum and palladium – at this stage rather than platinum mining equities.
That’s the view of JP Morgan Cazenove analysts Steve Shepherd and Allan Cooke who, in a recently published investment report, said platinum equities had been negatively affected by a string of issues.
“We think exchange traded funds (ETFs) will do best in the bad times; equities in the good times.
“At the risk of stating the obvious we’d classify the present and immediate future as bad times. Metals are a safer bet than equities then for a while longer.”
Negative factors listed in the JP Morgan report included the strength of the rand over the past few years; high inflation on mining costs and capital expenditure which has eroded margins and returns on investment in new capacity and the nationalisation debate.
The analysts also cited power shortages; water shortages; lower productivity and production lost to safety-related measures by the department of mineral resources and work stoppages caused by organized labour “relating to its chronic demands for super-inflationary wage increases which it has consistently succeeded in getting”.
“All of the above seems to have created ‘investor fatique’ – what we need is some tangible good news which, for now at any rate, seems unlikely.
“The issues we’ve highlighted …must lead to questions as to whether we can reasonably expect the platinum shares to be rated as highly by the market as they were in the past, when the numerous ‘headwinds’ we’ve discussed here were not as a dominant a feature.
“South African gold miners no longer command a premium rating or gold multiple that they had enjoyed until around 2005. Many of the headwinds the SA precious metals miners face are the same.”
The analysts said JP Morgan was “tentative about the immediate outlook for growth, particularly in the US and Europe as the leadership in these two massive economic blocks vacillates regarding approaches to tackling growing debt mountains that are clearly unsustainable and rising unemployment”.
They highlighted the demographics of India and China as a “key medium to long-term demand driver for PGMs. When the West finally does recover and assuming the emerging world continues to grow at the same time, then the outlook for pgms would be exciting in our view”.
But they added: “we’re always mindful that pgms are predominantly industrial metals and, if the market were to believe another recession is inevitable, there is a risk that, as in 2008, the PGMs will massively underperform gold.
“This time around though, we think it would require a perception that China will slow sharply for the 2008 price behaviour to repeat – this is not JP Morgan’s expectation.’
Turning to the equities the analysts said their top picks were Anglo American Platinum and Lonmin “in the big league” while they liked Aquarius Platinum and Eastern Platinum “down the log”.
