Northam leads the way as palladium helps SA shares continue fine form of 2019

SOUTH Africa’s platinum shares have sustained the form that took them to a 200% gain in 2019 as the price of palladium reached a new all-time high, said Bloomberg News.

The metal was above $2,100 an ounce, driven by strong consumption from carmakers, tight supplies and haven demand for precious metals.

Northam Platinum has led its South African peers so far in 2020, rising 8.7%. Impala Platinum Holdings, the market’s best performing stock in 2019 with a 291% gain, is up 6.5%. Anglo American Platinum, the world’s largest supplier of platinum and palladium, has gained 5.8%. The country’s overall benchmark index is 0.4% higher, the newswire said.

JP Morgan Cazenove in December picked Northam as its preferred platinum share owing to the strength of its Booysendal project that would eventually take production to 900,000 ounces, transforming the company.

In its report, JP Morgan also upgraded its two-year price forecast for palladium 27% and 25% higher in 2020 and 2021 to $1,556 and $1,250/oz respectively. It adjusted downwards its forecast for the platinum price which would average $925/oz in 2020 – a 10% decline.

“Our top pick among South African PGM miners remains Northam, which we believe is being transformed by the expansion at its Booysendal mine,” said Dominic O’Kane, an analyst for JP Morgan Cazenove.

“We expect this expansion to drive peer-leading earnings growth for Northam, while a substantial inflection in free cash flow should support ongoing purchasing of its preference shares,” he said.

JP Morgan said it least preferred PGM share was Anglo American Platinum (Amplats) largely on the basis of valuation. The company had the best PGM assets and a robust balance sheet but there were few near-term catalysts to its share price.

O’Kane said the bank was neutral on Impala Platinum (Implats) despite identifying about 20% earnings price per share accretion from its imminent $758m North American Palladium acquisition and 15% to 20% group free cash flow yields. This was because Implats was “… highly leveraged to JP Morgan’s bearish PGM price trajectory”.

Once the purchase of North American Palladium is concluded, Implats will add about 237,461 oz a year in new palladium production from the Canadian firm’s Lac des Iles mine. Implats also has the option of taking a controlling stake in the Waterberg Joint Venture, a palladium project located far north of the Bushveld Complex in South Africa.