Extended high prices for palladium, rhodium to spur Anglo American earnings in 2021

ELEVATED prices for platinum group metals (PGMs) were forecast to spur another period of earnings growth for Anglo American this year, according to a report by Goldman Sachs.

“We see the next leg of earnings upgrades from the PGM divisionas gains more than offset declines from diamonds and coal,” the bank said in a report today. Anglo American gets its exposure to PGM’s through its 80% stake in Anglo American Platinum (Amplats), the Johannesburg-listed firm.

“We believe that PGM prices will remain elevated until at least 2022, based on our updated supply/demand analysis, and expect this to drive the next leg of Anglo American consensus earnings upgrades.”

Palladium is expected to remain in a supply deficit this year, of an estimated 800,000 to one million ounces whilst platinum is expected to play a greater role in the basket price as investment growth mops up some supply and automakers continue to substitute PGMs such as palladium with platinum. The rhodium price, at $18,000 per ounce, is at record levels.

“Someone has been caught short in the market (for rhodium),” said Daniel Sacks, portfolio manager for Ninety-One, an asset management firm. He added that all PGMs would receive a boost from limited, if any, supply growth. Fabricators were also increasingly wary of the reliability of South African PGM supply, he said.

New PGM projects such as Sibanye-Stillwater’s K4 and the expansion of Amplats’ 1.2 million oz/year Mogalakwena mine weren’t likely to be approved this year.

“What is the project economics like for Mogalakwena and what will be the market impact?”, he said. Sacks’ Ninety One Commodity Fund was recently rated the top unit trust across all categories over the past twenty years.

Amplats is studying a 500,000 oz/year expansion of Mogalakwena requiring the construction of a third concentrator. Amplats CEO, Natascha Viljoen, said in June that the feasibility study into Mogalakwena’s expansion had been disrupted though “not materially”. She later said Amplats would take its time to assess different formats for the expansion.

RMB Morgan Stanley analysts, Christopher Nicholson, Brian Morgan, and Jared Hoover, forecast a 40% to 70% boost in the earnings of PGM producers this year and “a step up in cash returns to shareholders”.

Commenting on Anglo American, Sacks said the group also would benefit from its close correlation to the improvement in the copper price. “I think PGMs make for a nice narrative because they are a differentiator for Anglo. It will be sold like that. But I think Anglo has other things.”

Said Goldman Sachs: “Simply put, we view Anglo American as an improved business relative to the past and therefore believe that the stock deserves a re-rating on the back of this new returns/margin profile and is likely to attract investor interest in this commodity bull market”.

PGM prices were also likely to remain supported by a rebound in automotive demand, according to Ninety One and Goldman Sachs.