THE South African platinum group metals (PGM) industry has “really sorted itself out and deserves a different level of discount rate” because of the way in which they have transformed their operations and, in particular, removed debt.
That’s the view of Evy Hambro, MD of major, London-based investment institution BlackRock, speaking at the Johannesburg Mining Indaba 2021 PGM’s Industry Day.
Hambro said the platinum industry had gone through “significant pain” because of the various “moving parts” on the demand side which had played out negatively into the pricing of the commodity.
But he commented: “The industry reacted – in many cases by taking capacity out – and right now the industry is in a much stronger position. It has really sorted itself out.
“We have had the consolidation which has rationalised part of the industry. We have had the internationalisation. We have had the balance sheet repair. That has had an impact on the way that people value those businesses. In terms of investment quality, it is a vastly superior investment proposition than it has been many times in the past.”
“Right now the industry is in a much stronger position. Its balance sheets are very robust, and I think that is something that cannot be ignored.
“The PGM industry – and other parts of the resources industry that are so well financed – deserve a different level of discount rate because I think risk to those businesses is significantly lower because of that lack of gearing and that’s one of the reasons we feel it is the right place to have our clients’ capital invested.”
Asked about investor concerns over the traditional risks associated with mining companies operating in South Africa Hambro replied: “All of the traditional risks associated with South Africa – such as power supply, currency and so on have always been the case in the past during my career and are likely to be the case going forward. I think that’s reflected in the valuations.”
Turning to the issue of diversification by platinum groups through possible mergers with other mining groups such as gold producers Hambro commented: “This debate goes back to the past where gold companies were trading on dramatically higher premiums.
“In the Nineties, it was common to see gold companies on 30 times multiples versus a diversified resources company on a single-digit multiple, but those premiums have now narrowed drastically so the debate is less relevant than it was in the past.”
Hambro also pointed out that PGM producers did not just produce one metal, but multiple metals out of the same orebody being mined and commented: “You have commodity diversification embedded within the business right now so to add something else is not going to change things significantly.”