Borrowing costs of Implats set to fall as platinum prices gain

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Johannesburg - The borrowing costs of Impala Platinum (Implats) are set to fall as the second-largest producer of the metal benefits from a forecast 18 percent recovery in the price next year, according to SBG Securities.

The company’s debt would see some of the “risk element” fall away should prices rebound and labour disputes be resolved, Justin Froneman, an equity analyst at SBG, a unit of Standard Bank, said yesterday.

Platinum will rise to $1 600 (R16 484) an ounce by the second quarter, according to the median of 15 analyst estimates.

Demand would exceed supply by the most since 1999 this year as purchases by the chemical, electrical and glass industries and for investment outweighed slower buying by jewellers and car makers, and the deficit would probably continue next year, Johnson Matthey, which uses the metal to produce a third of the world’s automotive catalysts to curb car pollution, said last month.

The Association of Mineworkers and Construction Union (Amcu), the largest representative of employees at Implats, voted for a work stoppage over wages on October 28, without setting a date.

“We’re expecting the platinum price to do relatively well next year, reaching around $1 500,” Froneman, whose recommendations produced the second-best relative returns of all the securities he covered over the past year, said yesterday. “If platinum prices rise, the bonds should trade higher.”

Yields on the company’s $200 million of bonds changeable into stock at an equivalent of $24.13 a share have fallen 172 basis points since reaching a high on July 19 to 4.58 percent on Monday, while rates on Aquarius Platinum’s convertible dollar debt due in December 2015 have climbed 130 basis points over the same period. The average yield on dollar notes of emerging-market metals and mining companies has fallen 4 basis points, JPMorgan Chase indices show.

Spot platinum was fixed $19 lower at $1 357 an ounce in London on Monday afternoon, taking the decline this year to 12 percent. Yesterday morning it fixed even lower at $1 341.75 an ounce.

The company faces demands for wage increases of as much as 60 percent from Amcu, which has replaced the National Union of Mineworkers as the biggest union at the world’s three largest platinum producers, including Implats. Amcu has gained ground since rock drillers brought the group’s Rustenburg mine to a standstill for six weeks in the first quarter of last year in a pay dispute.

While Amcu reduced its wage-increase demand from Impala by 31 percent to R8 668 a month on November 12, it is still 58 percent more than what workers get now. The inflation rate was 5.5 percent in October.

The company raised its offer for the lowest-paid underground workers to 8.5 percent for the first 12 months of a three-year deal. Workers currently earn R5 500. Talks between the parties are scheduled to continue on December 12, before mines close for a two-week break on December 20.

“The potential for labour disruption is getting reduced,” Simon Hudson-Peacock, a fund manager at Momentum Asset Management, said last week.

“The unwillingness to strike has been unofficially recognised by Amcu when it decided not to do anything until next year.”

Should work stoppages occur, Implats and other platinum producers would rather see out a prolonged strike than settle on higher increases, Hudson-Peacock said. “The industry has put a firm foot down, saying that the current economics doesn’t allow them to get near to expectations of Amcu. I think they know the company will play hardball.”

Implats spokesman Johan Theron declined to comment.

Lower supply from South Africa because of mine strikes and cutbacks and falling sales from Russian palladium inventories have helped keep the commodities in a shortage since 2012.

Implats fell 1.78 percent to R115.90 yesterday. – Bloomberg


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