Strike losses ‘may reverse stock’s gains’

By Time of article published Mar 24, 2014

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A rally that crowned Anglo American Platinum (Amplats) as the top-performing South African platinum stock risks reversing once the cost of an eight-week long strike is tallied, according to Imara SP Reid.

Amplats has climbed 18 percent this year, the biggest advance in the FTSE/JSE Africa Top40 index after AngloGold Ashanti. The gains have come as output has halved since the strike began on January 23.

“The market is underestimating the costs to the mines of the strike,” Stephen Meintjes, the head of research at Imara, said last week. “It is going to take a long time to ramp those [mines] back into production.”

Talks between the Association of Mineworkers and Construction Union (Amcu) and Amplats, Impala Platinum and Lonmin broke down on March 5 as a state mediator said the parties were far apart.

Amplats was losing about 4 000 platinum ounces of daily production, translating into about R100 million of revenue a day, the company said at the time. The mines where Amcu is striking accounted for 46 percent of its output last year.

The six-member FTSE/JSE Africa platinum index declined 3.1 percent since the strike was announced on January 20 to Thursday’s close, with Impala, the second-largest producer, falling 4.4 percent and Lonmin down 13 percent. Amplats rose 14 percent, reaching a 13-month high on March 18.

Amplats may be gaining on expectations that its parent, Anglo American, would reorganise its 80 percent-owned unit, Simon Hudson-Peacock, a money manager at Momentum Asset Management, said last week. Anglo chief executive Mark Cutifani is reviewing projects in pursuit of cost savings and cash-flow gains.

The price of platinum has gained 5.6 percent this year, while the rand has weakened 3.5 percent against the dollar.

Justin Froneman, an analyst at SBG Securities in Johannesburg, said the market was largely looking to future earnings. Amplats is trading at 29 times estimated earnings.

The share closed up 1.66 percent at R470.68 on Thursday. – Bloomberg

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