Good fortune bolsters PGMs in 2020
JOHANNESBURG - GOOD fortune smiled on mining companies as the gold price jumped sharply this year and platinum group metals (PGMs), particularly palladium and rhodium, strengthened significantly since the second half of last year.
Cash flow surged and profits soared as the bullion price broke several records due to the Covid-19 pandemic, spooking the markets and investors dumping risky assets for gold which is considered a haven asset during times of uncertainty.
In April, the gold price reached $1 720 (about R25 000) an ounce, bringing it to R1 million a kilogram. It smashed $2 000 an ounce in August.
The strong gold price enabled gold miners to reward shareholders with bumper dividends and reduced debt on their balance sheets.
S&P Global Ratings gave a positive outlook for Sibanye-Stillwater, AngloGold Ashanti and Gold Fields, saying the producers were expected to generate significantly higher cash than previously expected and would also pay back debt faster due to the strong gold price.
However, despite the strong price heading northwards, deal activity fell 33 percent in the first four months of the year compared to last year, according to the PwC Mine report released earlier this year.
Experts said that gold miners appeared to have learnt their mistakes from the early 2010s and were avoiding the pitfalls of pursuing large cash and debt-backed deals in a rising price environment.
Anchor Capital’s investment analyst Seleho Tsatsi said that ironically the PGM basket price was in some ways helped by the pandemic, in the sense that it led to significantly reduced production from the industry, which kept supply tight.
“Anglo American Platinum also had particularly significant output issues which dampened PGM supply. Both of those factors should be less prevalent in 2021. On the demand side, the rate of global economic recovery, auto-demand and emissions regulations will be the major drivers of demand for PGMs,” said Tsasti.
Platinum’s supply comes from two main sources: primary mining output and recycling, which typically comes from end-of-life auto catalysts and jewellery recycling.
The strong palladium and rhodium prices have been robust as China 6 emission standards set in.
Last month, the World Platinum Investment Council (WPIC) estimated that the platinum deficit this year would be just more than 1.2 million ounces, and 224 000 ounces next year, mainly due to supply disruptions in South Africa.
Due to problems at Anglo American Platinum’s converter plant, output was 900 000 ounces less this year while the shutdown of the platinum shafts due to Covid-19 restrictions resulted in a loss of 400 000 ounces.
WPIC head of research Trevor Raymond said the PGM rally would continue into next year as the Covid-19 vaccine became a reality.
Raymond said that while the gold price had strengthened 30 percent since March, the platinum price firmed 70 percent.
“We last saw the platinum rally after the 2008/9 financial crisis, and we have seen platinum outperform gold,” Raymond said, adding that the PGM prices had been buoyed by hopes the end of the Covid-19 pandemic may be in sight due to the vaccine.
“The vaccine means that things can get back to normal, and there will be more demand for platinum as the demand for cars rises.”