Transcript Document

Platinum group metals overview
“Your partner in value creation”
Introduction and background
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The South African platinum industry has undergone some major reorganisation over the past few years
The 2008 and 2010 Global Financial Crises have highlighted white
metals vulnerability to ETF liquidations while the end users
displayed a similar tendency to dispose of the metal stocks they saw
no immediate value in
However, the recovery in vehicle sales has surprised many
commentators with sales back at pre 2008 levels
Studies on further global growth, suggests that demand for PGM
metals should increase at approximately 2 – 3% per annum if one
takes into account, India and China, all “green effects” and the
potential for substitution
The industry has long been concentrated in few hands and the
information relating to individual company costs and shaft
performances was sadly lacking and in our opinion saw much
overestimation of current and future supplies
“If we want to drive and breathe we are going to need platinum”
(Michael R Jones CEO PTM September 2011)
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Crisis (?)=Opportunity
JM interim review -the fundamentals remain
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Global supplies of platinum to increase by 6% to 6.4 m ounces this year
o Supplies ex South Africa will rise by a modest 3% for the full year to 4.78 m ounces if you
believe management
Platinum demand in auto catalysts is set to increase by 3% to 3.16 m ounces in 2011.
o Demand will increase in North America as production of light duty diesel trucks picks up.
o Purchasing of platinum for light duty vehicles in Europe and Japan will decline.
o In North America and Europe, another strong year is forecast for heavy duty truck
production, which will benefit platinum demand.
Jewellery Demand is forecast to be marginally higher than in 2010 at 2.47 m ounces.
o In China, we predict that gross platinum jewellery demand will rise by a modest 2% to 1.69
m ounces.
o We expect demand to soften in Europe due to higher prices and a move towards lower
weights of individual pieces.
Gross industrial demand is predicted to increase to a new record high of 1.96 m ounces.
o As platinum melting tanks are installed for LCD glass manufacturing, demand will grow by
13% to 435,000 oz in the glass sector.
o Construction of new refining capacity in the petroleum industry will lift platinum demand by
24% to 210,000 oz.
Gross demand is forecast to rise by 2% to 8.08 m ounces in 2011, close to pre-recession levels.
o However, continued strong demand will be more than matched by a rise in supplies and
higher levels of recycling, therefore we predict that the platinum market will move to a
small surplus of 195,000 oz this year.
Potential Production est. Investec June
2007 – interesting, it never happened!!
WRONG, very wrong…so how to balance now?
Source: Investec July 2007
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In fact most are no longer around as serious projects
Industry Comments
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ETF is swing producer
Very tight cost curves
Capex increases way above inflation
Very limited replacement ounces and no real new
production
Labour issues, fewer concerns
No cashflow, no project development
Emission legislation tightening
Consensus price $1900/oz - $2350/oz
What if Zimbabwe mines grab happens?
Press headlines
Amplats's cost conundrum continues
Implats weighs Leeuwkop decision
Lonmin thinks twice about growth
ZIM mines grab uncertainty pressure supplies
Eastplats posts major output drop
Angloplats defers major projects
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Amplats deferring deeper development
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New deeper shafts – the last priority at Amplats
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And India has not yet started
The platinum price
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PGM market is
lining up for an
exceptional period
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Positives
o The Euro zone debt crisis continues to affect the PGM market
dragging down the Euro and prompting a flight to precious metal
commodities with precious metal prices incredibly resilient
o Platinum and palladium continue to benefit from strong demand and
inflationary pressure in China as masses enter middle class
o Citi Bank – has observed net inflows for both platinum and palladium,
potentially due to investors placing more value on an improved
outlook for their industrial attributes
o RBC declares shortages and big price hikes (Aug2011 research)
o Big problems in the South African supply base continue to develop
Negatives
o Whether a junior or a major, there is a 4 - 7 year lead time to bring
new projects into production and up to steady state
o This implies that even if all the new projects actually came into
production, it would still take 5 to 10 years to materially impact on
prices
o ETF volatility will exacerbate price fluctuation in times of uncertainty
may assist as swing supplier
Reaching highs of the recent past
Incentive
price for
current new
projects not
yet achieved
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Platinum ETF
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Significant swing supplier potential
Power – the big question
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The current South African Electricity Supply/Demand situation is very tight
The latest forecasts indicate a worsening situation starting in 2011 and
proceeding through to 2016
The central assumption is that the economy will return to a long-run
average growth rate of just over 4% per annum from 2012
o expected shortfall, before doing anything to try and mitigate the
impact, of some 10GWh by 2013
o Current capacity of some 42GWh, which puts this potential shortfall
in stark context
The Cost of new and existing production
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Labour and power cost increases are expected to add a minimum annual cost increase for
the industry of approximately 10%
o Assuming a 10% jump in cost per ounce in 2011, it can be expected that over 40% of
production drops back into negative cash flow
Costs are averaging US$1000/oz with capex of US$300/oz. No returns at prices of the day?
Cash cost continues to increase… reducing the available free cash required for capital
investment
Margins ever lower (on static production bases)
REAL METAL PRICE BASKET – THE INDUSTRY NEEDS 30% HIGHER PRICES TO BE ABLE TO INVEST IN FUTURE OUTPUT
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Platinum industry competitive positioning in CY2012 at a glance (Platinum Break
Even Analyser) (click to open)
Struggling to break even….before power and wages
Source: J.P. Morgan estimates, Bloomberg
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Most production at a loss
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Company analysis
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Angloplats
o Deferred growth
o 3 key projects suspended
o Costs above spot prices
Implats
o No real exapnsion outside of Zim
o Big shafts reaching completion all deeper ones
o Stable introduction outlook if Zim holds
Lonmin
o All over the place
o Sale of Messina (R1bn?)
o Akanani development....when?
o Smelter issues all the time
Northam
o In growth mode on Eastern Limb
o Labour disputes
o Big capex needed
o Sale of Booysendal?
o Shareholder issues?
Aquarius
o In limited expansion phase/mode
o Acquiring smaller key near surface projects
o Long term key Everest expansion with Booysendal
So whats the angle?
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Despair and concern all around
Projects of replacement ounces being delayed
Costs pressures forcing reorganisation and cessation of
older production
Margin squeeze continues with power, wages and all
inputs rising
Zimbabwe a real concern as a mines grab will cause
supply disruptions
Capital of new projects vital
Seek out correct funding partners and start developing
new mines now
The Bushveld Complex – this is it!
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Western limb operations and projects
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Eastern limb operations and projects
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Northern limb operations and projects
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Value Curve Progression
$187.7/oz
$7.1/oz
Juniors activity
Resources
Exploration
Majors activity
Pre-development
Valuation
Capex
Reserves
Production
BFS
Platinum
Australia
Measured
Proven
Pre-Feasibility Study
Indicated
Primary zone for acquisitions
and partnerships
Probable
Jubilee
Inferred
Bauba
Current position on value curve
Pre-inferred
Time, exploration and development spend
Unit-based valuation
(Yardstick Method)
DCF, reserve/resource and cash flow based
valuation
Sources of finance
Private equity funds, hedge
funds
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Private equity funds, hedge funds,
general public
Institutions, general public, banks
Operations
Discovery
Wesizwe
Platinum market supply
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Production from the majors is in decline. Any new production is only likely to
stem this decline and as a result there is limited scope for growth in production
o Focus is on the deeper areas
o Costs and capex will increase significantly as will lead times to new
production
Majors and up-and-coming juniors have focused largely on the Western limb
Shallower easier to reach Merensky Reef (“MR”) has been fully exploited
Focus has now shifted to UG2 which has triggered an increase in blend of
feedstock with MR dropping from 68% to only 40% over the period from 2000
to 2009
The current South African electricity supply/demand situation is very tight. The
latest forecasts indicate a worsening situation starting in 2011 and proceeding
through to 2016
Labour and power cost increases are expected to add a minimum annual cost
increase for the industry of approximately 10% and thus it can be expected that
over 40% of production drops back into negative cash flow
Total costs are averaging US$1,100/oz with capex of US$300/oz. No returns at
prices of the day?
Cash cost continues to increase… reducing the available free cash required for
capital investment
Margins ever lower (on static production bases)
All majors have declining profiles while Angloplats have delayed capex for four
new generation shafts
Asset valuations
The relative underperformance of the juniors coupled with the outlook for
consumption, the lack of replacement capacity and growth in developing
nations suggests the best targets are the juniors, which on a value basis have
significantly underperformed the seniors ( which have performed poorly
themselves over four years
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The big five salient facts
Company
Mineral
Resource
(Moz) attributable
Mineral
Reserve
(Moz)
PGM
Production
(Moz)
Cash Cost
(R/Pt equiv)
Capex
(R mil)
Amplats
821.5
170.6
2.570
11,730
7,989
Impala*
225
36.9
1.836
10,867
5,540
Lonmin
181.8
46
1.316
6, 571
1989
Northam*
130.7
10.6
0.250
8,666
956.9
AQP*
120.5
9
0.487
6,488
998.3
*2011
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All have issues, big funding issues and catch up too
The listed juniors
Company
Mineral Resource
(Moz)
Mineral
Reserve
(Moz)
PGM
Production
(Moz)
Comments
Emerging Producers
EastPlats
72.3
4.4
0.13
A target for Xstrata
PlatAus
7.6
0.5
0.04
Into production at Smokey Hills
Anooraq
100.3
5.5
0.12
Anglo subsidiary with monster debt
Nkwe
41.8
None
None
Major litigation ARM and Angloplat
Jubilee
14.1
None
None
Independent with smelter capacity
Wez
16.4
1.1
None
Recently announced JNMC Acquistion
Platmin
20.1
4.4
None
Production start up difficult
PTM
9.2
None
None
For sale
Village
27.8
None
None
Not pure platinum focus (SIM)
Bauba
65.1
None
None
1050m to 2500m, big target, key areas
Platfields
5.8
None
None
Hiekommie k*k, corporate stuff to come out
Explorers
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Disclaimer
The information contained in this document has been compiled from publicly
available sources, and has not been independently verified.
Accordingly, no representation or warranty express or implied, is being made or
given as to the accuracy or completeness of the information or opinions and no
responsibility is accepted for any such information or opinions. The information
contained in this document is subject to completion, revision, verification and
amendment.
This presentation is confidential and may not be disclosed to any third party
without the written consent of Qinisele Resources (Pty) Limited.
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