Asset management firm Coronation has explained its decision to reinvest in the platinum group metals (PGMs) sector a year after pulling its clients’ money from a sector it considered essentially a sunset industry, saying its U-turn was informed by a slowdown in the uptake of battery electric vehicles (EVs).
“Having been bearish on the PGM sector for more than a year, we are turning constructive again. Governments and vehicle manufacturers around the world are toning down their EV incentives and production targets, respectively,” said analysts at the company.
“Hybrids (which contain PGMs) are the fastest-growing EV subset. Moribund PGM prices, which trade deep into the cost curve, will curtail medium-term PGM production. This set-up sows the seeds for the next up cycle. As a result, we have been buyers of PGM shares.”
PGM prices have struggled over the past two years, with the market expecting a slowdown in the demand of the commodities as world economic powerhouses pushed for battery EVs.
In a move that shocked some, Business Day reported a year ago that Coronation, which has assets under management of about R670bn, walked away from the PGM sector, saying that while there was potential for short-term rallies, in its current form, the PGM sector represents a value trap for investors.
However, the money manager changed its tune earlier in October, buying a 5% stake in Northam Platinum.
The recent tapering in growth of EV sales and a surge in demand for hybrid cars, which use catalytic converters to curb pollution, have given PGMs a new lease of life.
Producer Sibanye-Stillwater said in April its view was that PGMs had substantial longevity in automotive applications, especially through the emergence of hybrid vehicles.
SA accounts for more than 50% of the world’s platinum production and houses its largest reserves, primarily in the Bushveld Complex. The PGM sector is also the largest employer in SA’s mining sector.
Six metals that are chemically, physically and anatomically similar comprise the PGMs: platinum, palladium, rhodium, ruthenium, osmium and iridium.
Leading producers of platinum in SA are Anglo American Platinum, Sibanye-Stillwater, Impala Platinum and Northam.
The Public Investment Corporation (PIC), Africa’s largest fund manager, in October increased its stake in Sibanye to just over 15%, demonstrating its confidence in the miner’s long-term prospects.
The PIC’s chief investment officer, Kabelo Rikhotso, has backed PGMs to play a big role in the green economy, particularly in the hydrogen economy.
Anglo American boss Duncan Wanblad said at the Joburg Junion Mining Indaba held in October that battery EVs were not the nirvana that some would have one believe, and hybrid vehicles were expected to become the more realistic option in many markets, considering that hybrid cars generally have higher PGM loadings than those with internal-combustion engines.
Coronation, which last week announced a deal that will see it 51% black-owned, has also backed niche private banking and wealth management group Investec and SA’s largest retailer Shoprite to deliver high returns. To this end, the Cape Town-based asset manager has reduced its holdings in the country’s top four banks — Standard Bank, FirstRand, Nedbank and Absa — in favour of Investec and Shoprite.
“Shoprite is a ‘new’ holding in the fund, although it has been owned before in the fund’s history. We think the Shoprite Checkers group is exceptionally well placed to grow earnings strongly for an extended period.
“Shorter-term tailwinds, such as ‘two pot’ money and reduced spending on diesel for generators combined with longer-term tailwinds from superb management and execution have seen the group take market share from peers like Pick n Pay, a trend we expect to continue.”
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