Asset manager Coronation has revised its stance on the business case for platinum group metals (PGMs), acquiring a 5% stake in Northam Platinum, just a year after announcing its decision to disinvest from an industry plagued by low prices and decreasing demand.
Northam on Thursday informed the market that Coronation, on behalf of its clients, had bought a 5.07% stake in the mining house. A year ago, Business Day reported that Coronation said the PGM sector represented a value trap for investors, despite the potential for some short-term gains.
Nicholas Hops, head of SA equity research at Coronation, at the time recommended that companies in the sector, which is the largest employer of all mineral commodities producers in SA, should look at decommissioning unprofitable mines.
“The sector finds itself facing both cash losses and the need to fund committed projects. Given our view on the long-term outlook for PGM markets, we believe that the companies should be decommissioning producing mines and shuttering projects,” Hops said at the time.
“The decision to shut a mine will never be purely financially driven, and we believe that unprofitable mines are likely to stay operating for longer than they should, thus providing the market with more metal it does not need. Management teams have very tough decisions to make going forward, which increases the risk of further capital allocation missteps as some attempt to diversify away from their core markets.”
Hops was unavailable to clarify the asset manager’s change of heart.
A fund manager survey by Bank of America published last week showed that while a majority of asset managers expect SA stocks to blossom over the next year, asset allocators remain underweight on platinum stocks.
The sector’s major producers have tightened their belts and restructured in response to a plunge in prices, with many of them impairing the value of their assets by billions of rand.
Northam’s stock is up 20% over the past month, valuing it at just under R47bn.
Impala Platinum CEO Nico Muller in August ruled out the development of new PGM mines in SA, saying the long-term outlook for demand in electric vehicles has curtailed the desire to develop new assets in the sector.
SA accounts for more than 50% of the world’s platinum and about 40% of the world’s gross palladium production. 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.
The recent tapering in growth of electric vehicle sales and a surge in demand for hybrid cars, which need 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.
The developing hydrogen economy is also likely to support demand for PGMs in future, with the European Commission having recently announced about €7bn in funding for more than 30 hydrogen projects.
The World Platinum Investment Council said the relevance of platinum’s growing role in the hydrogen economy remained strong. Platinum is used in hydrogen electrolysers, which are key in deriving hydrogen’s zero-emission applications, by using the proton exchange membrane process.
Mining major Anglo American has kick-started a process to demerge its PGM asset, Anglo American Platinum, as part of the group’s “self-help” plan announced in May.
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