Troubled Platinum Stocks Worth a Look For Investors With the Stomach to Wait

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on Aug 1, 2012

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Troubled Platinum Stocks Worth a Look For Investors With the Stomach to Wait

With the platinum prices declining, it seems that the platinum industry crisis has stretched to the Royal Bafokeng Nation as well. On 29 July 2012, the mining news website MINING.com reported that the earnings of Royal Bafokeng Platinum (RBP) could be down by between 52 and 62 percent over the first half of 2012. This in turn is likely to affect Royal Bafokeng Holdings (RBH), which is the main investment vehicle of the Bafokeng people, a community of about 300,000 people who live in South Africa’s North West province and who can trace their history back to the 1100s.

According to Royal Bafokeng Platinum’s statement, earnings per share and headline earnings per share for the six months ending June 30 are likely to be between 40 and 50 cents, compared to 105 cents for the corresponding period in 2011. The company attributes the anticipated decrease in earnings to lower sales volumes, lower realised revenue basket prices and higher costs during the first six months of 2012. In addition, according to MINING.com, Royal Bafokeng Platinum has lost $420 million in market value since listing in Johannesburg in November 2010.

!m[](/uploads/story/215/thumbs/pic1_inline.png)The results of the platinum manufacturer are also likely to affect RBH, which owns Royal Bafokeng Platinum and is responsible for the management and development of the commercial assets of the Royal Bafokeng Nation. Although RBH has investments in other sectors such as oil and gas services and the financial sector, it nevertheless has very high exposure to platinum mining assets. In RBH’s Integrated Review for 2011, Kgosi Leruo Molotlegi, king of the Bafokeng people and non-executive director of RBH, noted that diversifying geographically and reducing the current portfolio’s exposure to the risks associated with the platinum sector was a primary objective for RBH.

Royal Bafokeng Platinum, however, is not the only platinum group metals (PGM) company to be affected by the platinum crisis, with the mining news website Mineweb reporting that the latest financial results of listed PGM companies such as Anglo American Platinum (AMS), Aquarius Platinum (AQP) and Eastern Platinum (ELR) indicate that the companies in question are either making losses or trading at thin margins. Mineweb notes that of 26 platinum mines in South Africa, 11 were found to be operating at a loss and a further four were marginal at best. Royal Bafokeng’s Rasimone mine was reported to be one of the mines on the marginal end.

As noted by MINING.com, platinum producers operating in southern Africa, where more than 80 percent of known PGM deposits are found, need to deal with problems such as falling grades and safety issues as existing mines go deeper and deeper. In addition, in the first half of 2012, South Africa also witnessed campaigns for higher wages and rivalry between the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (AMCU), with the labour disputes also having a negative impact on the output of platinum-producing companies.

And yet, it is the decline in PGM prices that is the most commonly cited reason for the platinum companies downtrend. Mineweb quotes Marc Ground, commodities strategist from the South African Standard Bank (SBK), who expects that prices will remain under pressure in 2013 as well. On the platinum equities side, however, Mr Ground notes that currently there is a buying opportunity but that “you’ve got to have the stomach” for more potential short term downside. “If you have a long term view on these things we would say that these stocks are looking pretty well priced at the moment”, he said as quoted by Mineweb.