Same commodities, differing results
By Mike Lawrenson
The past three months has seen commodity prices and mining shares, excluding gold equities, under-perform versus the broader market as concerns around global growth re-emerged.
In the past two weeks, three of the four large South African platinum group metals (PGM) equities have reported results. While the companies are driven by similar fundamentals – namely the US dollar prices of platinum, palladium and rhodium, mining efficiencies and grade – the market responded very differently to their reported earnings and outlook.
Resurrection rising: Impala’s turnaround
Impala was the first to report. Production was up 13% (in-line with guidance), while unit costs (+5%) were below the low end of guidance. In the second half (H2) of 2024, Impala generated roughly R1 billion in free cash flow, a significant turnaround from the R4.8bn cash outflow reported in the first half (H1) of 2024. Their outlook for financial year (FY) 2025 positively surprised the market in terms of unit cost guidance (+2.5%) coupled with a reduction in capital expenditure to R8.5bn, from R14bn in FY 2024. Since reporting results (August 29, 2024), Impala’s share price is up 19%.
Costly outlook: Northam’s high-cost hurdle
Northam Platinum reported results next and, similar to Impala, beat on all operational metrics with production higher than the top end of guidance, while unit costs (+4%) were below the low end of guidance. However, this is where the similarities ended. Free cash flow generation in the H2 2024 was negative and below expectations. The key differentiator was the midpoint of guided unit costs at 9% for FY 2025 – this is significantly higher than the market was expecting and is probably the key driver behind the -5% fall in share price over the same period.
Surprise resilience: Sibanye’s market defiance
Sibanye-Stillwater reported H1 2024 operational metrics that were weak versus their own guidance and market expectations. Financial results were poor, with the company reporting a negative free cash flow of R8.1bn adjusting for a once-off non-recurring insurance receipt of roughly R800 million. Further, the company revised its FY 2024 guidance for its gold production down by 15% and its unit cost guidance increased by 14%. Surprisingly, the market did not penalise the company as one would have expected given the poor results and revised outlook. Instead, Sibanye’s share price is up 2% over the same period.
This outcome can be partially attributed to their announced production cut of 200 000 ounces (versus FY24 estimated base of 450 000 ounces) from their North American PGM production base. This cut equates to roughly 2% of global palladium and is the first meaningful action taken by the PGM miners and this announcement supported palladium prices and the broader PGM equities. Sibanye’s intention to strengthen the balance sheet via non-equity funding (streaming or prepayment deals) of R11.5bn also allayed fears for the need of a dilutive equity raise.
Discount dilemma: Amplats’ unbundling woes
Finally, one needs to analyse the under-performance of Anglo American Platinum (Amplats), which is down -9% over the same period. The overhang threat of an unbundled Amplats was partially crystallised on September, 11, 2024, when Anglo American plc announced the placement of 5% of Amplats at a 10% discount to the previous day’s closing price.
Global vehicle production data is pointing to lower than forecast battery electric vehicle (BEV) penetration rates, with a number of OEMs recently announcing deferrals to their BEV production targets and delays in phasing out traditional internal combustion engine (ICE) vehicles. We have also seen an increase in the forecast demand for hybrid vehicles. This should support PGM demand in the medium term, and coupled with an end to OEM destocking, we could see a PGM price rally.
Mike Lawrenson, a resource analyst at Laurium Capital, part of the PPS Stable Growth Fund investment team.
BUSINESS REPORT