Amcu strike could see Amplats reverse gains as top platinum stock

A rally that crowned Anglo American Platinum the top performing South African platinum stock risks reversing once the cost of an eight-week long strike is tallied, according to Imara SP Reid.

Amplats, as the world's largest producer of the metal is known, climbed 18 percent this year, the biggest advance in the FTSE/JSE Africa Top40 Index after AngloGold Ashanti. The gains come as output at the Johannesburg-based company has been halved since a strike over pay began January 23.

"The market is underestimating the costs to the mines of the strike," Stephen Meintjes, head of research at Imara in Johannesburg, said by phone on March 18. "It is going to take a long time to ramp those back up into production."

The Association of Mineworkers and Construction Union (Amcu) is leading a work-stoppage at mines owned by Amplats, Impala Platinum and Lonmin to support demands that basic pay be more than doubled to R12 500. Talks broke down on March 5 as the state mediator said the parties remained far apart. The companies offered to raise wages of R5 000 to R6 000 by as much as 9%.

Amplats is losing about 4 000 platinum ounces of daily production, translating into about R100-million of revenue, per day, the company said in an emailed statement on March 5. The mines where Amcu is striking accounted for 46% of Amplats's output in 2013.

Corporate action
The six-member FTSE/JSE Africa Platinum Index declined 3% since the strike was announced on January 20 with Impala, the second-largest producer, falling 4% and Lonmin down 13%. Amplats rose 13% over the period, reaching a 13-month high on March 18.

Amplats may be gaining on expectations that London-based parent Anglo American will reorganise its 80%-owned unit, Simon Hudson-Peacock, a money manager at Momentum Asset Management in Johannesburg, said by phone on March 17. Anglo chief executive Mark Cutifani, who replaced Cynthia Carroll in April last year, is reviewing projects in pursuit of cost savings and cash-flow gains.

"It's not the platinum price, not the rand," Hudson- Peacock said. "It's more along the expectations for value [to] unlock at some stage, in one form or another."

The price of platinum, used in jewellery and for auto-catalysts in vehicles, gained 6% this year. The rand weakened 3.4% in 2014 against the dollar, helping to bolster earnings for mines from production sold in the US currency.

'Messy, complicated'
A fair reflection of the company's value would be its outlook for 2015, as opposed to losses suffered during the strike, Justin Froneman, an analyst at SBG Securities in Johannesburg, said by phone on March 17.

"The next set of numbers is going to be messy and complicated," Froneman said. "The market is largely discounting that" and looking to future earnings, he said.

Amplats is trading at 29 times estimated earnings, compared with a forward price-to-earnings ratio of 28 for Impala, 27 for Royal Bafokeng Platinum and 24 for London-based Lonmin, according to data compiled by Bloomberg. Amplats has five buy recommendations, 11 holds and six sells.

The platinum companies will suffer further production losses even if the Amcu members return to mines as it may take months to get back to normal production, Imara's Meintjes said. Amplats lost more than 305 000 ounces as a consequence of a two-month strike in 2012. – Bloomberg

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Andre Janse
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