[投行研报] MS South African Platinum [推广有奖]

May 15, 2014
South African Platinum
The industry in 2020:
Dystopia? Utopia?

Our deep dive into the future of the industry reveals
that considerable financial incentives exist to
further restructure. This could drive a longer-term
equity re-rating. However, numerous constraints
complicate a smooth transition to a Utopian
scenario near term. We downgrade IMP to EW.
Restructuring, an inevitable necessity. With current
equity valuations well below replacement cost (36-71%)
and metal prices trading in-line with marginal cost, we
map two scenarios for the industry. a) Dystopia: the
industry fails in meaningful further restructuring. Thus,
the platinum price continues to trade at close to marginal
cost. b) Utopia:  incremental higher cost supply is closed
and the production mix shifts towards higher margin
resources. We see considerable financial improvement
(improvements of c.60% in EBITDA/share and up to 750
bps in ROCE) under this scenario, which could then
drive a longer term equity re-rating.  
No easy solution in moving to the ‘utopian’ scenario
in the near term.  Current Northern  Limb economics
appear promising; however, infrastructural limitations
exist that may curtail meaningful growth before 2020.
Capital for base metal refining capacity is significant and
implies that a Mogalakwena expansion is far from a sure
thing. Furthermore, the closure of existing mines is
politically sensitive and likely to require time to enact.
Whilst the majority of new  shafts will likely exhibit a
trend towards mechanisat ion, mechanisation of
existing  capacity is unlikely.  a) Ore bodies that are
conducive to mechanisation have already been
mechanised (49% of production already mined using
mechanised/hybrid methods); and b) significant
constraints exist for conventional Western Limb mines.
Downgrade IMP to EW as political constraints are likely
to sterilise further Zimbabwean expansion as higher cost
Lease area production continues to be squeezed. AMS
has the greatest flexibility, but is constrained near term.