- Anglo American continues its restructuring with Valterra spin-off
- FTSE 100 member retains one-fifth stake in platinum group metals miner
- Valterra shares trade in Johannesburg and London
- Demerger occurs just as platinum price hits a one-year high
- Platinum remains well below both its all-time peak and long-term price relative to gold
“Investors still do not seem quite sure what to make of Anglo American’s overhaul, judging by how the miner’s shares are no higher than five years ago, but boss Duncan Wanblad is pressing ahead, and the demerger of platinum group metals producer Valterra is the latest step in the turnaround plan,” says AJ Bell investment director Russ Mould.
“Valterra’s shares trade in Johannesburg and London and the timing of the spin-off could be interesting, since platinum prices stand at a one-year high and the CRB Commodities index is making a good go of testing its loftiest level since 2011.
Source: LSEG Refinitiv data
“This does not mean that the good times are back and rolling for platinum group metal (PGM) miners just yet, since research from Metals Focus suggests the industry’s overall all-in sustained cost (AISC) of production is around $1,100 an ounce.
Source: LSEG Refinitiv data
“Moreover, palladium prices languish below $1,000 and down by two-thirds from 2021’s zenith and rhodium is back to where it was in 2020, at around $5,500 an ounce and thus down by four-fifths from its 2021 peak.
Source: LSEG Refinitiv data
“Valterra produces all three and derives nearly 70% of the revenues generated by its six mines from them, with other precious metals and some industrial ones providing the rest.
Source: Company accounts. *$/ZAR cross-rate is currently 17.92.
“PGM prices have suffered amid worries over what the rise of battery electric vehicles (BEV) will do to the demand for them, since the biggest industrial buyer is the automotive industry, which used them to manufacture catalytic convertors for cars powered by the internal combustion engine (ICE). Other industries, such as chemicals, healthcare and jewellery are also large consumers, but not as big as automotives.
“A slowdown in sales growth in BEVs is providing some succour to PGM prices, as are the rise of plug-in hybrid vehicles (PHEVs) and also delays in the imposition of sales mix targets for EVs relative to ICE-powered cars.
“In addition, the best cure for low prices is usually low prices, for two reasons.
“First, they snuff out production growth and in this case Metals Focus believes that demand will outstrip supply again in 2025, just as it did in 2024. Primary supply is seen coming in at 5.4 million ounces this year, some 13% below the average industry output of 2010 to 2019.
“Second, they stimulate demand. The production of platinum jewellery is on the rise, thanks to how cheap the metal is now relative to gold.
Source: LSEG Refinitiv data
“Over the last 50 years, the platinum price has, on average, represented 1.17 times that of gold. The current ratio is just 0.33 times, again thanks in part to the rise of BEVs and worries over the automotive industry’s long-term PGM needs, and also due to gold’s meteoric rise since Covid, as investors have sought a bolthole from inflation, government debt accumulation and geopolitical uncertainty.
“Geopolitics could yet influence the PGM markets, too, if America’s reciprocal tariffs hit demand for the Indian-manufactured jewellery industry or lead to a wider slowdown in global growth. Producing in South Africa brings its challenges too, not least due to rickety national infrastructure, especially when it comes to electricity supply.
“As such, investors will no doubt look to Valterra’s valuation to help them assess whether the potential upside in the shares more than compensates them for the perceived risks.
“Valterra is now the fourth major PGM producer to list on the Johannesburg exchange, so that is where analysts and shareholders can find benchmark valuations. This quartet represents four of the world’s five biggest PGM producers, with only Russia’s Nornickel breaking their stranglehold, and one of them, Sibanye-Stillwater, acquired one-time FTSE 100 member Lonmin back in 2019.
“Analysts’ consensus estimates suggest that earnings could be about to bounce back across the four South African producers after a fallow couple of years. Valterra’s own net income dropped to ZAR 7.4 billion in 2024 from ZAR 49.3 billion in 2022, to show just how highly operationally geared into metal prices these businesses are, thanks to the high degree of fixed costs. Valterra’s sales fell by more than 30% to ZAR 109 billion from ZAR 164 billion across that three-year span but cost of goods sold dropped by only 3% across the same timeframe, to ZAR 90.8 billion form ZAR 93.5 billion.
“A rapid recovery in earnings (and dividends) could help catch the eye of investors.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Impala and Northam financial years to June, Sibanye-Stillwater and Valterra financial years to December.
“Then investors will have to decide if the stocks look cheap or not, should that scenario develop as expected. Given how volatile earnings can be, they may prefer to look at multiples of book, or tangible net asset, value per share. This benchmark at least helps to explain how the Valterra demerger price is being set, as it places it at a slight discount to the peer group average on the basis of historic NAV per share.”
