Dear Hinterland Shareholders,
In our ongoing efforts to provide market information and/or commentary, we are pleased to provide you, with Industry Sector Bulletins discussing current market opinions and/or conditions that affect the price, use and supply & demand of Platinum.
Regards,
AGORACOM
Platinum may not have the cachet of gold or silver, but the surging price of this rare commodity is making for a more attractive investment play.
Over five years, the white metal has soared 214 per cent to $2,018 (U.S.) an ounce yesterday - a price set by the London Platinum & Palladium Market. The price hit a record of $2,273 an ounce in early March.
"Platinum is kind of a forgotten metal," says Nick Barisheff, president of Toronto-based Bullion Management Group Inc., which runs BMG Bullion, a mutual fund investing equally in gold, silver and platinum.
"But platinum has gone up 31 per cent this year, while silver is up 13 per cent and gold up 5 per cent," Mr. Barisheff said. "My fund is up 15 per cent year to date in U.S. dollars, and it is largely because of platinum."
Strong demand for platinum comes from the auto industry for catalytic converters, particularly in diesel cars and trucks. The second largest market is jewellery followed by various other industrial uses like electronics equipment.
There has also been a burst of speculative investment demand recently for platinum from European-based commodity-based exchange-traded funds (ETFs) that are backed by the metal itself.
Unlike gold and silver found around the world, nearly 80 per cent of the global supply of platinum is mined in South Africa and 15 per cent in Russia, Mr. Barisheff said. "If there are any supply hiccups ... the price goes up dramatically."
The price of platinum jumped sharply earlier this year because of supply disruptions that were triggered by power shortages in South Africa, and mines were shut down because of safety concerns.
While the price of the metal has pulled back with electricity somewhat restored, London-based platinum specialist Johnson Matthey recently forecast a "shortfall" of 200,000 ounces from the country in 2008, and predicted platinum will trade from $1,775 to $2,500 an ounce in the next six months.
Vancouver-based analyst Bart Jaworski of Raymond James Ltd. estimates the power shortages caused by aging infrastructure in South Africa will continue until 2012.
The country's power problems will get worse next month and in August, when it is winter in South Africa and there is peak demand coming from heaters, he said.
Mr. Jaworski expects "load shedding," whereby electricity to certain customers is disrupted when the demand becomes greater than the supply. "Some of the platinum miners will be affected," he suggested.
"The ETFs, which own about 365,000 ounces of platinum compared with 40,000 ounces at the end of 2007, have played a really big role in exacerbating the issue. I expect that they will play a role this summer."
(There are no platinum ETFs in North America, but two exchange-traded notes - UBS E-Tracs Long Platinum and UBS E-Tracs Short Platinum - began trading on the New York Stock Exchange last month, and they track the prices of platinum futures contracts.)
Besides BMG Bullion, the other platinum plays in Canada are through junior mining stocks, although there is a risk that share prices don't always track the price of bullion.
Still, Mr. Jaworski has an "outperform" rating on Vancouver-based Eastern Platinum Ltd. (target $4.20 Canadian); Anooraq Resources Corp. (target $5) and Platinum Group Metals Ltd. (target $4.40).
All three stocks "should do well over the summer" in a rising price environment, but there is risk the South African government's utility could turn off power instead to the less labour-intensive aluminum industry as a political move, he suggested. "Over all I think that everyone is going to get cut to some degree."
He is most bullish on Eastern Platinum, which focuses on South Africa's Bushveld Complex - the platinum hot spot - and owns a majority stake in the Crocodile River mine. It also has takeover potential by larger companies like Swiss-based miner Xstrata PLC, which last year bought Eland Platinum Holdings Ltd., Mr. Jaworski said.
Analyst Leon Esterhuizen of RBC Dominion Securities Inc. agrees that "supply constraints will likely continue to keep the platinum price high."
He favours juniors that are producing or will be shortly, that have less exposure to power shortages because they extract metal from open pits or shallow mines, and have an "off-take agreement" to sell all or a large part of the metal from a project.
Among Canadian-listed juniors, he has an "outperform" rating on Anooraq Resources (target $6.30); Eastern Platinum (target $5.00) and Toronto-based Platmin Ltd. (target $14). "These companies will also feature very prominently as potential takeover targets," he wrote in a report.
1 member recommends this.
Discussing the April 10th press release
