Companies have value when they have control of a market, or when demand for their product or service exceeds supply. When both happen, like now, some companies get rich. I want to focus on control.
With Anglo Platinum, if they shut down their production, most modern emission control systems could not be produced. They represent Ford’s, Toyota’s and Honda’s, among others, ability to meet emission limits. If Anglo Platinum shut down the price of platinum would go through the roof.
What amazes me is that they are not working to settle down the volatility in the platinum market, but are instead doing silly things like focusing on increasing the jewelry market demand for the stuff. If they just stated that they would not sell any platinum for under $2000 per ounce they would get the price, and they would set the price for the whole market. The reason is simple. Honda will have a choice: buy the platinum, or not sell the new Accord to Uncle Earl from Kansas. Which is really not much of a choice.
When I want to find businesses to buy, I want to buy business that have market control. Anglo, who with deBeers wrote the book on firm pricing, has just not sat down and gotten value out of its businesses. I want to see Anglo set the price for platinum and stockpile what it cannot sell. For example, if they go to $2000 per ounce and lose 500,000 ounces of sales, they will still net an extra $1 billion in annual revenue.
After or before they raised the price, they should buy ANY platinum project that looks interesting outside of SA. There are no antitrust issues on buying non-producing projects; there is no need to engage in non-competitive practices, they just need to take that $1 billion extra a year in earnings and plow it back into diversifying their supply. In 10 years, as older mines that they do not own shut will down and other companies fall in line, they should be worth the full value of the Anglo Group today, by themselves.
Any car company will need a PGM of some sort to make cars not pollute. From a political perspective South Africa should use this to put a TAX on the world with higher prices.
They are not going to do this, but if BHP gets Anglo, they are going to look at pricing of this necessary ingredient for a modern society, and think about how to make it priced more like iron ore or coking coal and less like gold.
Cheers,
Benjamin
