Anglo has 194 million ounces of proven and probable PGM resources in the ground. At $1320 per ounce for platimum, this asset has in situ value of at least $200b USD. They have another 500 million ounces-plus of inferred resources. So on an in situ asset base of almost $1 trillion, they are making $2.5b per year in cash flow. Seems pretty low for the assets they have. They also have the vast majority of the platinum reserves in the world.
Let’s go over a simple plan that would make sense. The government of South Africa should tax platinum more so more money can flow into the country. If the government made the tax on platinum 50% for any sold for less than $2000 per ounce, and 4% for any sold for over $2000 per ounce, Zimbabwe would follow gladly as they would also be able to bring in more tax and earnings out of the industry. What this means is that they effectively would set a floor on selling platinum at $2000 per ounce. Why is this good for SA? It would force the world platinum price up, as SA has 88% of the reserves, and it would massively increase foreign exchange into the country and total wealth creation. It would also significantly help Anglo’s earnings.
Anglo should offer this taxation structure as a compromise, instead of being told to use it or lose it. South Africa has lots of good mineral policy. In some ways it is the modern day Robin Hood, by taking from the rich man, and giving to the poor disenfranchised minorities groups that were created by the previous system. Having said that, I think the government should get off their duffs and begin to understand that the economic base of the country should be based on use it or stockpile, whichever makes more economic sense in the circumstances.
Either joint marketing or a significant tariff or tax on low value exports will change the face of platinum. If three companies in two countries can reduce the volatility in iron ore, then Anglo Platinum, which has a strong lead-out position, should be able to completely shut down the spot market in platinum, increase margins, taxes paid, value to minority interests and the balance of trade for South Africa.
SA deserves to have a strong position and if they do the work to create it they can take the value of this business through the roof. They have only one real issue with this game plan, and that is what Russia does in the market, but the Russians are not stupid. If the price of platinum is set high they will follow with palladium.
In my opinion the point is not to set the demand, but to set the price, and let the demand follow. I think SA has to start to understand that it needs to get the maximum dollars for its resources, not maximum production. Joint marketing or taxes with a high floor will get that and frankly the people who will pay the price are the rich, First World car companies. What difference is another $500 on the sticker price of a car going to make? If the catalytic converters cost $500 more people would still buy cars, and the cars would still be fit with the converters. That $500 will flow to South Africa; multiply that by 50 million cars in global production, and you get $25b in monopoly profits, which can flow to 5 companies and two countries.
In my mind, control of resources by countries make those countries. CVRD has made a huge diffrence for Brazil; Rio Tinto and BHP have built West Australia. SA has to embrace what it controls and that includes platinum. The leader here has to be Anglo Platinum, and if they do it right they will end up with a significant increase in value.
What the company is worth with a $2000 per ounce platinum price is not obvious, but if the earnings stabilized out and the platinum price was high, I could see Anglo Platinum more than doubling their earnings. I do not see why, with their market dominance, they should not be able to get another $2-4b per year out of the Platinum business.
Even without that, the platinum business should be worth 15x operating profits, which is $36b. With either a good marketing company or a government structure that made sense, it should be worth $70-100b. From the company that has deBeers, they should know that it is not the quantity of output that makes the money, but the high prices.
If Anglo does not change and quickly, it is just too juicy of a tidbit for the BHPs, Rio Tintos and Xstratas of the world, and we could eventually hear about BHP working on marketing of platinum on fixed price contracts with yearly allocations.
