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Palladium underpin to Stillwater - Ingham's Incisive Insights


Sibanye Gold Palladium Stillwater

"Palladium underpin to Stillwater

In considering Sibanye in relation to Stillwater, it is worth recalling that Stillwater is more of a palladium play than a platinum play. In my note on 12 December 2016 (“Going large in Montana”) I observed that “Stillwater is primarily a palladium producer located in Montana with a 78/22 reserve mix between palladium and platinum”. Last year, 77% of production ounces were palladium and the balance platinum.


The platinum price in isolation tells only part of the story, palladium is more important with respect to Stillwater. In fact, palladium has been performing well – averaging $612/oz in calendar 2016 compared with $793/oz in May 2017 and $846/oz at spot today. Palladium is in a supply deficit at present.


Platinum averaged $987/oz in calendar 2016 and is currently $960/oz. So, platinum is lagging at the moment. The platinum market will have a surplus in 2017 according to Johnson Matthey, due to a fall in demand from vehicles, jewellery, and investors relative to supply.


The deficit in palladium will increase to almost 800 000/oz in 2017, a sharp increase, and helps explain while the gap between platinum and palladium has shrunk to just over $100/oz, the lowest in over a decade and comparing with an average over 20 years of $500/oz.


Whilst platinum and palladium are used in automotive catalysts platinum is used heavily in diesel engine catalysts, a market that has been under pressure, also affected by emissions cheating by certain manufacturers.


Stillwater is a relatively low-cost producer at $438/oz in cash costs with all-in sustaining costs at $622/oz. This compares with Sibanye Gold operations of around $800/oz and $950/oz respectively.In my last note, I wrote that Sibanye Platinum, albeit not for a full year, received an average basket price of $917/4Eoz with costs at $842/4Eoz.


Stillwater received a combined market price of $695/oz in 2016 – this is a combined average realized and market price of palladium and platinum at the same ratio as ounces that are produced from the base metal refinery. The cost of metal sold per PGM oz was $509/oz whilst cash costs were $438/oz and all-in sustaining costs were $622/oz. The mid-term target is to get all-in sustaining costs down to $550/oz to $600/oz, particularly when the Blitz project comes on stream.


Given the changing platinum/palladium dynamics the Stillwater deal looks increasingly helpful to Sibanye Group profitability when SA mines will be under pressure and facing regulatory uncertainty in South Africa.


The following is a snap shot of costs and profits in Stillwater. Operating cash flow is the one to watch and this was $78,3 million in 2016. I have given an abbreviated breakdown between actual cash generated and what the income statement reflects ($9,5 million net profit in 2016).     


Sell-side analyst’s views on profitability and fair value on Sibanye are all over the place. My own number for fair value is around R25 per share post rights issue, which of course is sensitive to underlying profit drivers. Sentiment is not helped by the platinum price being soft even as the gold price, at $1288/oz, is edging up. With the current stronger exchange rate of R12,76/$ this is giving a rand gold price of R529 000/oz, which is a reasonable level for SA gold miners.  





Year-end December 2016


Cash costs per PGM oz.


Recycling credit


Corporate costs


Capital costs


All-in sustaining costs


Cost of metal sold per PGM oz.


Average market price Palladium


Average market price Platinum


Average market price combined



Cash flow $'000


Operating cash flow

$78 255

Working capital

$18 666

Non-cash (incl. depreciation)

-$87 448

Net income

$9 473


Wishing you profitable investing, until next time

Mark N Ingham    



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