Seeking Alpha: Impala Platinum Seeing Short-Term Pain For Uncertain Gains

As was the case when I wrote about South African platinum producer Aquarius (OTCPK:AQPTY), I can't help but feel a little sorry for management Impala Platinum (OTCQX:IMPUY) (also known as "Implats"). Dealing with the rapacious government in Zimbabwe was more than enough of a headache, and now the top three South African platinum producers are dealing with an extended strike that is running down their inventories and threatening significant cost increases over the coming years.

At some point the strike in South Africa will end and Implats, Anglo American Platinum (OTCPK:AGPPY), and Lonmin plc (OTCPK:LNMIY) will get back to business. The strike is likely running down global platinum inventories, but there is certainly the risk that higher wage costs at notoriously labor-intensive mines will weigh on the sector for years. Barring yet another attempt from the government of Zimbabwe to shake down the platinum miners, I would argue that Implats offers an investors a rocky short-term road, but decent value for the long-term.

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Impala Platinum Seeing Short-Term Pain For Uncertain Gains

Seeking Alpha: Will Aquarius Platinum's Best Efforts Come Up Short?

I have a lot of sympathy for the current management team at Aquarius Platinum (OTCPK:AQPTY). Management has made some significant strides in rationalizing the cost structure of this PGM miner and overcoming the poor capital and strategic decisions made by prior management. Unfortunately, the geology of the company's mines works against the company, and there are significant risks with the company's Zimbabwe asset. Although extensive miner strikes in South Africa could improve conditions enough that Aquarius generates the cash it needs to manage a bond maturity, this company is in precarious shape and the stock is really only suitable for very risk-tolerant investors.

Read more here:
Will Aquarius Platinum's Best Efforts Come Up Short?

Investopedia: Impala Platinum Trying To Survive Multiple Challenges

Being a South African platinum miner is a pretty miserable existence right now. The contract price of platinum has fallen more than 12% over the four months and seems stuck in a trading range of $1,400 to $1,700 an ounce. At the same time, once-great mines are starting to show their age and labor unrest is becoming a serious issue. Add in the risk of expropriation in Zimbabwe, and it's not exactly surprising that Impala Platinum (OTC:IMPUY) (aka “Implats”) shares are at their lowest point in roughly eight years.

The good news is that Impala still has some of the highest-quality assets and reserves in the market, as well as a balance sheet and cost structure that stands out in the field. Were the company to get a little more aggressive in M&A and/or see a recovery in platinum prices, the shares could recover from these lows.

Please read more here:
http://www.investopedia.com/stock-analysis/061213/impala-platinum-trying-survive-multiple-challenges-impuy-swc-agppy-lnmiy-aqpty.aspx

Commodity HQ: A Deeper Look At South Africa's Commodity Industry

South Africa is the largest economy of Africa, and it accounts for almost one-quarter of the continent’s GDP. The path to this status has not been an easy one, however, as the country languished under sanctions in the 1980s tied to the government’s apartheid policies. While South Africa has a relatively well-developed manufacturing sector by the standards of African economies (and developing economies in general), a meaningful percentage of the country’s economy still revolves around commodities.

Click here to read more:
http://commodityhq.com/2012/a-deeper-look-at-south-africas-commodity-industry/

Commodity HQ: A Deeper Look At South Africa's Commodity Industry

South Africa is the largest economy of Africa, and it accounts for almost one-quarter of the continent’s GDP. The path to this status has not been an easy one, however, as the country languished under sanctions in the 1980s tied to the government’s apartheid policies. While South Africa has a relatively well-developed manufacturing sector by the standards of African economies (and developing economies in general), a meaningful percentage of the country’s economy still revolves around commodities.

Please follow this link to read more:
http://commodityhq.com/2012/a-deeper-look-at-south-africas-commodity-industry/

Investopedia: Freeport Looking Shiny

Investors can easily lose themselves in the details of calculating PV-10, forecasting future inventory imbalances and interpreting drill hole data. But here is an alternative way to look at the mining sector - developing countries like China, Brazil and India need a lot of metal to develop their infrastructure and support their economies, and certain companies like Freeport McMoRan (NYSE:FCX) have both ample resources and attractive production profiles. While there is really no good way to completely tamp down the volatility that goes with commodity speculation, buying good companies at good prices seems like an approach worth exploring. 


Digging into the Fourth Quarter
Freeport McMoRan delivered another strong quarterly result. Revenue rose more than 21% from the year-ago level, fueled by higher price realizations for copper, gold and molybdenum. Freeport actually sold less copper (down 4% in pounds), but got nearly 31% more per pound for what it did sell. The same was true of molybdenum, while the company both sold more gold and got a higher price per ounce in the fourth quarter.

Freeport also managed to produce its ore more effectively in the fourth quarter. Overall consolidated costs came out to $0.53 per pound in the fourth quarter - down from $0.62 a year ago and lower than the company's full-year average of $0.79 per pound. (For more, see Copper Developments Continued To Heat Up In 2010.)


The link below will take you to the full article:
http://stocks.investopedia.com/stock-analysis/2011/Freeport-Looking-Shiny-FCX-TCK-RIO-BHP-VALE-TC-XSRAY0121.aspx

Heavy Metal

I'm wondering if this little mini-meltdown in commodity names has any real legs to it. One of my bigger regrets from 2010 is that I couldn't manage to part with any of my current holdings and make room for some quality "stuff" companies. If we could get a nice little correction in materials stocks, though, I'd be happy to do some cherry-picking. After all, I do happen to believe that there is a general link that goes something like "higher global growth = higher commodity prices" - at least for the next few years, at any rate, and before a lot of major new capacity/supply comes on line.

I am not all that interested in gold at this point. There are just too many nuts still beating the "you'll all be sorry when the dollar goes to zero" drum for me to be comfortable with it. I prefer to swim alone and there are just too many other people in the gold pool these days.

Silver and platinum are different stories, though, and I might be interested in Silver Wheaton (NYSE: SLW) or Impala (Nasdaq: IMPUY). I need to do more work on SLW, particularly with respect to what sort of future silver price is baked into the stock today. As for Impala ... well, this may be a name where I just have to swallow hard and hope for the best.

A lot of Impala's future value is predicated on resources in Zimbabwe and that looks like a dangerous bet to me. Zimbabwe's dictator Robert Mugabe (who is theoretically part of a "power sharing" arrangement so not technically a dictator) is a pretty awful fellow even by the low standards of Africa and I don't see how any investor can ever be completely comfortable with a thesis that rests on Mugabe respecting law and honoring contracts. Then again, maybe Mugabe would think twice about messing with a South African company; alienating the West is one thing as they are not likely to interfere directly in Zimbabwe's affairs. South Africa can, and given the right provocation, probably would.

Beyond this, though, there is a short list of names I'm following closely.

Freeport-McMoRan (NYSE: FCX) - owner of one of the best mines in the world, and a major player in copper and gold (as well as molybdenum).

OM Group (NYSE: OMG) - traditionally a player in cobalt, but trying to move into more advanced materials as well.

Vale (Nasdaq: VALE) - a huge Brazilian mining company with interests in iron ore, nickel, potash, and many other resources. I'm not sure any company in the world has a more aggressive expansion plan over the next five years than Vale.

Xstrata (XTA.L) - a global miner of copper, coal, nickel, lead, and alloys.

Thompson Creek (NYSE: TC) - long a player in molybdenum, the company is expanding into gold and copper.

Teck Resources (NYSE: TCK) - met coal, copper, zinc - Teck is leveraged to some of the best commodities for ongoing industrial growth in the developing world.

These are the major names I'm circling right now and hoping that the stocks fall to me. I'm also looking at a host of junior miners in a variety of metals (gold, zinc, potash, etc), but this post is already running on the longish side. When I come up with some actionable ideas there, I'll write a separate post.

OM Group is cheap enough to interest me today and Freeport McMoRan is oh-so-close. I'd need to see about a 10% pullback in the other names to get really excited, though, and maybe actually a bit more with Thompson Creek. Of course, trying to really get a firm sense of fair value on these companies is almost fatuous - I just generally try to pay less than 7x forward EBITDA and pay attention to the underlying commodity charts (as well as the growth in emerging economies and general investor sentiment). After all, why waste my time trying to be precisely wrong instead of vaguely right?

So maybe I get lucky and get to add some quality materials names at attractive prices. Time will tell...