Nobody's talking about it, but Platinum excites me more than Gold right now!

by , 12 July 2016
Nobody's talking about it, but Platinum excites me more than Gold right now!
The gold price hit $1,354. It's the first time that it's above $1,300 since 2014! That's big news. And since the Brexit, all you hear is how investors are fleeing to the safety of gold.

But I'm much more excited about another precious metal right now.

I'm talking about platinum of course…

The platinum price started 2016 at $820/ounce. Today it's trading $280 higher at $1,100 per ounce.

At the current exchange rate platinum producers in South Africa receive 23% more per ounce of platinum than they did at the beginning of the year!
 
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The long-promised shortage of platinum will push the price even further

 
The platinum market is about to go into a deficit, with higher demand than supply.
 
Following the 2008 financial crisis, world platinum demand dropped and a number of platinum producers opened up new mines.
 
This sent platinum on a downward spiral.
 
But low platinum prices limited new production, and strikes in South Africa decimated the stockpiles that built up over the years.
 
Now, GFMS (a subsidiary of Thompson Reuters), released their annual Platinum Group Survey. In the report the GFMS states: The platinum market will return to a small deficit in 2016 and the deficit in palladium will deepen, with the chief determinant of lowered supply for platinum being a reduction in mined metal.
 
So there won’t be enough platinum produced in 2016 (including recycling from used platinum catalysts) to cover total demand. The shortage will be used from what remains of stockpiles.
 
At this stage there are a couple of platinum mines being built. Take Wesizwe for instance, the new mine the company is building banks on the platinum price rising to $1,500 by 2019.
 
If it doesn’t the mine probably won’t start producing if you ask me…
 
So, unless we see the platinum price rise, the shortage in the metal will continue growing and at some point the stocks which are making up for the shortage won’t be enough anymore…
 
  
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Two tiny platinum producers that’s peaked my interest

 
The risks of putting up a new platinum mine though is huge. It’s taken Wesizwe ten years since it’s listed and the company’s still building its mine. It’ll only be completed by 2019 and full production will only be in 2021.
 
That’s why I like low-risk opportunities. And I know about two companies that fit the bill.
 
Even though they are small companies they’ve managed to find platinum deposits which they can profit from, without the need of building huge mines.
 
In fact, with relatively small capital outlays both these companies can produce hundreds of millions in revenue.
 
Let me explain:
 

Tiny platinum producer #1: Jubilee Platinum

 
Jubilee is a tiny R600 million JSE listed company. It owns a niche technology called Conroast, which allows it to cost effectively process platinum.
 
Jubilee has recently started two projects that process chrome tailings from mines – extracting chrome and platinum from it.
 
The one project is called the Dilokong Tailings project. The company will process around 160,000 tonnes of material a year. From this it will extract chrome and platinum concentrates. The project already made R8.7 million profit for Jubilee in the first three months of operation. If it continues this trend it will make R35 million profit a year, putting Jubilee on a PE of 18.5.
 
   
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But then there’s project number two which will come online in December 2016. That’s the R200 million plant Jubilee built near the Hernic chrome dumps. The company will be able to produce 180,000 tonnes of chrome and 33,000 ounces of platinum from the project.
 
Based on this project size it could add double the profits of project one for Jubilee. This could put the company on a PE as low as 6.1!
 

Tiny platinum producer #2: Pan African Resources

 
Pan African Resources is better known as a gold producer with its high-grade Barberton mine, and the Evander gold mine.
 
What’s perhaps lesser known is the company also owns a platinum processing plant called Phoenix platinum. This operation can produce platinum at around $563/ounce. So there’s a massive profit margin in it to the company.
 
With the much higher than 2015 platinum price this operation could have a great 2016.
 
And there’s still the gold mining side of Pan Af that profits from the highest ever gold price in rand terms as well!
 
These are two small miners to keep an eye on. They are platinum producers with low cost operations and high cash flows. Exactly what you want from a mining operation.
 
Here’s to unleashing real value,
 

Francois Joubert,
Editor, Red Hot Penny Shares

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