Equities Market Commentary

Anglo American Platinum Recommendation: BUY

Target Price: R 1800.00
Initiating report
*Stock ratings are relative to the relevant country benchmark.
Positioned for the long term ¹Target price is for 12 months

09 December 2020
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 Initiating coverage: Buy, target price R1,800: We initiate coverage on Anglo American Platinum
(Amplats) with a Buy recommendation and target price of R1,800 (TR: 70%). Amplats represents a
defensive play on PGMs relative to peers, with modest low-cost growth prospects and long-life assets
favouring platinum. The balance sheet is expected to become materially cash flush within 12 months,
which should allow for special dividends and new growth opportunities. However, recent processing
disruptions place Amplat’s ability to sell metal at higher risk for FY21E.

 Opportunities and risks lie with two operations: Mogalakwena and Amandelbult dominate group
production at over 70%, although they are located at opposite ends of the company cost curve. In
addition, Amandelbult is three times more exposed to rhodium and 40% more exposed to platinum
than Mogalakwena. Amplats group revenue is most exposed to rhodium (40%), more so than Impala
(35%), assuming spot prices. We think rhodium could trend higher and we also think platinum will
become more in vogue in the long term. However, Amandelbult is mostly high cost, adopting labour-
intensive conventional mining practices, whereas Mogalakwena is low technical risk mechanised.
Hence, both mines are important, and both will, in our view, require more reinvestment. We find that
although Amplats has lower unit cash operating costs compared to Impala, the two companies have
very similar all-in costs due to higher capex intensity, and corporate and marketing costs. Capex
intensity is likely to rise, but cost culture is unlikely to change.

 Catalysts/risks: We expect sales to be ahead of guidance based on our estimates, by some 150 -
200koz 6E. However, unsold inventory will be sold in FY21E. Investors should also be aware that
issues at ACP will only have a temporary effect on supply, but nevertheless could impact prices
Share data
materially in the short term. Although ACP Phase A has been rebuilt, Phase B is scheduled for a large
rebuild that may take as long as 12 months. Hence, there will be no redundancy in place should Phase RIC AMSJ.J
A need to be shuttered, presenting material risk to production and supply. Any interruption to Phase
B is also likely to result in another force majeure, which impacts Amplats’ purchase of concentrate Sub industry Platinum & Precious Metals
(POC) and toll customers. We also expect capex to rise materially to about R9bn in FY21E.
Price (04 Dec 2020) R 1,192
 Peak earnings in FY21E: We expect FY20E sales of approximately 2.65moz vs guidance of 2.5moz Market cap. (R m) 315,880
on expectations of an early start on Phase A at ACP allowing for an additional month of refined
Enterprise value (R m) 319,501
production. We expect all-in costs (SBGS metric) to average R18,391/oz in FY20E (vs basket price
of R34,500/oz at spot prices), rising to R19,894/oz in FY21E (vs basket price of R38,000/oz Market cap. (USD m) 20,763
assuming spot prices). The increase in all-in costs is driven by higher capex and royalties. We estimate Enterprise value (USD m) 20,107
FY20E HEPS at R80/s, rising to R269 in FY21E. We are cautious on FY20E special dividends (R25/s Avg. daily trade value (USD m) 23
vs R50/s if it were not for the issues at ACP).
Free float (%) 14
 Valuation: We estimate Anglo Platinum could be worth R1,800 to R1,900/s using a DCF
methodology and our 12-month average outlook for prices. We expect that earnings delivery Price relative to FTSE/JSE All Share
following the recent rally in prices, increases in dividends and strengthening balance sheet could help 1600

re-rate the stock to at least 5x EV/EBITDA, yielding an upside valuation of about R2,000/s. 1400
1200
1000
800
600
400
12/19 3/20 6/20 9/20
Key forecasts Dec 17A Dec 18A Dec 19A Dec 20E Dec 21E Dec 22E
Average Rand/Dollar (x) 13.33 14.50 16.65 15.50 15.81 Price FTSE/JSE All Share (rebased)
Palladium price (USD/oz) 1,029 1,518 2,198 2,400 2,500
Platinum price (USD/oz) 871 861 876 1,000 1,000 Historical performance relative to FTSE/JSE All Share (%)
Rhodium price (USD/oz) 2,204 3,808 10,829 18,500 20,000 Performance over 1M 3M 12M
Diluted headline EPS (reported) 14.84 28.93 70.87 80.19 268.74 240.83 Absolute (%) 5.0 -3.4 -5.2
EBITDA (R m) 11,985 14,503 29,950 34,547 99,369 92,010
Relative (%) -2.6 -13.7 -13.7
EV/EBITDA 7.1 9.6 10.9 8.9 2.9 3.3 Source: FTSE/JSE All Share, SBG Securities Research
Net cash (debt) 9,019 2,891 17,278 10,123 57,244 84,336 The price relative chart measures performance against the
Free cash flow (8,133) 8,018 19,691 3,078 77,585 64,684 South Africa FTSE/JSE All Share which closed at 59419 on
04 Dec 2020
DPS - ordinary 343.64 11.25 27.60 32.08 107.50 96.33
Source: Company financials, SBG Securities estimates

Equities Research provided by SBG Securities (Pty) Limited

 9 December 2020

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