High rand price of PGM basket poses greater risk for investment

Investors likely to be tempted by the current prices, yet commodity producers are price takers and cannot be relied on to grow profits ahead of the market over long periodsIn 2018 mining shares were one of the few places to hide, offering the only double-digit returns in the FTSE/JSE Top 40 Index. Yet we have been reducing exposure to this sector, with mining shares now comprising less than 8% of the PSG Equity Fund, compared to 14% early in 2016.

To make provision for these risks, it’s important to focus on ensuring a sufficient margin of safety and to place increased emphasis on valuation. Since macro-economic data — and particularly future demand — is unpredictable, commodity prices can’t be accurately forecasted. Instead, we focus on understanding the long-term capital cycle for a commodity and what it suggests for the sustainability of prices, whether high or low.

Pro-cyclical capital allocation has tempered shareholder returns over the past decade-and-a-half — a period of booming commodity prices and rapid growth in demand from China. An assessment of Amplats’s management and their capital allocation decisions shows that they started taking steps to improve the quality of earnings and the balance sheet as far back as 2012. Though many of their decisions were unpopular at the time, they’ve steered the company away from exposure to narrow, steep and labour-intensive ore bodies towards higher-quality assets.

As most market participants focused on the unsupportive environment for platinum, they overlooked the favourable outlook for palladium. A deficit in palladium had resulted from insufficient primary production and wider global enforcement of stricter emissions standards, as its primary use is in light-duty petrol vehicles.

Business Business Latest News, Business Business Headlines

Similar News:You can also read news stories similar to this one that we have collected from other news sources.

BUSINESS MAVERICK: Erik Venter leaves Comair on a high and profitable noteDespite dismal trading conditions in SA’s airline industry, Comair has enjoyed an unbroken record of profit since its inception 73 years ago. The JSE-listed company, which operates low-cost brand kulula.com and British Airways under licence, has also consistently rewarded shareholders with dividends. The shocking resignation of its long-time CEO has left analysts wondering who can fill his big shoes.
Source: dailymaverick - 🏆 3. / 84 Read more »

High Court to hand out judgment in Vaal femicide case - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.The High Court will on Monday hand down judgment in the Vaal femicide case. 29-year old Lebohang Mofokeng is on trial for the murder of his ex-girlfriend.
Source: SABC News Online - 🏆 32. / 51 Read more »

Chances of Mabuza being deputy president again are very high: Analyst - SABC News - Breaking news, special reports, world, business, sport coverage of all South African current events. Africa's news leader.Political analyst Professor Leseba Tefo says chances of David Mabuza being the deputy president again are very high. is common sense. It does not stupid analyst President CR must choose Naledi Pando, she is a great candidate and is not implicated in state capture or corruption the odds are against him to choose Mabuza to neutralize camps within mokgahlo.
Source: SABC News Online - 🏆 32. / 51 Read more »