During the course of the last year, the price of platinum has slumped from around $1470 per ounce to just $977 per ounce. That’s a fall of a third in just twelve months and, perhaps more worrying for investors in the precious metal, is the fact that it is showing little sign of levelling off or of even mounting a comeback.
As such, the share prices of platinum producers have inevitably come under pressure. While costs may have been pegged back somewhat, very few (if any) companies have the scope to reduce costs so as to offset the fall in revenue that will have taken place and, while increasing supply is an option to mitigate the impact of a lower price per ounce, it is likely to exacerbate the fall in the price of the precious metal.
However, one platinum producer that has performed well is Jubilee Platinum (LSE: JLP). It has posted a share price rise of 236% in the last year and, since it sold off its Middelburg smelter and power operations in South Africa for £5.8m in mid-July, its shares have more than doubled. That’s at least partly because the sale will help to fund the company’s investment in its platinum surface operations which it hopes will commence operation during 2016.
And, with its shares having soared by as much as 16% today, Jubilee has released a statement to acknowledge the strong rise in its valuation. In fact, Jubilee has stated that it is in advanced talks with a major financial institution to secure the debt element of the project financing required to bring the two surface platinum processing plants into operation. The size of the debt element of the funding is £12.9m, with the remainder of the required funds set to be covered from the sale of Jubilee’s non-platinum operations (as mentioned). And, while there are no guarantees that the financing deal will be successfully concluded, it is nevertheless positive news for the company and its investors.
Clearly, the price of platinum is weak and could fall even lower. As such, it makes sense to pair up a platinum specialist such as Jubilee with a more diversified mining stock such as Anglo American (LSE: AAL).
That’s because Anglo American offers a superb yield of 6.8% and, with dividends set to be covered 1.35 times by rising profitability next year, now could be a great time to buy a slice of the company. Furthermore, Anglo American’s shares trade on a price to earnings (P/E) ratio of 13 and, with its bottom line set to rise by 19% next year, investor sentiment could improve dramatically.
Certainly, its share price has been hit extremely hard in the last year by weak commodity prices, with it falling by 50%. However, with Anglo American having a price to book (P/B) ratio of just 0.53, it remains dirt cheap.
Similarly, there is considerable scope for further rises in Jubilee’s share price. That’s because, despite its share price rise in the last year, it still trades well below net asset value, with the company’s P/B ratio being just 0.55. As such, and while it may lack diversity, size and scale, pairing it up with a mega-cap miner such as Anglo American seems to be a very sound idea.
