FTSE 350: Gold outshone by PGMs

That title goes to rhodium, which like palladium was driven by hybrid car demand. The price of the metal has climbed a whopping 300 per cent in the past 12 months, from $2,485 (£1,893) an ounce (oz) to over $9,985 an oz, according to Johnson Matthey. It’s not easy to back individually, however, so investors will have to stick to platinum group metals (PGM) miners.

We’ve previously highlighted the gap between Anglo American’s (AAL) valuation in London and that of its subsidiary Anglo American Platinum (Amplats), which is listed in Johannesburg, based on the strength of PGMs. This has continued, with Amplats seeing a 15 per cent increase in its share price in the past three months against Anglo’s 9 per cent rise. In the first half of 2019, the PGM division contributed 15 per cent of Anglo’s cash profit. This is likely to climb again in the second half, based on full-year production numbers. Its 2019 PGM output was either flat or below 2018, but at recent prices this is not an issue. Delayed sales at the end of the year due to power outages have also become a positive. Thanks to palladium’s continued climb, the inventory build-up of 27,000 oz is worth another $16m (£12m) compared with the end of 2019, going by spot prices. 

Gold at $1,600 an oz is no slouch, though. Most gold mines are designed to make money between $1,200 (£923) and $1,300 an oz, and anything above that is added free cash flow. Since gold established a new range between $1,400 and $1,600 in 2019, the going is good for miners with established projects. There are exceptions to this, where companies have operational problems, such as Centamin (CEY), or have hedged a significant proportion of production at lower prices. The Egyptian miner was in the headlines in December and January due to Canadian company Endeavour Mining’s failed takeover attempt. What shareholders get out of the period is an almost doubled total dividend compared with 2018 and the knowledge that the board won’t be dislodged by an all-share offer. 

A more consistent operator is Russian miner Polymetal (POLY), which produced 1.6m oz of gold equivalent last year. This was driven by its new Kyzyl mine – greenlit with a feasibility study price of $1,200 an oz. Happily in 2019, Polymetal’s gold/silver mix swung more in favour of gold, owing to asset sales and a grade decline at the Dukat mine. Overall output climbed 3 per cent, but thanks to the higher gold price revenue was up 22 per cent to $2.2bn. This won’t completely flow through to cash profits, due to a stronger rouble and higher diesel prices in 2019, but Polymetal is doing well in a period earmarked for development. Production growth is forecast to begin again in 2022.