Northam Platinum shares get boost from JPMorgan upgrade

After gaining as much at 11.6% in early trade on Thursday, Northam Platinum added R2bn to its market cap after JPMorgan Chase upgraded the mid-tier platinum group metals (PGM) player to overweight from neutral and set a price target well above what it trades at now. 

The US bank said on Thursday signs of stabilising economic activity in China, which is SA’s largest trading partner and a major proxy of commodity markets, was a reason behind its optimistic outlook on Northam. 

Its shares jumped to as high as R125.75 before pulling back by the close to end the day 4.50% higher at R117.67, giving it a market valuation of R46.6bn.

The positive news initially spilt over into the broader PGM sector with Anglo American Platinum and Impala initially rising alongside Northam. The pair had, however, given back those gains by the end of the day as the resurgent dollar put pressure on commodity prices.

Before the release of the JPMorgan research note, PGM stocks showed signs of bottoming out after falling aggressively this year in line with metal prices, which are determined on international market based on supply and demand dynamics.

In this regard China, as a major commodity player, has underperformed relative to market expectations since lifting all Covid-19 curbs this year. But JPMorgan Chase said targeted policy support was already reflecting in high-frequency data like the official purchasing managers’ index that expanded for the first time in six months in September. 

“The near-term potential for further fiscal stimulus for additional infrastructure spend could provide near-term upside for broad metals demand,” JPMorgan said.

While some cling onto hopes that China call pull a rabbit out of the hat with its massive stimulus, others argue that the phenomenal growth rate seen over the past two decades may not be repeated.

While uncertainty lingers on the growth outlook in China, a strong dollar is a potential headwind to commodity prices and commodity-linked shares. In a stronger dollar environment, commodities become expensive for weaker currencies, thus hurting demand.

PGM prices remain depressed, with rhodium now fetching $4,400/oz versus near $30,000 in 2021. Platinum fell 2% to $867.50 in late trade on Thursday as the dollar strengthened after the release of the latest US inflation data.

Last week, Sibanye-Stillwater CEO Neal Froneman told Reuters the company may be forced to close some unprofitable shafts, potentially putting jobs on the line if the downward cycle in the PGMs industry persisted. 

“We certainly can’t run unprofitable shafts and I know that our cost structure is probably the lowest in the industry,” he said. “So, our loss-making shafts, of which we have a few, will have to be closed and I say this with all the sensitivities on potential job losses.”

Late in August, Northam sold its strategic stake in bigger rival Impala Platinum to bolster its balance sheet against the uncertain PGM market.

mahlangua@businesslive.co.za