Is The End-Of-Cycle Discount On Platinum Group Metals Justifiable?

The adoption of battery electric vehicles and investment in new technology may spur the metal price rally longer.

- David McKay

Asset manager Ninety One struck a positive note for locally listed platinum group metal (PGM) stocks in a recent report, saying they were under-bought on the basis that the introduction of battery electric vehicles (BEVs) does not immediately spell the end of the internal combustion engine.

Vehicles powered by internal combustion engines need PGMs in their autocatalysts whereas BEVs don’t. However, Ninety One’s portfolio managers, Unathi Loos and Daniel Sacks, think adoption of BEVs will be a gradual process. In addition, science is finding ways to accommodate PGMs in other ways, specifically, in hydrogen-powered fuel cells, which need PGMs to work.

It all adds up to the prolonged relevance of PGMs that, coupled with the short-term inability of PGM miners to meet demand expansion, asks questions of the current ‘end-of-the-cycle’ (fin de siècle) discount that Ninety One believes is being applied to PGM stocks.

“A re-rating of PGM shares is due, as metal prices remain ‘stronger for longer”, in our view,” said Loos and Sacks. PGM companies’ balance sheets and cash flow statements support increased dividends, and even buy-backs, they said.