Stillwater: Mining for Platinum

04/01/2014 5:30 pm EST


Jim Jubak

Founder and Editor,

The labor turmoil in South Africa’s mining sector has resulted in a nearly ten-week strike at platinum producers' plants, however, MoneyShow's Jim Jubak sees that as good news for platinum producers operating outside of the area.

The nine-and-a-half week strike at South Africa’s largest producers of platinum and palladium has really, really started to bite.

Which is good news for companies that produce platinum outside South Africa, such as Stillwater Mining (SWC), which produces its platinum in Montana. (Stillwater is a member of my Jubak’s Picks portfolio.)

Today, Impala Platinum Holdings ((IMP:SJ) in Johannesburg and (IMPUY) in New York) said it may start to buy platinum on the open market to meet contracted deliveries. “We definitely can’t continue to supply all our clients as we normally would’ve done,” the company told Bloomberg. (Impala is the country’s second largest producer.) The company met all its deliveries in March, Impala told Bloomberg, but, for April, it will supply contracts with South African clients and then prioritize key international customers.

Impala’s Rustenburg mine, which accounted for 58% of output and the biggest mines of Anglo American Platinum ((AMS:SJ) in Johannesburg) and Lonmin ((LNMIY) in New York) have been closed by a strike by miners for higher wages since January 23. Anglo American Platinum, the largest South African producer, reported, on March 28, that it still had about 215,000 ounces of platinum in stockpiles. That’s about half the level stockpiled at the beginning of the strike.

Platinum has climbed about 4% from its February 4, 2014 low, as of the close on April 1. Mining company stocks typically show more price volatility than the underlying commodity, since earnings are leveraged to the price of the commodity. Stillwater Mining hasn’t disappointed on this measure—the stock is up 24.3% from its February 3 low, through the April 1 close.

Stillwater shares are likely to fall back in the short-term if this strike is settled. (The stock closed at $14.86 on April 1 and the 52-week high is $16.04. Keep that in mind if you’re a swing trader looking to take some profits.) Although, when it might be settled is a good question: The union has asked for a doubling of wages within three years (to $1,182 a month). The mining companies have offered pay increases of as much as 9%.

I don’t think the labor turmoil in South Africa’s mining sector will end whenever this strike is settled and likelihood of further strikes has led many companies in the South African mining sector to rethink the wisdom of investing capital to upgrade their mines, which isn’t good news for future production from the country’s aging mines.

As of April 1, I’m keeping Stillwater Mining in my Jubak’s Picks portfolio and raising my target price to $17 a share by August from the current $15 a share.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund, I liquidated all my individual stock holdings and put the money into the fund. The fund may or may not now own positions in any stock mentioned in this post. The fund did own shares of Stillwater Mining as of the end of December. For a full list of the stocks in the fund see the fund’s portfolio here.

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