pitchbook us template - lbma · the lbma precious metals conference 28 september 2010 – p l a t i...

The LBMA Precious Metals Conference 28 September 2010

Session 5 – Michael Jansen 1

September 2010

P L A T I N U M G R O U P M E T A L S

The fundamental investment case

ST

RI

CT

LY

PR

IV

AT

EA

ND

CO

NF

ID

EN

TI

AL

P L A T I N U M W E E K A N D L B M A C O N F E R E N C E

H:\Jansen\Presentations\LBMA September 2010 PGMs.ppt

DISCLAIMER

This presentation was prepared exclusively for the benefit and internal use of the J.P. Morgan client to whom it is directly addressed and delivered (including

such client‟s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or

transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only

and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by J.P. Morgan. Neither this presentation nor

any of its contents may be disclosed or used for any other purpose without the prior written consent of J.P. Morgan.

The information in this presentation is based upon any management forecasts supplied to us and reflects prevailing conditions and our views as of this date, all

of which are accordingly subject to change. J.P. Morgan‟s opinions and estimates constitute J.P. Morgan‟s judgment and should be regarded as indicative,

preliminary and for illustrative purposes only. In preparing this presentation, we have relied upon and assumed, without independent verification, the accuracy

and completeness of all information available from public sources or which was provided to us by or on behalf of the Company or which was otherwise reviewed

by us. In addition, our analyses are not and do not purport to be appraisals of the assets, stock, or business of the Company or any other entity. J.P. Morgan

makes no representations as to the actual value which may be received in connection with a transaction nor the legal, tax or accounting effects of

consummating a transaction. Unless expressly contemplated hereby, the information in this presentation does not take into account the effects of a possible

transaction or transactions involving an actual or potential change of control, which may have significant valuation and other effects.

Notwithstanding anything herein to the contrary, the Company and each of its employees, representatives or other agents may disclose to any and all persons,

without limitation of any kind, the U.S. federal and state income tax treatment and the U.S. federal and state income tax structure of the transactions

contemplated hereby and all materials of any kind (including opinions or other tax analyses) that are provided to the Company relating to such tax treatment and

tax structure insofar as such treatment and/or structure relates to a U.S. federal or state income tax strategy provided to the Company by J.P. Morgan.

J.P. Morgan‟s policies prohibit employees from offering, directly or indirectly, a favorable research rating or specific price target, or offering to change a rating or

price target, to a subject company as consideration or inducement for the receipt of business or for compensation. J.P. Morgan also prohibits its research

analysts from being compensated for involvement in investment banking transactions except to the extent that such participation is intended to benefit investors.

IRS Circular 230 Disclosure: JPMorgan Chase & Co. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters

included herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing

or recommendation by anyone not affiliated with JPMorgan Chase & Co. of any of the matters addressed herein or for the purpose of avoiding U.S.

tax-related penalties.

J.P. Morgan is a marketing name for investment banking businesses of JPMorgan Chase & Co. and its subsidiaries worldwide. Securities, syndicated loan

arranging, financial advisory and other investment banking activities are performed by a combination of J.P. Morgan Securities Inc., J.P. Morgan plc,

J.P. Morgan Securities Ltd. and the appropriately licensed subsidiaries of JPMorgan Chase & Co. in Asia-Pacific, and lending, derivatives and other commercial

banking activities are performed by JPMorgan Chase Bank, N.A. J.P. Morgan deal team members may be employees of any of the foregoing entities.

This presentation does not constitute a commitment by any J.P. Morgan entity to underwrite, subscribe for or place any securities or to extend or arrange credit

or to provide any other services.

PL

AT

IN

UM

GR

OU

PM

ET

AL

S





Unlocking the Bullish Puzzle in Platinum Group Metals: what investors like about

PGMs

Mine Production

Consolidated, significant

country risk, greenfield

pipeline at risk

Above Ground

Stock –held in strong hands and

away from the

market

Substitutes –

broadly limited subs

in the short term

Liquidity

Big enough to put

on a decent position, big enough

to get out (with help)

Relative value – gold the zero

bound, palladium still

appearing cheap to platinum

Demand – Cyclically leveraged

to GDP, with strong EM bent

1PL

AT

IN

UM

GR

OU

PM

ET

AL

S



Investor behaviour; characterised by uncertainty but keen on yield, protection

Weak, and weakening economic growth coupled with excessive

labour and capital capacity overhang has encouraged investors

to be long fixed income generally.

Strong corporate profitability and sound corporate balance

sheets have favoured credit / high yield investments.

QE/CE and the prospect of further QE/CE coupled with “lower

for longer” views at global central banks basis

disinflation/deflation have encouraged demand for global

sovereign bonds. Supply side concerns (debt issuance levels)

have been offset by acceptance that central banks will be

buyers of last resort, along with EM countries managing

currency levels.

Uncertainty on how and when of exit strategies, and whether

disinflation / deflation will lead to hyperinflation have favoured

gold and PGMs. Volatility in asset markets has also

encouraged precious metals as asset / portfolio hedge.

Steep contango/excessive inventory in energy markets has hurt

energy-driven commodity indices

Currencies have stabilised. With G3 currencies offering little

“relative value” from interest rate differentials and EM currencies

still fixed (China reval a story more than a fact) has also helped

to stabilise currency markets.

Equity markets continue to lose market share of investment

spend to fixed income basis longer term performance concerns,

and uncertainties of earnings momentum.

-15 -10 -5 0 5 10 15

GSCI TR

Topix

S&P500

MSCI AC World

MSCI Europe

US cash

EM FX

MSCI EM

Europe Fixed Income

Global Gov Bonds

US Fixed Income

EM Local Bonds

US High Yield

US High Grade

EM $ Corp.

EMBIG

Gold

2PL

AT

IN

UM

GR

OU

PM

ET

AL

S





0

500

1000

1500

2000

2500

Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10

0

2000

4000

6000

8000

10000

Spot Platinum Spot Palladium Spot Rhodium (RHS)

Platinum, palladium and rhodium

Source: JPMorgan Commodity Research

PGM prices – benefiting from the gold lift, and their own fundamentals

3PL

AT

IN

UM

GR

OU

PM

ET

AL

S


H:\Jansen\Presentations\LBMA September 2010 PGMs.pptPGMs – not bad inflation hedges historically…the key though is how they would

perform with rampant, hyper-inflation

Three-year rolling real returns of key commodities (deflator is US CPI)

Source: J.P. Morgan, Datastream. Note: Real returns of commodities are calculated using US CPI as the benchmark. The percentage shows the number of times commodities have been a successful hedge against US CPI inflation

Name No of observations with

positive real returns

Total number of

observations

Percentage of

observations with positive

real returns

(%)

Platinum 107 138 77.5

Nickel 159 257 61.9

Oil 146 257 56.8

Aluminum 89 161 55.3

Palladium 127 233 54.5

S&P GSCI Commodity 140 257 54.5

S&P GSCI Industrial 140 257 54.5

S&P GSCI Agriculture 136 257 52.9

Copper 72 155 46.5

Gold 118 257 45.9

Silver 110 257 42.8

Zinc 79 211 37.4

4PL

AT

IN

UM

GR

OU

PM

ET

AL

S





Unconventional policy – inflation or default maybe the only repercussions

π f (output gap, πe) =

If investors do not expect the real value of government debt to be

backed by future primary

surpluses, then:

Expectations of default

GreeceExpectations of inflation due to

monetisation

Hyperinflation

Standard Phillps curve

What‟s the link to the central bank‟s

inflation objective? Can inflation

expectations be pushed up moderately

by an upward revision to inflation

targets

What‟s the link to

unconventional

monetary policy?

5PL

AT

IN

UM

GR

OU

PM

ET

AL

S



0.00

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

Ap

r-0

7

Ju

n-0

7

Au

g-0

7

Oct-

07

De

c-0

7

Fe

b-0

8

Ap

r-0

8

Ju

n-0

8

Au

g-0

8

Oct-

08

De

c-0

8

Fe

b-0

9

Ap

r-0

9

Ju

n-0

9

Au

g-0

9

Oct-

09

De

c-0

9

Fe

b-1

0

Ap

r-1

0

Ju

n-1

0

Au

g-1

0

ETFS Europe ZKB ETFS USA

Platinum oz in swiss / london vaults allocated to ETFs


Investor demand very strong: platinum ETF ounces under management now

~15% of 2010 anticipated mine supply

6PL

AT

IN

UM

GR

OU

PM

ET

AL

S





0.00

200,000.00

400,000.00

600,000.00

800,000.00

1,000,000.00

1,200,000.00

1,400,000.00

1,600,000.00

1,800,000.00

2,000,000.00

Ap

r-0

7

Ju

n-0

7

Au

g-0

7

Oct-

07

De

c-0

7

Fe

b-0

8

Ap

r-0

8

Ju

n-0

8

Au

g-0

8

Oct-

08

De

c-0

8

Fe

b-0

9

Ap

r-0

9

Ju

n-0

9

Au

g-0

9

Oct-

09

De

c-0

9

Fe

b-1

0

Ap

r-1

0

Ju

n-1

0

Au

g-1

0

ETFS Europe ZKB ETFS USA

Palladium oz in Swiss / London vaults allocated to ETFs


Investor demand very strong: palladium ETF ounces under management, now

~33% of 2010 mine supply

7PL

AT

IN

UM

GR

OU

PM

ET

AL

S



0%

20%

40%

60%

80%

100%

120%

Ja

n-0

8

Ma

r-0

8

Ma

y-0

8

Ju

l-0

8

Se

p-0

8

No

v-0

8

Ja

n-0

9

Ma

r-0

9

Ma

y-0

9

Ju

l-0

9

Se

p-0

9

No

v-0

9

Ja

n-1

0

Ma

r-1

0

Ma

y-1

0

Ju

l-1

0

Se

p-1

0

Platinum Palladium

Nymex physical platinum and palladium inventory as a percentage of speculative (i.e. non-commercial) length


NYMEX inventory is ~15% of the net non-commercial long in XPT, while 45% in

XPD (platinum inventories appear tight relative to current non-commercial length).

8PL

AT

IN

UM

GR

OU

PM

ET

AL

S






New car sales – millions of cars annualised per month, and annual percentage change

PGM Demand: slower growth in new car sales but volumes remain strong,

underpinned by Chinas rise to 16.9mio units year to August

0

10

20

30

40

50

60

70

80

Ja

n-0

6

Ap

r-0

6

Ju

l-0

6

Oct-

06

Ja

n-0

7

Ap

r-0

7

Ju

l-0

7

Oct-

07

Ja

n-0

8

Ap

r-0

8

Ju

l-0

8

Oct-

08

Ja

n-0

9

Ap

r-0

9

Ju

l-0

9

Oct-

09

Ja

n-1

0

Ap

r-1

0

Ju

l-1

0

-30%

-20%

-10%

0%

10%

20%

30%

40%Global Car Sales Annual % Change

China annualised car sales

9PL

AT

IN

UM

GR

OU

PM

ET

AL

S



China is already the world‟s largest car market…but still low per 1000 people

Passenger cars per 1000 people vs. adjusted per capita nominal GDP

Source: J.P. Morgan estimates, Eurostat, US Department of Energy.Note: China 2014 forecast from J.P. Morgan China Autos team. GDP per capita data is adjusted for inflation.

0

100

200

300

400

500

600

700

800

900

0 10000 20000 30000 40000 50000

US (1930-2007)

Germany (1995-2006)

Italy (1995-2006)

UK (1995-2006)

Japan (1970-2008)

South Korea (1970-2008)

India (2001-2008)

China (1991-2008)

US 2007

UK 2006

Japan 2008

China 2008

India 2008 (8)

GDP per capita (USD)

Passenger cars per 1000 population

Germany 2006

Italy 2006

Korea 2008

China 2014 E

10PL

AT

IN

UM

GR

OU

PM

ET

AL

S





Vehicles per thousand people: US (over time) compared to other selected countries (in 1996 and 2007)

Source: US Department of Energy, June 2009. Note: The graphs below show the number of motor vehicles per thousand people for various countries. The data for the U.S. are displayed in the line which goes from 1900 to 2007. The points labeled on that line show data for the other countries/regions around the world and how their vehicles per thousand

people compare to the U.S. at two different points in time, 1996 and 2007.

0

50

100

150

1900 1902 1904 1906 1908 1910 1912 1914 1916 1918 1920 1922 1924 1926 1928 1930 1932 1934

India 1996India 2007

China 1996Indonesia 1996 & 2007

Africa 1996 & 2007 China 2007

Asia 1996

Asia 2007

Middle East 1996

Brazil 1996

Middle East 2007Central & South America 1996

Central & South America 2007

Brazil 2007

US (line)

Eastern Europe 1996

Vehicles per 1000 people

Changes in vehicle per capita around the world (1900-1940)

China 2014E

11PL

AT

IN

UM

GR

OU

PM

ET

AL

S



786 803910

1,572

13361497

923

679

736

687

710

736

2006 2007 2008 2009 2010f 2011f

China Rest of the World

Platinum jewellery demand, in 000oz

Source: GFMS data and forecasts, JPMorgan Commodity Research

Platinum jewellery: reliant on China, now ~70% of total jewellery demand

12PL

AT

IN

UM

GR

OU

PM

ET

AL

S





0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

Ja

n-0

7

Ma

r-0

7

Ma

y-0

7

Ju

l-0

7

Se

p-0

7

No

v-0

7

Ja

n-0

8

Ma

r-0

8

Ma

y-0

8

Ju

l-0

8

Se

p-0

8

No

v-0

8

Ja

n-0

9

Ma

r-0

9

Ma

y-0

9

Ju

l-0

9

Se

p-0

9

No

v-0

9

Ja

n-1

0

Ma

r-1

0

Ma

y-1

0

Ju

l-1

0

Platinum Palladium

Annual running total of imports of PGMs into China (oz)


Leading to very strong demand for PGMs in China – imports of platinum rapidly

approaching 40% of global mine supply

13PL

AT

IN

UM

GR

OU

PM

ET

AL

S



Source: JPMorgan Commodity Research, Johnson Matthey, JPMorgan Equity Research

Platinum and palladium production (in 000oz) in Russia and South Africa combined – JPM forecasts on production

Total platinum and palladium production in the “big 2” – production to pick up

again in 2010-2014, but output growth constrained short term, esp for palladium

4440

4900

5400 5430

5680

5855

6005

6215

5985

5320 5315

5571

5918

6184

6438

6645

43704460

4710

4860

5020

5180

57405815

51305045

5327

5570

5710

585759665995

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Platinum Palladium Same production for palladium in Russia/SA in 2014

as in 2006, while platnum much stronger

14PL

AT

IN

UM

GR

OU

PM

ET

AL

S





3.00

3.50

4.00

4.50

5.00

5.50

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Anglo Platinum Head Grade (aggregate 4E grade grams per tonne milled)

Source: JPMorgan Commodity Research, GFMS

Anglo Platinum Head Grade: and as ~50% of SA production where AngloPlat

goes so does SA PGM grades

15PL

AT

IN

UM

GR

OU

PM

ET

AL

S



150,000

170,000

190,000

210,000

230,000

250,000

270,000

290,000

Ja

n-9

6

Ju

l-9

6

Ja

n-9

7

Ju

l-9

7

Ja

n-9

8

Ju

l-9

8

Ja

n-9

9

Ju

l-9

9

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

25,000

27,000

29,000

31,000

33,000

35,000

37,000

39,000

41,000

43,000

45,000

Russia

South Africa

Annual running total in nickel production, 000mt (note: SA’s UG2 reef has markedly lower base metal and precious metal by products than the previously extensively mined Merensky reef)

Source: WBMS, JPM Commodity Research

Nickel production gives „real-time‟ indication of PGM production

16PL

AT

IN

UM

GR

OU

PM

ET

AL

S





1,450

7,390

660

0

780

-30

560

Platinum (2009) Palladium (2009)

Inflow from state stocks

Market balance

Industry stock change

Starting Level (end 2008)

End stocks 2009 ~3.0mio oz

End stocks 2009 ~ 7.9mio oz

Platinum ETFs now 33% of

estimated vault inventory

Palladium ETFs now 22% of

estimated Vault inventory

Minimum total stock of platinum and palladium, including ETF material, Nymex stocks and transfers in from state stocks…note that these numbers are centralised vaulting stock numbers, and exclude private holdings, producer and

consumer inventory – data in 000oz

Source: GFMS, JPMorgan Commodity Strategy

Estimate of above ground stocks (incl. Zurich/London, Nymex, ETFs)

17PL

AT

IN

UM

GR

OU

PM

ET

AL

S



-3,000,000

-2,000,000

-1,000,000

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

Ja

n-9

8

Ju

l-9

8

Ja

n-9

9

Ju

l-9

9

Ja

n-0

0

Ju

l-0

0

Ja

n-0

1

Ju

l-0

1

Ja

n-0

2

Ju

l-0

2

Ja

n-0

3

Ju

l-0

3

Ja

n-0

4

Ju

l-0

4

Ja

n-0

5

Ju

l-0

5

Ja

n-0

6

Ju

l-0

6

Ja

n-0

7

Ju

l-0

7

Ja

n-0

8

Ju

l-0

8

Ja

n-0

9

Ju

l-0

9

Ja

n-1

0

Ju

l-1

0

Cumulative imports of platinum and palladium into Switzerland

Source: JPMorgan Commodity Strategy

Cumulative Imports of Palladium and Platinum into Switzerland – Vaulting Stock

being Steadily Eroded

18PL

AT

IN

UM

GR

OU

PM

ET

AL

S





Summary Points

Demand – bullish, underpinned by EM income related demand, limited substitution short term

Supply – although reserves are considerable, production is constrained, key country risk acute

Inventories – moving into ETFs, futures under-funded, state stock depletion, secondary volumes improving. Commercial

inventories still low. How much owned by HNW, retail?

Liquidity – enough to put on a position, inventories “tied up” – held in tight hands, market vulnerable to technical tightness

Relative value – bounded to the downside by gold

Implementation

Physical long

ETFs

long vs gold

Long v equity

Sector RV

19PL

AT

IN

UM

GR

OU

PM

ET

AL

S

Agenda

Page



20

Supplementary slides 20

PL

AT

IN

UM

GR

OU

PM

ET

AL

S





Demand = Macro, and in a nutshell…

Positive growth surprises in 2009H2 and 2010H1 largely reflected accommodative monetary policy, fiscal policy thrust and

inventory adjustment.

Fiscal thrust is evolving into fiscal drag

Global inventories are close to – or have – normalized

Headwinds to the expansion in developed markets remain – consumer deleveraging, record peace time fiscal deficits that will

– in due course – necessitate public sector delevering.

The main growth supports now are monetary policy (which could become even more stimulatory in the months ahead) and the

healthy state of corporate profitability and balance sheets (which to some extent reflect unit labour cost deflation, in turn partly

responsible for the extreme moderation in household sentiment in the US in particular over Q2)

Emerging markets remain the sweet(er) spot. While manufacturing globally is slowing, domestic demand in emerging markets

is holding very firm. At the same time there are strong signs emerging that China‟s growth deceleration in Q2-Q3 is coming to

an end, with inventory destocking likely explaining the weaker IP performance vis-à-vis final demand.

Globally the manufacturing sector is likely to slow towards trend over 2010H2 and 2011. GDP to be below trend in 2010H2

and back to trend in 2011.

We don‟t expect a “double dip” recession

Risks of inflation in the medium to longer term have „given way‟ to risks of further disinflation, deflation in the near term –

policy response is a massive offset to near term deflationary risk

Investors have been especially uncertain over the recovery. Allocations to equities have waned in favour of income oriented

strategies. “Alternatives” to equities and bond portfolios still seen as attractive. Carry strongly favoured

21SU

PP

LE

ME

NT

AR

YS

LI

DE

S



Key points on demand

Palladium is expected to see strong industrial demand from increased penetration of palladium in diesel catalysts, winning

market share from platinum. Total net autocat demand should be 35%-40% higher in 2012 vis-à-vis 2009 levels.

Palladium should also continue to displace platinum in gasoline based applications (although most „easy‟ substitution has been

effected already) given that palladium is roughly 50% as efficient yet the price is less than 30% of the platinum price.

Palladium dominates autocatalyst demand in the gasoline-based vehicle sector, where emerging market demand for

automobiles is more likely to be witnessed.

Chinese demand for platinum increasingly reflects jewellery and physical metal hoarding, although demand for platinum in

catalysts is similarly robust.

Chinese demand for palladium mostly reflects fabrication from the industrial sector (catalysts primarily) – China‟s appetite for

palladium jewellery continues to wane. Palladium-based jewellery continues to struggle for traction versus platinum.

Palladium‟s net demand growth from fabrication – primarily autocatalyst/particulate filters - will be somewhat offset by much

larger collection from secondary material in the future. This primarily reflects the significant loading of palladium into catalysts in

the US during the late 1990s. The pool of recoverable PGMs is much larger in palladium than platinum, as are above ground

stocks.

Platinum and palladium use continue to grows strongly in the chemical sectors, where demand should grow at near 10% or more

during 2010. Glass demand for platinum in 2010 especially should be robust.

Investor demand is seeing a significant transfer of ownership of in-vault and mined metal into the high net worth, pension fund

and hedge fund investor community. The rapidly increasing size of metal in ETFs is at risk of causing the platinum and

palladium markets to tighten appreciably.

22SU

PP

LE

ME

NT

AR

YS

LI

DE

S





Europe

47%

North

America

12%

Other

18%

Japan

13%

China

10%

Europe

9%

North

America

8%

Other

1%

Japan

12%

China

70%

Autocatalysts

40%Chemical

5%

Electronics

4%

Glass

2%

Retail

5%

Other industrial

6%Petroleum

3%

Jewellery

35%


Platinum Demand by Application (note TOTAL DEMAND EXCLUDES INVESTMENT ETF FLOWS)

Total = 6.479 moz


Autocatalyst Demand by Region

Jewellery Demand by Region

Total = 2.661moz

Total = 2.260moz

Platinum demand in 2009: overall demand down 14.3%, but jewellery the key

upside mover (+38.2% vis-à-vis 2008), ameliorating decline in catalysts of 28.2%


23SU

PP

LE

ME

NT

AR

YS

LI

DE

S



Europe

27%

North

America

22%

Other

15%

Japan

18%

China

18%

Europe

12%

North

America

12%

Other

12%

Japan

4%

China

60%

Autocatalysts

53%Dental

9%

Chemical

4%

Electronics

16%

Other

1%

Retail

2%

Jewellery

15%


Palladium Demand by Application (note TOTAL DEMAND EXCLUDES INVESTMENT ETF FLOWS)

Total = 7.522 moz


Autocatalyst Demand by Region

Jewellery Demand by Region

Total = 3.926moz

Total = 1.150moz

Palladium demand in 2009: down 10.6% with catalyst demand down 14%, rise of

ETFs not enough of an offset (even though up 126%)


24SU

PP

LE

ME

NT

AR

YS

LI

DE

S





5,5746,007

5,3294,737

4377 4150 41484491

48674408

3926

47975390

5837

(183) (230) (280) (341) -409 -494 -636 -754 -963 -1184 -1067 -1320-1692 -1935

5,391

5,777

5,049

4,396

3,9683,656

3,5123,737

3,904

3,224

2,859

39023698

3,477

(3,000)

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f

Demand Recovery TOTAL

Palladium demand by the autocatalyst industry, 000oz

Source: GFMS – data and forecasts, JPMorgan Commodity Research

Palladium catalyst demand: bullish outlook on substitution / EM vehicle demand

25SU

PP

LE

ME

NT

AR

YS

LI

DE

S



1,8382,053

2,4502,841

31493451

3758 3923 40683616

26612901

31893405

(520) -580 -650 -700 -736 -770 -802 -836 -921 -998-780 -896 -1010 -1103

1,3181,473

1,800

2,141

2,413

2,681

2,9563,087 3,147

2,618

1,881

23022,179

2,005

(2,000)

(1,000)

0

1,000

2,000

3,000

4,000

5,000

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010f 2011f 2012f

Demand Recovery Net demand

Platinum demand by the autocatalyst industry, 000oz

Source: GFMS – data and forecasts, JPMorgan Commodity Research

Platinum catalyst demand: less bullish outlook, substitution, lower mkt share in diesel

26SU

PP

LE

ME

NT

AR

YS

LI

DE

S





Vehicles per thousand people: US (over time) compared to other selected countries (in 1996 and 2007)

Source: US Department of Energy, June 2009. Note: The graphs below show the number of motor vehicles per thousand people for various countries. The data for the U.S. are displayed in the line which goes from 1900 to 2007. The points labeled on that line show data for the other countries/regions around the world and how their vehicles per thousand

people compare to the U.S. at two different points in time, 1996 and 2007. For instance, the graph shows that in 1996, Western Europe's vehicles per thousand people was about where the U.S. was in 1967, but by 2007 it is about where the U.S. was in 1972.

0

100

200

300

400

500

600

700

800

900

1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000

Eastern Europe 2007

Pacific 1996

Western Europe 1996

Pacific 2007 Canada 1996

Western Europe 2007

Canada 2007

US (line)

Vehicles per 1000 people

Changes in vehicle per capita around the world

27SU

PP

LE

ME

NT

AR

YS

LI

DE

S



Factors influencing production currently in SA

Ongoing safety related interruptions mean existing assets cannot operate at nameplate capacity .

Curtailed growth capex as a result of the 2008 metal prices collapse means that that down the track the

miners will not be able to respond as otherwise they might to growing demand.

– For adequate investment in capacity, average PGM+Au+BMs basket price of ~R350,000/kg is required over the

long-term (currently ~R295,000/kg).

– There are some projects proceeding, but many have been stopped. Juniors have failed to find funding.

– Current levels of investment will not support the creation of adequate supply to meet forecast demand.

Electricity supply. Eskom has fallen behind schedule with its base-load build and has been forced, due to its

funding crisis, to delay some build projects.

– Eskom might struggle to guarantee a supply to new mining projects.

– Miners can attempt to provide for “self-generation” but this comes at a high cost

Water supply. Under-investment in national infrastructure of cR80bn over the past decade or more may lead to

water supply issues in the future. Detail remains elusive but this issue has the potential, similar to power supply

issues, to constrain the pace of PGMs supply growth.

– Platinum mines in SA tend to be "dry" and large quantities of water must be purchased to conduct operations. In

our conversations with mining executives we have detected this issue to be as great a concern (if not greater)

than the supply of electricity.

Resource nationalism (political/regulatory/BEE)

– On 1 March 2010, the Royalty Bill came into force, placing further burden on miners.

– Ongoing nationalisation debate that Julius Malema (President of the ANC Youth League) has introduced and

COSATU has supported.

– Code of Good Practice, which might place a question mark over BEE transactions that were financed by debt in

terms of the "Mining Charter" ownership requirements.

– Mining Charter Review, to be released very soon

28SU

PP

LE

ME

NT

AR

YS

LI

DE

S





Flow of Material in and out of Switzerland

Source: JPMorgan Commodity Strategy

Rise of London as a clearing location taking metal out of Switzerland, while

Russian exports to Switzerland continue, just not as meaningful

2010 Year to July Metals Flow Palladium Platinum

Swiss Imports 958,994 798,337

- from Russia 488,017 0

- from Germany

- from UK 35,912 110,888

- from USA 14,661 200,653

- from South Africa 21,027 88,286

- from Japan 18,101 106,966

Swiss Exports 1,801,699 1,861,917

- to UK 1,211,957 976,163

- to China/HK 78,737 506,504

- to USA 67,870 51,634

- to South Africa 180,977 0

- to Japan 143,714 79,605

Net Trade (842,705) (1,063,581)

Net Exports to the UK (1,176,044) (865,274)

Notes:

Change to Swiss ETF Holdings (183,838) (229,863)

Change to UK ETF Holdings 698,939 530,373

Russian Exports of Palladium to Switzerland (oz)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

Jan-0

7

Apr-

07

Jul-07

Oct-

07

Jan-0

8

Apr-

08

Jul-08

Oct-

08

Jan-0

9

Apr-

09

Jul-09

Oct-

09

Jan-1

0

Apr-

10

Jul-10

29SU

PP

LE

ME

NT

AR

YS

LI

DE

S



Platinum Balance Sheet, in ‘000oz

PGM Balance Sheets with JPM Forecasts

Platinum (000oz) 2005JM 2006JM 2007JM 2008JM 2009JM 2010E 2011E 2012E 2013E 2014E

Total AngloPlat (SA) 2453 2817 2476 2230 2580 2496 2599 2683 2808 2960

Implats ex Zim & recycling 1427 1360 1474 1349 1119 1295 1442 1553 1612 1634

Northam 208 219 189 181 236 274 314 336 372 405

Total Lonmin 963 845 803 691 666 707 762 812 846 846

Other 64 54 128 64 -71 0 0 0 0 0

SA total 5115 5295 5070 4515 4530 4771 5118 5384 5638 5845

% change + 2.1 + 3.5 - 4.2 - 11.0 + 0.3 + 5.3 + 7.3 + 5.2 + 4.7 + 3.7

Russia 890 920 915 805 785 800 800 800 800 800

% change + 5.3 + 3.4 - 0.5 - 12.0 - 2.5 + 1.9 nil nil nil nil

North American mines 365 345 325 325 260 309 318 334 351 368

Other 123 104 120 115 115 115 115 115 115 115

Zimbabwe 147 166 170 180 233 285 322 355 386 422

Total Supply 6640 6830 6600 5940 5923 6281 6673 6988 7289 7550

% change + 2.3 + 2.9 - 3.4 - 10.0 - 0.3 + 6.0 + 6.2 + 4.7 + 4.3 + 3.6

Net jewellery 1965 1640 1455 1365 2445 2186 2321 2447 2523 2659

% change - 9.0 - 16.5 - 11.3 - 6.2 + 79.1 - 10.6 + 6.2 + 5.4 + 3.1 + 5.4

Net autocatalyst 3025 3045 3210 2525 1400 2113 2291 2459 2541 2554

% change + 8.0 + 0.7 + 5.4 - 21.3 - 44.6 + 50.9 + 8.5 + 7.3 + 3.3 + 0.5

Net industrial 1690 1830 1845 1715 1130 1443 1736 2039 2351 2723

% change + 10.1 + 8.3 + 0.8 - 7.0 - 34.1 + 27.7 + 20.3 + 17.5 + 15.3 + 15.8

Investment 15 -40 170 555 660 605 463 340 306 321

% change - 66.7 - 366.7 - 525.0 + 226.5 + 18.9 - 8.4 - 23.5 - 26.6 - 10.0 + 5.0

Total demand 6695 6475 6680 6160 5635 6347 6811 7285 7721 8257

% change + 2.4 - 3.3 + 3.2 - 7.8 - 8.5 + 12.6 + 7.3 + 6.9 + 6.0 + 6.9

Potential Surplus / (Shortfall) (55) 355 (80) (220) 288 (66) (139) (297) (431) (706)

30SU

PP

LE

ME

NT

AR

YS

LI

DE

S





Palladium Balance Sheet, in ‘000oz

PGM Balance Sheets with JPM Forecasts

Palladium (000oz) 2005JM 2006JM 2007JM 2008JM 2009JM 2010E 2011E 2012E 2013E 2014E

Total AngloPlat 1353 1552 1390 1319 1362 1376 1522 1567 1626 1704

Implats ex Zim & recycling 641 648 724 657 670 717 768 828 878 891

Northam 102 95 90 87 109 132 152 163 183 202

Total Lonmin 450 415 369 311 300 352 378 402 420 420

Other 58 65 193 57 -71 0 0 0 0 0

SA total 2605 2775 2765 2430 2370 2577 2820 2960 3107 3216

% change + 5.0 + 6.5 - 0.4 - 12.1 - 2.5 + 8.7 + 9.4 + 5.0 + 5.0 + 3.5

Russia 4620 3920 4540 3660 3635 2750 2750 2750 2750 2750

% change - 3.8 - 15.2 + 15.8 - 19.4 - 0.7 - 24.3 nil nil nil nil

North American mines 910 985 990 910 755 850 875 919 965 1013

Other 148 136 150 170 160 160 160 160 160 160

Zimbabwe 125 134 135 140 180 222 251 277 301 331

Total supply 8408 7950 8581 7310 7101 6559 6855 7065 7283 7470

% change - 2.0 - 5.4 + 7.9 - 14.8 - 2.9 - 7.6 + 4.5 + 3.1 + 3.1 + 2.6

Net autocatalyst 3240 3210 3530 3325 3085 3146 3485 3836 4167 4586

% change - 0.6 - 0.9 + 10.0 - 5.8 - 7.2 + 2.0 + 10.8 + 10.1 + 8.6 + 10.1

Dental 815 620 630 625 615 554 443 354 266 186

% change - 4.1 - 23.9 + 1.6 - 0.8 - 1.6 - 10.0 - 20.0 - 20.0 - 25.0 - 30.0

Electrical 970 1205 1235 1025 875 1006 1107 1190 1249 1281

% change + 5.4 + 24.2 + 2.5 - 17.0 - 14.6 + 15.0 + 10.0 + 7.5 + 5.0 + 2.5

Jewellery 1430 1005 715 855 745 708 725 744 762 781

% change + 53.8 - 29.7 - 28.9 + 19.6 - 12.9 - 5.0 + 2.5 + 2.5 + 2.5 + 2.5

Other 900 575 720 845 1020 1326 1095 942 839 635

% change + 50.0 - 36.1 + 25.2 + 17.4 + 20.7 + 30.0 - 17.4 - 14.0 - 11.0 - 24.2

Total demand 7355 6615 6830 6675 6340 6740 6855 7065 7283 7470

% change + 12.1 - 10.1 + 3.3 - 2.3 - 5.0 + 6.3 + 1.7 + 3.1 + 3.1 + 2.6

Primary production 6923 7250 7091 6350 6141 6559 6855 7065 7283 7470

Russian stock required 432 -635 -261 325 199 181 0 0 0 0

Surplus / (Shortfall) 1,053 1,335 1,751 635 761 (181) - - - -

Russian stock movement -1485 -700 -1490 -960 -960 0 0 0 0 0

Price ($/oz) 201 320 355 352 264 503 613 713 775 773

31SU

PP

LE

ME

NT

AR

YS

LI

DE

S

pitchbook us template - lbma · the lbma precious metals conference 28 september 2010 – p l a t i...

Documents