sa platinumpg.jrj.com.cn/acc/res/cn_res/invest/2016/7/6/bf63d... · 7/6/2016 · in the jewellery...

Deutsche Bank Markets Research

Sub-Saharan Africa

South Africa

Platinum

Industry

SA Platinum

Date

6 July 2016

Forecast Change

3Q16 commodities quarterly: shares ahead of fundamentals

Shares back to where they were a year ago, but fundamentals are still soft

________________________________________________________________________________________________________________

Deutsche Securities (Pty) Ltd

Deutsche Bank does and seeks to do business with companies covered in its research reports. Thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. DISCLOSURES AND ANALYST CERTIFICATIONS ARE LOCATED IN APPENDIX 1. MCI (P) 057/04/2016.

Patrick Mann

Research Analyst

(+27) 11 775-7282

[email protected]

Anna Mulholland, CFA

Research Analyst

(+44) 20 754-18172

[email protected]

Key Changes

Company Target Price Rating

IMPJ.J 50.00 to 43.00(ZAR)

-

LONJ.J 23.00 to 20.00(ZAR)

-

NHMJ.J 35.00 to 41.00(ZAR)

-

RBPJ.J 42.00 to 40.00(ZAR)

-

AMSJ.J 430.00 to 410.00(ZAR)

-

LMI.L 105.00 to 106.00(GBP)

-

Source: Deutsche Bank

Companies Featured

Impala Platinum (IMPJ.J),ZAR52.41 Hold

Lonmin Plc (LONJ.J),ZAR42.32 Sell

Northam (NHMJ.J),ZAR46.76 Hold

RBPlat (RBPJ.J),ZAR50.50 Hold

Lonmin Plc (LMI.L),GBP221.25 Sell

Amplats (AMSJ.J),ZAR397.00 Buy


Platinum equities are expensive, in our view, trading at an average 1.2x NPV. The shares have doubled in 1H16, bringing them flat over 52-weeks. The Rand-basket has recovered from 2H15 lows and is +9% both year-to-date and over 52-weeks; but only a modest +16% over three years and producer margins remain under pressure. We prefer Amplats (Buy) as it can improve already positive FCF-margins through its disposal of Rustenburg & Union. Our least preferred is Lonmin (Sell); as the marginal producer in a well-supplied market. We forecast Rand-PGM prices to track the 90th percentile of the cost curve until 2021E when the lack of replacement capex impacts the supply base.

Revising the rand to 15.50 (16/USD) & 16/USD (17/USD) by end 2016 & ‘17 We have taken into account the recent revision of DBs forecasts, scaling back the rand’s weakening trajectory to R15.50/USD by year-end (from 16) and R16/USD (from 17) in 2017. Our Rand-Basket price is downgraded by single digit percentages until 2021E on the back of a weaker demand outlook, particularly for auto sales. Our USD-platinum price is forecast to increase from USD979/oz in 2016E to USD1,250/oz in 2020E and USD1,420/oz in 2021E.

Brexit: European autos, weaker Rand, platinum discount to gold remains Prior to Brexit, we thought that platinum could re-rate versus gold, clawing back some of the discount. However, the rising uncertainty may impact future European vehicle sales, and as a significant trading partner to South Africa, a weaker Euro may lead to a weaker Rand, both negatives for Platinum. Buying of gold as a relatively safe haven will keep some upward tension on platinum prices. Our view is that platinum prices may not fall that much from current levels, but the price discount between gold and platinum will remain stretched.

Demand drivers: 2016E global vehicle sales, China & ROW jewellery, industrial DBs auto team recently downgraded 2016E global vehicle sales forecasts by 130bps to 2.6%, mainly on cuts to US and European autos sales volumes post the Brexit vote. A plateau in US Auto sales looks likely and the potential for lower US Auto sales remains an overhang, particularly to palladium. We forecast modestly rising gross platinum demand with a CAGR of 1.6% to the end of the decade (+Indian jewellery demand; +autocat demand (heavy-duty diesel in particular); +Chinese industrial demand; -Chinese jewellery and -European autocats). Demand is flat net of Autocat recycling, however. We forecast modest deficits for platinum in 2016/17 of 284koz and 230koz, and a decent deficit in palladium (1.3Moz).

A potential primary supply crunch, but not until 2019 PGM supply “discipline” is being driven by necessity, and SA operations are monetizing developed reserves. We see a potential supply reduction in 2018/19, as producers will be forced to increase capex to maintain production but balance sheets may constrain their ability to do so. A wage strike could bring forward supply curtailment, but so far rhetoric is muted from unions.

DCF-based valuations. Sector risks include Rand and PGM price forecasts This note changes the price targets and forecasts (recommendations unchanged) for the SA-PGM producers, summarised on the front page and in Figure 10. In addition to Rand-PGM prices, we also increase Northam’s price target on revised Booysendal South valuation. Company specific risks and detailed changes to estimates are enclosed from page 39 onwards.

Distributed on: 07/06/2016 04:39:47GMT

6 July 2016

Platinum

SA Platinum


Table Of Contents

Executive Summary ............................................................................................ 3 Summary changes to Price Targets and Earnings .............................................. 5 Trading metrics under DBe and under spot prices ............................................. 6 Equity performance: time frame matters ............................................................ 8 Commodity price performance: 1H16 on par with 1H15 .................................... 9

Commodity section ........................................................... 10 PGM’s: The demand pull is just not strong enough… ...................................... 10 … and Brexit is unhelpful.................................................................................. 10 Platinum: Stretched by the Brexit bungee ........................................................ 11 Palladium: Not a lot is going right at the moment ............................................ 35 Rhodium: Nudging up the surplus .................................................................... 37

Company Pages................................................................. 39 Amplats ............................................................................................................ 39 Amplats: changes to estimates ........................................................................ 40 Impala ............................................................................................................... 43 Impala: changes to estimates ........................................................................... 44 Northam ........................................................................................................... 47 Northam: changes to estimates ........................................................................ 48 RBPlat ............................................................................................................... 51 RBPlat: changes to estimates ........................................................................... 52 Lonmin.............................................................................................................. 55 Lonmin: changes to estimates .......................................................................... 56

6 July 2016

Platinum

SA Platinum


Executive Summary

Shares above NPV, only Amplats & Northam sustainably FCF‘+ve FY16-18E

Platinum shares look expensive relative to our estimate of NPV (on our

estimate, 1.2x P:NPV). We are negative overall on the equities.

Amplats, Buy R410 PT, is our preferred. Amplats is cash-flow positive for 2016-

2018E under our forecast prices as well as spot prices. We further believe the

exit of Rustenburg and Union (modelled from 2017E) will be a significant

positive catalyst. Northam, Hold R41 PT, is also forecast by us to be free cash

flow positive over FY17E & FY18E. However, it is particularly richly valued, in

our view. Amplats and Northam are the only stocks on a positive NPV under

spot prices (DB estimate).

Lonmin, Sell R20 PT, is finding short-term support for its share price: it could

be free cash flow positive in FY17E (under DBe forecasts); and is in a net cash

position following its rights issue in late CY2015. However, we think FY17E will

be an unsustainable result, marking a brief respite before Lonmin begins

burning cash once more. Unit costs are being held flat and capex at low levels

for a couple of years as Lonmin monetises reserves, but capex needs to

increase to 20% of revenue by 2020E (FY16&17E 7%-8% revenue) to maintain

production. Any cash generation will thus be short-lived.

Platinum equities have on average returned +100% year-to-date, and caught

up to where they were a year ago

Rand PGM prices +9% year-to-date and +9% over 52weeks

The Rand-PGM basket is up 9% year-to-date and over 52 weeks.

Low-to-mid single digit downgrades to Rand-basket f/casts: marginal cost price

We expect the Rand-Basket price to track marginal costs of production in a

well-supplied/balanced market until 2021E. We do not believe the current price

is low enough to force closure of production as the producers are managing

the production base to be cash-flow positive, in our view, and most production

is marginally (0-10%) cash flow positive after SIB capex. The strategy of the

two significant high-cost producers, Impala Lease (develop new shafts and

lower real unit costs) and Lonmin (preserving cash through unsustainably low

capex) is likely to keep the top-end of the cost-curve relatively flat to 2019-20E.

The low capex spend only begins to impact the sustainability of the current

production base in 2019-2020E, on our forecasts, as until then new production

(mainly Impala’s new shafts) replaces declines at other mines.

Figure 5: Chg in annual prodn Figure 6: Net chg in annual prodn

Impala Lease ex-

16&20Lonmin Lonmin

Lonmin

Lonmin

A/lbult

BRPMUnion C&M

Union C&M

16-Shaft 16-Shaft

Mog debottleneck

StyldriftStyldrift

Lonmin projects Lonmin projects

-300

-200

-100

-

100

200

300

2016 2017 2018 2019 2020

Year-

on

-year

ch

an

ge i

n p

rod

ucti

on

(P

t ko

z)

-200

-150

-100

-50

-

50

100

150

200

2016 2017 2018 2019 2020

Net

ch

an

ge i

n a

nn

ual

pla

tin

um

pro

du

cti

on

(ko

z)

Net change if Union C&M

Net change

Net change w/o Lonmin, S/drift

Source: Deutsche Bank, Company Data


Figure 1: FCF-yield, DB prices

-10%

-5%

0%

5%

10%

15%

Amplats Impala Lonmin Northam RBPlat

Fre

e c

ash

flo

w y

ield

FY15a FY16e FY17e FY18e


Figure 2: FCF-yield, spot prices

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%



Source: Deutsche Bank, Company Data, DataStream

Figure 3: Avg Pt-equity vs. R-basket

45

55

65

75

85

95

105

Ind

ex

Average equities Rand-basket

Source: Deutsche Bank, DataStream

Figure 4: 16E margin incl.cash,SIB

Tw

o R

ivers

Mogala

kw

en

a

Kro

ond

al

Am

andelb

ult

Moto

tolo

BR

PM

Kro

ond

al

Zim

pla

ts

Unki

Modik

waB

ooys

end

al

Maru

la

Ruste

nburg

Marik

an

a

Zondere

ind

e

Mim

osa

Lease A

rea

Unio

n

-20%

-10%

0%

10%

20%

30%

40%

- 2,000 4,000 6,000 8,000

Cash

marg

in a

fter

cash

co

sts

an

d c

ap

ex

Cumulative production (4E koz) Source: Deutsche Bank, Company Data, DataStream

6 July 2016

Platinum

SA Platinum


Metal fundamentals: weak demand, awaiting lower primary supply

We forecast modestly rising gross platinum demand with a CAGR of 1.6% to

the end of the decade, but flat demand net of Autocat recycling volumes. This

continues to underpin our thesis that no new mined capacity is required for the

next five years. Factors taken into account include:

Falling European diesel vehicle sales and a technology shift in dealing with emission treatment. Some offset from increasing diesel sales in India.

We have downgraded 2016E global vehicle sales forecast by 130bps

to 2.6%, mainly on the back of cuts to our US and European autos

sales volumes, post the Brexit vote. Over and above the Brexit impact,

US Auto sales have been driven by cheap credit and discounting. A

plateau in US Auto sales looks likely and, whilst we do not forecast a

sharp decline, the potential for lower US Auto sales remains an

overhang, particularly to palladium.

Heavy duty diesel and light commercial vehicle platinum demand should provide a bit of a cushion to falling passenger demand.

In the Jewellery market, Indian growth could offset Chinese declines, a result of deteriorating demographics and lower marketing budgets

In the Industrial sector, Chinese silicone demand is a positive.

We forecast a 284koz deficit in platinum in FY16 (119koz excl. investment) and

230koz deficit in FY17 (140koz excl. investment). We forecast a 1.3Moz deficit

in palladium and the palladium:platinum ratio is well below the historical

average. Investor positioning reflects the headwinds in our view, and we think

there is good value in the metal below USD550/oz.

Figure 9: Revised PGM and Rand forecasts

2016e 2017e 2018e 2019e 2020e 2021e

Rand basket price (4E)* ZAR/oz 12,949 13,680 13,816 13,943 14,394 18,036

Previous 13,030 13,648 14,276 14,883 15,855 18,557

% change -0.6% 0.2% -3.2% -6.3% -9.2% -2.8%

Platinum US$/oz 979 1,003 1,050 1,200 1,250 1,420

Previous 939 890 1,030 1,250 1,390 1,450

% change 4.3% 12.6% 1.9% -4.0% -10.1% -2.1%

Palladium US$/oz 556 605 700 750 800 850

Previous 581 658 750 900 920 940

% change -4.3% -8.0% -6.7% -16.7% -13.0% -9.6%

Rhodium US$/oz 686 724 750 850 900 1,100

Previous 703 724 750 850 900 1,100

% change -2.4% 0.0% 0.0% 0.0% 0.0% 0.0%

Rand ZAR 15.51 15.77 14.92 13.41 13.21 14.75

Previous 15.93 16.77 15.38 13.36 13.11 14.63

% change -2.7% -6.0% -3.0% 0.4% 0.8% 0.8%

Source: Deutsche Bank, DataStream *(Based on simplified prill) of 60/30/8/2 Pt/Pd/Rh/Au)

Figure 7: +’ve gross, flat net demand

5,000

5,500

6,000

6,500

7,000

7,500

8,000

2015 2016F 2017F 2018F 2019F 2020F

Gross demand (excluding investment) Demand less autocat recycling

koz

Source: Deutsche Bank, SFA Oxford

Figure 8: Key demand drivers, Pt

7,424

8,052

319

210

11983

48-88

-63

7,000

7,100

7,200

7,300

7,400

7,500

7,600

7,700

7,800

7,900

8,000

8,100

8,200

8,300

2015 ROW Jewellery

ROW Autocats

China Autocats

China Industrial

Other China Jewellery

Europe Autocats

2020E

koz


6 July 2016

Platinum

SA Platinum


Summary changes to Price Targets and Earnings

Rec’s unchanged, price targets lower ex-NHM, downside of 19% on average

We have decreased our price targets for all the platinum stocks excluding

Northam (where we have increased our estimated value for the Booysendal

South project). We have an average price target downside of 19%; with

downside for all shares except Amplats, where we have a price target 5%

above current level. We anticipate Amplats and RBPlats to deliver positive

earnings in FY1E; and forecast Northam to report positive normalised earnings

(after stripping out the preference share related finance charges). We forecast

Impala and Lonmin to remain marginal over the next two fiscal years. RBPlat’s

earnings will be impacted by the timing of the ramp-up of its Styldrift project.

Figure 10: Summary changes to Recommendations, Price Targets, Earnings for SA PGM producers

Recommendation Target price Current

price PT vs.

current Year end

DB EPS

Current Previous Current Previous % chg FY0 A FY1 FY2 Prior FY1 Prior FY2

Amplats Buy Buy 410 430 -5% 390 5% Dec SAcps 41 1,592 2,518 1,825 2,717

Impala Hold Hold 43 50 -14% 52 -17% June SAcps 36 (167) (68) (199) (54)

Lonmin Sell Sell 20 23 -13% 41 -51% Sept UScps (16) (3) 5 (1) 1

Northam Hold Hold 41 35 +17% 47 -13% June SAcps 157 108 172 105 194

RBPlat Hold Hold 40 42 -5% 49 -19% Dec SAcps (83) 87 60 91 60


6 July 2016

Platinum

SA Platinum


Trading metrics under DBe and under spot prices

The Platinum producers are expensive based on DB forecast commodity and

currency forecasts, trading at 1.2x DB derived NPV. We are bearish overall on

the sector as a result.

Amplats, on a Buy recommendation, is our preferred stock, trading at a

discount to DB’s estimate of NPV. We forecast Amplats to deliver the highest

free cash flow yield over the next three years and see the disposal of

Rustenburg and Union (and potentially other non-core assets) as a meaningful

positive catalyst which will lead to a step-change improvement in

valuation/trading metrics in FY17E.

We have a “Sell” on Lonmin; as the marginal producer in a well-supplied

market. This is despite forecasting Lonmin to be free cash flow positive in

FY17E. We believe FY17E will be an unsustainable result from Lonmin,

flattered by monetising reserves and spending below sustainable levels on

capex. As Lonmin ramps-up capex and runs out of older areas to mine-out

post FY17E, it will return to the top of the cost-curve once again, in our view.

Figure 11: Trading metrics under Deutsche Bank forecast currencies and commodity prices

Fiscal

YE Share Price Rec. NPV

P / NPV

PE EV/EBITDA Free cash flow yield

Company FY15a FY16e FY17e FY18e FY15a FY16e FY17e FY18e FY15a FY16e FY17e FY18e

Amplats Dec 389 Buy 409 1.0 704 23 15 15 10 10 8 8 3% 4% 11% 4%

Impala Jun 47 Hold 43 1.1 218 n/a n/a 66 13 21 11 8 -3% -8% -3% 0%

Lonmin Sep 40 Sell 20 2.0 n/a n/a n/a 191 67 5 5 4 -2% -11% 4% -4%

Northam Jun 44 Hold 41 1.1 27 43 27 30 20 24 15 14 -5% -1% 2% 3%

RBPlat Dec 43 Hold 40 1.1 n/a 51 74 n/a 53 17 18 28 -21% -7% -12% -14%

Simple average 1.2 316 39 39 76 33 16 11 12 -6% -5% 0% -2%


Figure 12: Trading metrics under Spot currencies and commodity prices

Fiscal

YE Share Price Rec. NPV

P / NPV

PE EV/EBITDA Free cash flow yield

Company FY15a FY16e FY17e FY18e FY15a FY16e FY17e FY18e FY15a FY16e FY17e FY18e

Amplats Dec 389 Buy 16 24.4 704 32 20 20 10 12 10 9 3% 3% 10% 2%

Impala Jun 47 Hold -49 -1.0 218 n/a n/a n/a 13 21 16 14 -3% -8% -6% -7%

Lonmin Sep 40 Sell -74 -0.5 n/a n/a n/a n/a 67 6 9 6 -2% -11% -3% -7%

Northam Jun 44 Hold 19 2.3 27 43 22 26 20 24 12 13 -5% -1% 3% 3%

RBPlat Dec 43 Hold -7 -6.5 n/a 74 n/a n/a 53 20 26 43 -21% -8% -14% -16%

Simple average 3.7 316 50 21 23 33 17 15 17 -6% -5% -2% -5% Source: Deutsche Bank, Company Data, DataStream

6 July 2016

Platinum

SA Platinum


Figure 13: FCF-yield under DB forecast prices Figure 14: FCF-yield under spot prices and currencies

-10%

-5%

0%

5%

10%

15%


Fre

e c

ash

flo

w y

ield


-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%




Source: Deutsche Bank, Company reports, DataStream

On an EV/Sales basis, Amplats is the most expensive of the three largest

producers. However, much of its sales revenue comes from Mogalakwena and

processing and is profitable. Impala and Lonmin, while trading on lower

EV/Sales metrics, are higher cost and, in the case of Lonmin, exposed to one

high-cost/low-margin mine without any meaningful third party ounces to

process.

Figure 15: EV/sales (attrbl.

CY15&16E)

Figure 16: EV/4E oz prodn (CY2016E) Figure 17: Pt prodn CY15 & CY16E

1.9

1.0

0.5

4.1

3.4

1.7

0.9

0.5

3.4

3.0

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

AMS IMP LON RBP attrbl. NHM

EV

as a

mu

ltip

le o

f sale

s (

x)

EV / CY15 revenue (attributable) EV / CY16E revenue (attributable)

26

10

7

39

47

-

5

10

15

20

25

30

35

40

45

50


Ram

d /

4E

oz (

'000s)

MER UG2 Platreef MSZ

-

500

1,000

1,500

2,000

2,500

3,000


Pro

du

cti

on

(000 o

z P

t)

CY 2015 Production Pt (koz) CY 2016e Production Pt (koz)




Of the two smaller producers, RBPlat is the more expensive (has a higher

multiple) on an EV/Attributable Sales basis while Northam is more expensive

on an EV/Attributable Production basis. This is as RBPlat do not receive full

revenue for its production as it sells concentrate at a discount to spot. Both

Northam and RBPlat are fully valued on good organic growth prospects, in our

view, and the higher multiple relative to the three larger producers reflects this

growth potential.

6 July 2016

Platinum

SA Platinum


Equity performance: time frame matters

+80% to +120% year-to-date, but varying performance over 52 weeks

Year to date, the platinum shares are up 100% (simple average).

Figure 19: Share price changes for PGM producers over varying time periods

Current

price Average,

Ytd

Price changes

Equities Diff Ytd 52w 3 years 5 years

Simple average 25% 100% 0% -9% -43%

Amplats R / share 390 334 17% 110% 46% 34% -38%

Implats R / share 52 42 22% 106% 0% -45% -72%

Lonmin R / share 41 29 40% 121% -84% -92% -96%

Northam R / share 47 40 17% 78% 24% 48% 17%

RBPlat R / share 49 38 30% 85% 11% 9% -25%


However, over 52 weeks most share price changes are relatively benign.

Amplats is a relative outperformer and Lonmin a relative underperformer.

Figure 20: Year to date (1H16) share price performance Figure 21: 52w trailing share price performance

110%

106%

121%

78%

85%

0% 20% 40% 60% 80% 100% 120% 140%

Amplats

Implats

Lonmin SA

Northam

RBPlat

46%

0%

-84%

24%

11%

-100% -80% -60% -40% -20% 0% 20% 40% 60%

Amplats

Implats

Lonmin SA

Northam

RBPlat



The significant share price increases in 1H16 can be viewed as a bounce back

from low Rand-PGM prices in the second half of 2015.

Figure 22: Rand-basket price since 2015 Figure 23: Avg platinum equity vs. the Rand-basket price

1H15 average,

12,395

2H15 average,

11,344

1H16 average,

12,580

10,000

10,500

11,000

11,500

12,000

12,500

13,000

13,500

14,000

Sim

plifi

ed

Ran

d-b

asket

pri

ce,

(R/4

E o

un

ce)

Standard 4E, Rand 1H15 average 2H15 average 1H16 average

45

55

65

75

85

95

105

Ind

ex

Average equities Rand-basket



Figure 18: Stock price % of 52w

range

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Amplats Implats Lonmin SA Northam RBPlat


6 July 2016

Platinum

SA Platinum


Commodity price performance: 1H16 on par with 1H15

Rand-basket flat year-on-year, 2H15 was poor but long-term trend intact

The Rand-basket price is +9% year to date and +9% over a 52 week period.

Figure 24: Commodity price and FX changes over varying time periods

Metals, FX

Current price

Average, Ytd

Price changes

Diff YTD 52w 3 years 5 years

Rand-basket R / 4E oz 12,820 12,682 1% 9.0% 9.2% 15.9% 32.3%

Rand/USD R/USD 14.56 15.40 -5% -6% 19% 47% 116%

USD-basket USD / 4E oz 881 833 6% 16% -8% -21% -39%

Platinum USD USD/oz 1,039 961 8% 20% -4% -23% -39%

Palladium USD USD/oz 598 548 9% 8% -14% -12% -20%

Rhodium USD USD/oz 640 667 -4% 2% -33% -33% -67% Source: Deutsche Bank, DataStream

The year-to-date Rand-Basket price increase is attributable to a stronger USD-

metal basket. Over 52 weeks the inverse is true, the change in the Rand-Basket

price is a result of a significantly weaker Rand, tempered by lower USD-basket.

Figure 25: Year-to-date basket price changes by category Figure 26: 52 week basket price changes by category

9.0%

-6%

16%

20%

8%

2%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

Rand-b

asket

Rand/U

SD

US

D-b

asket

Pla

tinum

US

D

Palla

diu

m U

SD

Rhodiu

m U

SD

9.2%

18.9%

-8%

-4%

-14%

-33%-40.0%

-30.0%

-20.0%

-10.0%

0.0%

10.0%

20.0%R

and-b

asket

Rand/U

SD

US

D-b

asket

Pla

tinum

US

D

Palla

diu

m U

SD

Rhodiu

m U

SD



Over five years, the Rand-PGM basket is up c.30% owing to Rand-weakness.

Figure 27: 5 year Rand-basket price with trendline Figure 28: USD-basket and Rand-basket 5-year history

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

Ran

d-b

asket

pri

ce p

er

4E

ou

nce

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

6/29/2011 6/29/2012 6/29/2013 6/29/2014 6/29/2015 6/29/2016

Ran

d-b

asket

(R/4

E o

un

ce)

US

D-b

asket

(US

D/4

E

ou

nce)

USD-basket (LHS) Rand-basket (RHS)



The Rand-basket price is

calculated as 60% platinum,

30% palladium, 8% rhodium

and 2% gold.

This simplified prill represents,

in our view, a fair

representation of the industry-

wide basket price for

platinum-group metals miners

6 July 2016

Platinum

SA Platinum


Commodity section

PGM’s: The demand pull is just not strong enough…

… and Brexit is unhelpful

We retain our view that platinum fundamentals (especially the demand

side of the equation) are not strong enough to pull clear of the influence of

the South African Rand, and Gold. What’s changed post the Brexit vote?

Prior to the Brexit vote, we thought that the fundamentals were improving,

with robust European vehicle sales and increasing safety related stoppages

in the South African mining industry resulting in a modest deficit market

(pre any inventory changes to account for investor buying). We thought

that platinum could re-rate versus gold, possibly clawing back some of the

discount.

The Brexit vote has in our view limited any chance of a platinum rerating. Firstly, the rising uncertainty may impact future European vehicle sales, and as a significant trading partner to South Africa, a weaker Euro may lead to a weaker Rand, both negatives for Platinum. On the opposite end of the spectrum, buying of gold as a safe haven will keep some upward tension on platinum prices. Our view is that platinum prices may not fall that much from current levels, but the price discount between gold and platinum will certainly be stretched.

We expect the Rand-Basket price to continue to track marginal costs of production until 2021E; as we see the market as relatively well-supplied/balanced until then. We also believe the current price is not low enough to force closure of production. The producers are managing the production base to be cash-flow positive, in our view, and most production is marginally (0-10%) cash flow positive after SIB capex. We believe that unit cost increases at the top-end of the cost curve will remain below mining-inflation until 2019-2020, owing to the strategy of the two significant high-cost producers. Impala Lease which will continue to develop two new shafts and lower unit cash costs and Lonmin, which in our view is managing through unsustainably low capex.

On the face of it, palladium should be performing a lot better than it has year to date given the forecast deficit of 1.3Moz. However, there are a number of headwinds impacting the metal over the near to medium term. The latest of these headwinds is the Brexit vote where palladium’s exposure to Europe is nearly as high as platinum. A plateau in US Auto sales looks likely and, whilst we do not forecast a sharp decline, the potential for lower US Auto sales remains an overhang. China remains a key demand driver, and here too the spectre of an accelerated uptake of electric vehicles has dampened sentiment. Palladium is currently being considered as an industrial metal, and unlike silver where the gold : silver ratio is well above the average, the palladium : platinum ratio is well below the average. Investor positioning reflects these headwinds in our view, and we think there is good value in the metal below USD550/oz.

This is an extract from the

3Q16 Commodities Quarterly,

dated the 6th July 2016, by

Hsueh, Sporre et al.

6 July 2016

Platinum

SA Platinum


Platinum: Stretched by the Brexit bungee

We retain our view that platinum fundamentals (especially the demand side of the equation) are not strong enough to pull clear of the influence of the South African Rand, and Gold. What’s changed post the Brexit vote? Prior to the Brexit vote, we thought that the fundamentals were improving, with robust European vehicle sales and increasing safety related stoppages in the South African mining industry resulting in a modest deficit market (pre any inventory changes to account for investor buying). We thought that platinum could re-rate versus gold, possibly clawing back some of the discount, although certainly not achieving parity. The Brexit vote has introduced some downside risks to this world view. Firstly, the rising uncertainty may impact future European vehicle sales, and as a significant trading partner to South Africa, a weaker Euro may lead to a weaker Rand, both negatives for Platinum. On the opposite end of the bungee cord, buying of gold as a safe haven, will keep some upward tension on platinum prices. Our view is that platinum prices may not fall that much from current levels, the price discount between gold and platinum will certainly be stretched.

Over the last eighteen months, the sponge premium / discount to ingot has tracked the platinum price, with a slight lead. This has not always been the case however. But from the peak in November 2014, the sponge premium of USD6/oz reversed to a discount of USD2/oz in November 2015. Over roughly the same period, platinum prices fell 33%. Since the price low in November 2015, platinum prices rallied by 20%, with the sponge premium peaking at USD4/oz in April 2016. The sponge premium is now at USD1/oz, suggesting that industrial and autocat demand has tailed off recently.

Figure 29: Platinum and palladium sponge – ingot discount / premium

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

7

8

9

10

11

Platinum

Palladium

(+) Strong industrial demand/weak investment

(-) Weak industrial demand/strong investment

USD/oz

Source: Deutsche Bank, Mitsubishi Corporation

Platinum had started to re-rate versus gold from March, with the price

discount closing to c.USD200/oz. Post Brexit, the platinum discount widened

out to USD345/oz. Given our view that the market is likely to have a

heightened sense of risk over the next year and that platinum demand remains

lacklustre, we expect gold to continue outperforming, with the spread staying

in the USD300 – 350/oz range. That’s not to say platinum prices will

necessarily decline, simply that as gold appreciates platinum is likely to

underperform.

6 July 2016

Platinum

SA Platinum


Figure 30: Stretching the platinum discount post Brexit Figure 31: Forecast platinum to gold discount

-400

-350

-300

-250

-200

-150

-100

-50

0

50

Pt to Au premium / discount

USD/oz

-400.0

-350.0

-300.0

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

Q1 16 Q2 16 Q3 16E Q4 16E Q1 17E Q2 17E Q3 17E Q4 17E 2018E

USD/oz

Source: Deutsche Bank, Bloomberg Finance LP


Modest downside risks to the Rand post Brexit

The Brexit outcome has opened a multitude of downside risks for the domestic

South African economy. Exports and financial flows will be more directly

impacted, but it’s not immediately clear whether there will be any liquidation

of FDI or portfolio assets for that matter. But owing to our view of central bank

support, should mitigate the risks of contagion via the financial system. This

could be positive, rather than negative for the rand and local bonds.

The domestic economic downswing up to now was U-shaped. The domestic

economy has little resilience to withstand another shock, especially as

uncertain as this one. What is slightly concerning is that the global business

cycle is far advanced with global trade already quite weak. Lower global

growth and investment, a possibly stronger dollar and risk aversion could

impart further risks to the economy. There are still several ways in which these

events, as they unfold, could impact domestic confidence.

For now, we only briefly allude to the trade and financial channels of spillovers,

and their respective implications. As illustrated in the series of charts below,

while comparatively speaking, spillovers from the continental Europe via the

trade channel appear fairly small, the exposure to the UK via banking claims,

FDI and portfolio inflows is the highest among EMEA countries. This makes

South Africa asymmetrically less well-positioned against realization of any tail

risks from asset liquidation by UK corporates and investment funds.

Direct trade channel and growth implications:

For now, we trimmed our economic growth forecasts by 0.5% for 2017 to 0.5%. This is mostly via the export channel, with the EU and UK directly accounting for 0.3% points and the rest of the world 0.2% points. Overall, DB sees global growth 0.2% points lower for 2017, of 3.4%, though this is still up from 3% in 2016. Needless to say, the risks are tilted to the downside.

Direct financial linkages and the rand exchange rate:

Financial linkages between South Africa and the UK/EU are large. For now we would think that the global policy response to limiting the fallout from Brexit should reduce any likelihood of asset liquidation.

While the exchange rate may come under pressure in the short-term, our fx team sees limited implications of Brexit on the EUR/USD forecasts of 1.05 and 0.95 in 2016 and 2017 respectively. These levels are consistent

This is an extract from the

note entitled “Brexit

implications for the South

African economy and

equities”, dated the 24th June

2016, by Masia et al.

6 July 2016

Platinum

SA Platinum


with our initial forecasts of 15.50 and 16.0/USD for 2015 and 2016. For the sterling however, forecasts have been slashed from 1.35/USD end of 2016 to 1.15. Improving gold prices as well as lower oil prices, could at the margin, ensure that there is a positive terms of trade bias, so long as industrial commodities do not price in broader global macro slowdown.

The South African economy is going through a bad patch as the domestic profit recession is running its course. We retain our view that the business cycle is yet to trough, hopefully by year-end. However, weaker data could be enough to keep the SARB on hold for the rest of the year. Fortunately, in the process of economic rebalancing there may be some gains. Firstly, the year-to-date improvement in the trade deficit should continue as recessionary demand also weakens import appetite. Secondly, higher inflation, a weak rand exchange rate and lower import volumes are providing some additional revenue sources that could be sufficient to plug government revenue lost from weaker activity. Net net, we think the probability of a sub-investment downgrade outcome by S&P in December has fallen from above to in line with 50%. Improved deficits could gradually lead to the market pricing out credit risk altogether. We are therefore comfortable in scaling back the rand’s weakening trajectory to R15.50/USD by year-end (from 16.00) and R16.00/USD (from 17.00) in 2017.

6 July 2016

Platinum

SA Platinum


Exposure via the trade channel Exposure via banking claims

Bulgaria

Croatia

Czech

Hungary

Israel

Macedonia

Poland

Romania

RussiaSerbia

S.AfricaTurkey

Ukraine

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

0 2 4 6 8

% G

DP

% total exports

Exports to UK

Bulgaria

Croatia

CzechHungary

Israel

Macedonia

Poland

Romania

Russia

Serbia

S.AfricaTurkey

Ukraine

0

10

20

30

40

50

60

70

80

0 20 40 60 80 100

% G

DP

% total exports

Exports to EU ex-UK

Bulgaria

Croatia

CzechHungary

Israel

Macedonia

Poland

Romania

Russia

Serbia

S.AfricaTurkey

Ukraine

0

10

20

30

40

50

60

70

80

0 1 2 3 4 5

Exp

ort

s to

EU

ex-U

K (%

GD

P)

Exports to UK (% GDP)

High exposure to both UK and EU ex-UK

High exposure to EU ex-UK

CzechHungary

IsraelRussia

S.Africa

Turkey

0

5

10

15

20

25

0 10 20 30 40 50 60 70

% G

DP

% total

Foreign claims of British banks

Bulgaria

Croatia

Czech

Hungary

Israel

Macedonia

Poland

Romania

Russia

Serbia

S.Africa

TurkeyUkraine

0

20

40

60

80

100

120

0 20 40 60 80 100 120

% G

DP

% total

Foreign claims of European (ex-UK) banks

Bulgaria

Croatia

Czech

Hungary

Israel

Macedonia

Poland

Romania

Russia

Serbia

S.Africa

TurkeyUkraine

0

20

40

60

80

100

120

0 5 10 15 20 25

Fo

reig

n c

laim

of

Eu

rop

ean

(ex-

UK

) b

an

ks

(% G

DP

)

Foreign claims of UK banks (% GDP)

Large exposure to UK

Large exposure to Europe

Source: IMF, national sources, Deutsche Bank, Jan-16 data Only goods exports (no services

Source: BIS, national sources, Deutsche Bank, Q1-2015 data European banks: domestically owned banks of European countries, i.e. Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Turkey and UK

6 July 2016

Platinum

SA Platinum


Low demand growth: The negatives offset the positives. Even prior to the Brexit vote, we had forecast low single digit demand growth for platinum over the next five years. The near term trends seem to bear out our view, with positives offsetting the negatives in each of the main demand categories:

Although a declining diesel market share in Europe is being offset by robust sales it is insufficient to limit the slow decline of absolute diesel vehicle sales in Europe. Furthermore, tightening emission legislation is being met by alternative technologies, which do not necessarily need higher PGM loadings.

Falling diesel sales in absolute terms in Europe, is likely to be offset by increasing diesel sales in India. However, the loadings in India are still much lower than in Europe, and it is only post 2020, that India will compensate for Europe.

Heavy duty diesel and light commercial vehicle platinum demand should provide a bit of a cushion to falling passenger demand.

In the Jewellery market, Indian growth has the potential to offset Chinese declines

In the Industrial sector, Chinese silicone demand is a positive for Chemical sector. In the Petroleum sub sector, US capacity expansions should mitigate the decline in European and Japanese refining capacity declines.

As a result, we forecast modestly rising gross demand with a CAGR of 1.6% to the end of the decade, but flat demand once we net off the impact of rising Autocat recycling volumes. This continues to underpin our thesis that no new mined capacity is required for the next five years. The additional 600koz of platinum demand by the end of the decade is dependent on growth from China and the rest of the world. Growth in Indian jewellery demand and to a lesser extent in rising autocat demand should be augmented by further industrial demand from China, as well as additional autocat demand more specifically from the heavy duty diesel sector. These positive drivers offset falling demand from Chinese jewellery, a result of deteriorating demographics and tighter marketing budgets and European Autocats, where falling diesel vehicle sales and a technology shift in dealing with emission treatment weighs on demand.

Figure 32: Modestly rising gross demand, flat net

demand to the end of the decade

Figure 33: Highlighting the key demand drivers

5,000

5,500

6,000

6,500

7,000

7,500

8,000

2015 2016F 2017F 2018F 2019F 2020F

Gross demand (excluding investment) Demand less autocat recycling

koz

7,424

8,052

319

210

11983

48-88

-63

7,000

7,100

7,200

7,300

7,400

7,500

7,600

7,700

7,800

7,900

8,000

8,100

8,200

8,300

2015 ROW Jewellery

ROW Autocats

China Autocats

China Industrial

Other China Jewellery

Europe Autocats

2020E

koz

Source: Deutsche Bank, SFA Oxford Source: Deutsche Bank, SFA Oxford

6 July 2016

Platinum

SA Platinum


A metal – currency disconnect since May

Movements in the Rand and the platinum price have become inexorably

intertwined, with weakness in the Rand simply translating into weaker USD

metal prices. For most of 2014 and 2015, platinum prices have tended to lead

the Rand. Since the beginning of 2016, we note that the Rand has tended to

lead the metal, with a bit of disconnect in the trend since the beginning of May.

The combination of strong metal prices and a period of weakness in the Rand

was a boon for the South African miners, leading to a spike in the Rand basket

price close to ZAR15,000/oz. Subsequently, the Rand strengthened at the same

time as metal prices fell.

Figure 34: The currency leads for once Figure 35: Contrasting the USD basket price with the

Rand basket price

8

9

10

11

12

13

14

15

16

17

18600

700

800

900

1,000

1,100

1,200

1,300

1,400

1,500

1,600

Platinum price (USD/oz) - LHS Rand/USD inverse -RHS

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

600

800

1,000

1,200

1,400

1,600

USD (4PGE) Basket price - lhs Rand (4PGE) Basket price - rhs



PGM Rand basket prices traded around the marginal cost (90th percentile

including sustaining capex) in 2011, falling to the 90th percentile excluding

sustaining capex for most of 2012 and 2013. The 90th percentile was for our

purposes meaningless for most of 2014 due to the strikes at the start of the

year. The loss of output meant that fixed costs had to be covered by fewer

ounces. The marginal cost support level held for the first half of 2015, before

prices plummeted close to the 50th percentile, due to a combination of factors

including a sharp drop off in Chinese car sales, a general sell off in

commodities, the Diesel-gate scandal and the strong appreciation of the USD.

Bouts of Rand weakness has seen prices bounce between the 50th and 90th

percentile of the cost curve. A resurgent gold price in conjunction with a

weaker USD, a recovery in Chinese vehicle sales (post the sales tax cut), South

African supply disruptions and the abatement of the fall-out from Dieselgate

has seen the Rand basket price trade closer to the 90th percentile once more.

We think the platinum market will remain in a very slight deficit and therefore

the Rand basket price is likely to continue trading around the 90th percentile

for the next three years. The fact that the cost curve is relatively flat over the

next three years means that we expect platinum prices to stay relatively flat

over the next three years.

Brexit is not the only downgrade to demand

We have downgraded our 2016E global vehicle sales forecast by 130bps to

2.6%, mainly on the back of cuts to our US and European autos sales volumes,

post the Brexit vote. This is still an improvement over 2015, where we estimate

growth at around 1.5%. The downgrade to Auto sales volumes in turn drives a

downgrade to our PGM demand estimates across all three metals, with a

slower demand growth in Europe, being negative for platinum and rhodium,

6 July 2016

Platinum

SA Platinum


whilst a lower growth, and a decline in 2017, negative for palladium and

rhodium. Despite lower European and US sales estimates for 2017, our global

growth forecast stays above 2%, although absolute sales volumes are c.1

million units lower, than our previous estimates.

Recent market observations have concurrently reinforced our US Auto team’s

(Lache et al) concerns about the U.S. (e.g. We’ve already observed signs of

flattening retail demand; U.S. economic growth remains anaemic; We continue

to believe that vehicle affordability is poised to deteriorate as regulatory costs

rise, used vehicle prices fall, and credit terms no longer mitigate the impact; A

growing number of industry experts are underscoring the risk that the rise in

used vehicle supply will coincide with flattening subprime financing; they

continue to believe that trend demand may be significantly lower than

expected). They are adjusting our forecasts in the interest of conservatism:

For the U.S. they are adjusting our 2016 and 2017 light vehicle sales forecasts

to reflect modest declines: SAARs of 17.3MM and 17.0MM vs. our previous

estimates of 17.5MM and 17.5MM. Over and above the Brexit impact, US Auto

sales have been driven by cheap credit and discounting. The total amount of

Auto loans outstanding is now above USD1bn, and loan standards look to

have been tightening since the end of last year.

Figure 36: US Auto loans have continued to increase

steadily post the GFC

Figure 37: Lending standards have started to tighten up

post the dip early in 2015

0

5

10

15

20

25

0

200

400

600

800

1,000

1,200

Ja

n-0

0

Au

g-0

0

Mar-

01

Oct-

01

May-0

2

Dec-0

2

Jul-03

Fe

b-0

4

Se

p-0

4

Apr-

05

Nov-0

5

Ju

n-0

6

Ja

n-0

7

Au

g-0

7

Mar-

08

Oct-

08

May-0

9

Dec-0

9

Jul-10

Fe

b-1

1

Se

p-1

1

Apr-

12

Nov-1

2

Ju

n-1

3

Ja

n-1

4

Au

g-1

4

Mar-

15

Oct-

15

May-1

6

US Auto loans owned and securitized (USDbn) - lhs US DAAR (million) - RHS

-45

-40

-35

-30

-25

-20

-15

-10

-5

0

5

Apr-

11

Jun-1

1

Aug-1

1

Oct-

11

Dec-1

1

Feb-1

2

Ap

r-12

Jun-1

2

Aug-1

2

Oct-

12

Dec-1

2

Feb-1

3

Apr-

13

Jun-1

3

Aug-1

3

Oct-

13

Dec-1

3

Feb-1

4

Apr-

14

Jun-1

4

Au

g-1

4

Oct-

14

Dec-1

4

Feb-1

5

Apr-

15

Jun-1

5

Aug-1

5

Oct-

15

Dec-1

5

Feb-1

6

Apr-

16

US Auto sector bank lending survey (Increasing spreads of loan rates over cost)



In 2015, car registrations hit 2.6mn in the UK - the best year ever. The run rate

for the first 5 months on 2016 is basically unchanged with a SAAR of 2.7mn

units. On this basis, the UK market represented 20% of the Western European

car market (13.2mn units, EU15+EFTA) and 18% of the extended European

market (14.2mn units, EU27+EFTA).

The market is currently 25% above replacement demand (estimated at 2.1mn

units) and 10% above pre-crisis level (2.4mn units, average 1998-2007). UK is

the only European country which run rate is currently above both replacement

demand and pre crisis registrations.

6 July 2016

Platinum

SA Platinum


Figure 38: UK market trend (1970-2018e)

1,702

1,194

2,301

1,594

2,579

1,941

2634

2,100

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

e

20

18

e

Source: Deutsche Bank, LMC Automotive

Our European Auto team (Toulemonde / Rokossa et al.) believes that a Brexit

will have negative implications on the auto sector (mostly OEMs). For our

sensitivity analysis we have used current GBP/Euro (0.83) and assume that the

UK market, currently at a historical high will drop by 20% over the next 2

years.

The table below summarizes their market estimates by semester. They have

cut their 2016 estimates by only 2% (from 2,550k to 2,500k units) since they

were already very cautious for the rest of the year, but have cut their 2017

estimates by a more significant 12% estimates (from 2,500k to 2,200k units)

and by 14% our 2018 estimates (from 2,450k to 2,100k units). Thus, Brexit

could have a negative impact on UK car demand by 350k units, with the bulk

of the decline being in H2 16 (-14%) and H1 17 (-15%).

Figure 39: UK market trend by semester

(000 units) 2015 H1 16 H2 16 2016 H1 17 H2 17 2017 H1 18 H2 18 2018

UK Registrations 2,634 1,420 1,080 2,500 1,210 1,000 2,210 1,150 950 2,100

Variation (YoY) +6% +3% -14% -5% -15% -7% -12% -5% -5% -5% Source: Deutsche Bank LMC Automotive; ACEA

All else being equal, they have cut their European market estimates by 50k

units in 2016e, 300k units in 2017e and by 350k units in 2018e. As shown in

the table below, after a strong recovery in 2015-H1 (+17%), the European

market should barely increase during the next 2.5 years, a run rate of +1% p.a.

Figure 40: European Registrations (EU15+EFTA)

(000 units) 2015 H1 16 H2 16 2016 H1 17 H2 17 2017 H1 18 H2 18 2018

Previous estimates 13,201

7,460 6,450 13,910

7,600 6,700 14,300

7,700 6,800 14,500

Variation (YoY) +9% +8% +3% +5% +2% +4% +3% +1% +1% +1%

New estimates 13,201

7,460 6,400 13,860

7,420 6,580 14,000

7,500 6,650 14,150

Variation (YoY) +9% +8% +2% +5% -1% +3% +1% +1% +1% +1% Source: Deutsche Bank LMC; ACEA

6 July 2016

Platinum

SA Platinum


They also believe that Brexit will have implications on European truck demand

as the industry operates with thin margins and takes quite rational purchasing

decisions. Thus far Europe was the bright spot for OEMs with Brazil and the

US trading weak. We now believe this could change. However, our previous

European truck market forecast of 5% growth does appear quite conservative

vs. the latest run rate which remains unchanged; we take a more cautious

view on the pricing environment (hence, profitability) and also demand in

2017. The UK is ~13% of EUR + EFTA truck demand.

Figure 41: European truck forecasts

2013 2014 2015 2016E 2017E

EU27 & EFTA 293 269 313 328 325

% y/y -8% 16% 5% -1%

Source: Deutsche Bank, LMC Automotive

The US / North American truck situation remains challenging with May sales

down 16% year on year, more than the year to date slowdown of -11%. At the

same time inventory levels to sales ratios are at a cyclical peak in the US. We

forecast a 25koz or 15% decline in platinum demand for the North American

heavy duty diesel demand category.

Figure 42: North American HDD / Class 8 sales at a cyclical peak

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Jan

-01

Aug

-01

Mar-

02

Oct-

02

May-0

3

Dec-0

3

Jul-04

Fe

b-0

5

Sep

-05

Apr-

06

Nov-0

6

Jun

-07

Jan

-08

Aug

-08

Mar-

09

Oct-

09

May-1

0

Dec-1

0

Jul-11

Fe

b-1

2

Sep

-12

Apr-

13

Nov-1

3

Jun

-14

Jan

-15

Aug

-15

Mar-

16

North American Class 8 trucks sales (units) - LHS US Class 8 inventory to sales - RHS


We outline our new global forecasts in the table below:

6 July 2016

Platinum

SA Platinum


Figure 43: Global Automotive demand forecasts

(units '000) 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017eRegion

N. America 15,849 12,613 13,928 15,221 17,105 18,333 19,416 20,631 20,695 20,463

o/w USA 13,195 10,402 11,556 12,734 14,450 15,593 16,435 17,386 17,300 17,000

EU 28 16,771 15,914 15,305 15,245 13,968 13,777 14,602 15,981 16,842 17,100

Japan 5,082 4,609 4,956 4,210 5,370 5,375 5,562 5,046 4,960 4,960

China 8,768 12,988 17,240 18,002 19,205 21,875 23,629 24,810 26,720 27,820

India 1,747 2,065 2,714 2,933 3,193 2,929 2,931 3,118 3,490 3,980

Brazil + Argentina 3,309 3,554 3,959 4,246 4,449 4,494 3,979 3,100 2,880 2,970

Russia 2,916 1,469 1,879 2,646 2,938 2,777 2,492 1,603 1,360 1,430

ASEAN 1,816 1,639 2,231 2,346 3,208 3,255 2,890 2,670 2,640 2,770

S. Korea 1,215 1,447 1,556 1,580 1,542 1,539 1,622 1,790 1,790 1,750

Other 8,536 8,369 9,835 10,358 10,089 10,037 10,354 10,000 9,643 9,657

Global 66,009 64,668 73,603 76,787 81,067 84,391 87,477 88,749 91,020 92,900

YoY % 2008 2009 2010 2011 2012 2013 2014 2015 2016e 2017eRegion

N. America -16% -20% 10% 9% 12% 7% 6% 6% 0% -1%

o/w USA -18% -21% 11% 10% 13% 8% 5% 6% 0% -2%

EU 28 -8% -5% -4% 0% -8% -1% 6% 9% 5% 2%

Japan -5% -9% 8% -15% 28% 0% 3% -9% -2% 0%

China 9% 48% 33% 4% 7% 14% 8% 5% 8% 4%

India 2% 18% 31% 8% 9% -8% 0% 6% 12% 14%

Brazil + Argentina 13% 7% 11% 7% 5% 1% -11% -22% -7% 3%

Russia 12% -50% 28% 41% 11% -5% -10% -36% -15% 5%

ASEAN 13% -10% 36% 5% 37% 1% -11% -8% -1% 5%

S. Korea -4% 19% 8% 2% -2% 0% 5% 10% 0% -2%

Other -13% -2% 18% 5% -3% -1% 3% -3% -4% 0%

Global -6% -2% 14% 4% 6% 4% 4% 1% 3% 2% Source: Deutsche Bank, IHS, LMC Automotive

The combined impact of Brexit, aggressive PGM thrifting and the changing mix

in emission control systems, has lead to a sizable downgrade in our 2017/18

Autocat demand forecasts for the three PGM’s. Rhodium is subject to the

biggest downgrade, relative to its market size, not only because of the

combined regional hit, but also due to a shift in emission control technology

away from Lean NOx traps to Selective Catalytic Reduction technology.

Figure 44: PGM demand downgrades in the Autocat sector

-180

-160

-140

-120

-100

-80

-60

-40

-20

0

2016E 2017E 2018E

Platinum Palladium Rhodium

koz


6 July 2016

Platinum

SA Platinum


Global vehicle sales tracking in line with expectations so far… Prior to the Brexit shock, the global passenger vehicle market market is holding up relatively well, especially considering the mediocre economic backdrop. According to LMC Automotive, sales in the year‐to‐May were up by over 3%, with the overall selling rate averaging approximately 91 mn units/year The regions where weakness is evident are Brazil, Russia and Japan.

The Chinese market continues to be supported by a 5% reduction in tax for vehicles with engines of 1.6.L or less. While this has been helpful, we think that underlying demand is also robust. The incentive is set to expire at the end of this year, so in the absence of any signs of renewal, there may be a spike up in sales towards the end of the year.

The US market whilst remaining solid for now is looking increasingly fragile, although this is in part simply a return to re-crisis levels. However, incentives, are on the increase, and whilst these are not reaching dangerous levels, in our view, are unsustainable.

The majority of European markets remain in growth territory, especially in Western Europe. While there is some recovery left in Southern Europe, the UK and German markets may be close to their limits. Russian demand continues to be weak as the economic recession continues to drag on in light of the low oil prices. We are forecasting a recovery in oil, and this is likely to drive an improvement in sales. Similarly, in Brazil, the vehicle market is under severe pressure from a contracting economy. Brazil is in its worst recession in many decades and low commodity prices are playing a key role there too. We are less optimistic about the near term outlook for hard commodities such as iron ore, hence the recovery back to a peak sales volume of 3.5 mn units/year is probably some years off.

Global vehicle production globally is tracking closely with sales and there is little evidence of inventory accumulation in major markets – output is likely to rise by around 3% this year.

We outline our global Auto team’s forecasts with some commentary on the progress year to date.

6 July 2016

Platinum

SA Platinum


Figure 45: Tracking global Auto sales year to date

DB expectation Progress YTD

Region FY2016 FY2017 2016 Comments Impact on PGM's

China 8.2% 4.0% 7.8% Sales are tracking slightly below our full year forecast. However, SUV sales which account for 35% of total Chinese sales have

increased by a 45% YTD. Sedan sales accounted for 50% of total Chinese sales and are down by 6% YTD. The sale of commercial vehicles picked up in Q2 2016 with 5M sales in 2016 up by 2.3%

when compared to 5M 2015.

The improving sales mix is positive for platinum and palladium

US 0.7% 0.0% -2.0% Truck sales accounted for 58% of total vehicle sales in May, while cars accounted for the rest. So far this year, Trucks have

accounted for (57%-59%) of sales.

The shift to truck sales is positive for palladium demand

Europe 5.0% 2.0% 9.1% 5M cumulative Western European car sales(6.1M units) have grown by 9.1% , with robust sales from Italy (0.88M, up 21%),

Spain (0.5M, up 13%) and France (0.88M, up 11%). LCV cumulative sales for the first five months increased by 11% to

0.6m units when compared to same period of last year.

The market share of diesel cars in 2016 for Italy, Spain and France is

expected to be 53%, 64%, 63% respectively. The Diesel market

share is forecast to continue declining, which remains a

headwind for platinum demand.

Japan 0.0% -3.0% 1.4% Mini PV sales in May (4.96M, down 2% m-o-m) were hit by Nissan/Mitsubishi/Suzuki scandals and came in at SAAR 1.61M.

Non mini registrations were at SAAR of 3.35M, after a weaker end to FY3/16.

India 8.8% 11.0% 8.5% Indian PV sales grew by 6-7% y-o-y in May and have moderated in comparison to 11% growth in April. YTD growth for is at 8.5%,

less than FY17 growth forecast of 11%.

At present about 50% of Indian cars run on Diesel, however there is s risk that this may decline, as

Governments are becoming more stringent on emissions standards.

The fall in crude oil prices has narrowed the spread between

diesel and gasoline which is the key risk.

Brazil -20.0% 5.0% -26.6% Sales of cars, trucks and Light CV in May 2016 were at 167,500 units and down by 21% y-o-y. Sales for the first five months were

down by 27% (811k units) and production for first five months were down 24% (834k units)

Regional weakness which may only start improving next year

Russia -15.0% 5.0% -15.0% Russian auto sales in May (108k) units fell by 15% Y-o-Y and cumulative 5M sales (548k units)fell by 15% when compared to

5M of last year. Russian Auto production in Q1 2016 (0.25M) was down 25% Q-o-Q and expected to be around 0.3M in Q2 2016

(down 3% Q-o-Q).

Negative for palladium demand


Relying on Heavy Duty Diesel to offset demand decline from passenger vehicles Over the medium term, we forecast platinum demand in the Autocat sector to grow by a CAGR of 1.2%. However, within this demand category, there are two sets of opposing drivers; 1) Growing demand from the heavy duty diesel sector should help offset weak demand in the passenger vehicle sector. 2) Within the passenger vehicle sector, we forecast Indian growth to ultimately offset the declines in the more mature European market.

We forecast 2015 to be the peak in diesel car sales in Western Europe at 6.6 million units. Slowing vehicle sales growth and a slowly falling diesel market share should see sales volumes decline by 600k units by the end of the decade. The implementation of BS VI emissions legislation in 2020 is facing some concerns over the implementation cost and fuel availability. Despite these concerns we continue to forecast increasing platinum demand in India. The net demand growth from Europe and the ROW is forecast to be about 70koz.

6 July 2016

Platinum

SA Platinum


Figure 46: Falling diesel vehicle sales in Western Europe Figure 47: Total Autocat demand: Europe versus the

ROW

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

8.0

30

35

40

45

50

55

60

Diesel vehicles sold (million) - RHS Diesel market share % - LHS

0

500

1,000

1,500

2,000

2,500

3,000

Europe ROW

koz

Source: Deutsche Bank, LMC Automotive Source: Deutsche Bank

We are forecasting c.125koz of platinum demand growth in the heavy duty diesel segment with gains across all the regions by the end of the decade. The slight lull in demand in 2016E is due to weak sales and platinum demand in the US. The platinum demand upside in the HDD sector is significant. As an example, if China were to raise emission standards to those in Europe or the US, platinum loadings would have to triple, resulting in an additional c.280koz of platinum demand by 2020E.

Figure 48: Global HDD vehicle sales versus platinum

demand

Figure 49: Platinum demand market share in the HDD

segment

0

100

200

300

400

500

600

700

800

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

US W. Europe

Japan China

ROW Platinum demand koz - RHS

Units

Europe28%

US26%

Japan5%

China14%

ROW27%

Source: Deutsche Bank, LMC Automotive, SFA Oxford Source: Deutsche Bank, SFA Oxford

The weakness in Chinese Jewellery demand should be offset by rising Indian demand

The medium term outlook for jewellery demand, especially platinum jewellery

remains mixed in our view. The aging population and falling number of

marriages in China is a negative, whilst the rising middle class is a positive.

The increasing sophistication and digitalization of the luxury goods market

does add a level of complexity to the jewellery market in the medium term.

Jewellery, especially platinum gemset jewellery, does not lend itself to digital

shopping. In our view, the continued growth in jewellery demand depends on

an increasing marketing budget. In 2012/13, the PGI’s (Platinum Guild

International) budget was cut, with only the bridal market now being

supported in China. In the near term, Q1’16 marriage registrations fell by 4%

year on year. We expect Chinese gross jewellery platinum demand to decline

6 July 2016

Platinum

SA Platinum


by 3% in 2016 and 1% in 2017, although our forecasts are roughly flat to

2020E. The impact on net demand should be mitigated somewhat by lower

recycling, essentially a continuation of the trend from 2015.

Figure 50: Chinese Jewellery sales versus Marriage

registrations

Figure 51: Chinese platinum jewellery demand (gross)

14%

4% 2%

-10%

-4%

1%

0%

-8%-13%

-7%-2%

2%

-4%

-20%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

Q1/2

013

Q2/2

013

Q3/2

013

Q4/2

013

Q1/2

014

Q2/2

014

Q3/2

014

Q4/2

014

Q1/2

015

Q2/2

015

Q3/2

015

Q4/2

015

Q1/2

016

Marriage registration YoY% Jewellery retail sales YoY%

-20%

0%

20%

40%

60%

80%

100%

0

500

1,000

1,500

2,000

2,500

China Pt jewellery demand (gross) - LHS YoY change %

koz

Source: Ministry of Civil Affairs, WIND, Deutsche Bank

Source: Deutsche Bank, JMAT, SFA Oxford

In contrast to China, India’s demographics are far more favourable, with more people entering an age category where marriages are likely to increase. Furthermore, the PGI has a full market development programme in India. Campaigns such as the Platinum Day of Love and Evara have been aimed at the bridal market, which accounts for 60% of the Indian jewellery market. We forecast Indian demand to grow by 300koz to 2020E.

Figure 52: Jewellery recycling fell sharply in 2015 due to

the fall in prices

Figure 53: Indian and ROW platinum demand in jewellery

0

100

200

300

400

500

600

700

800

900

1000

-30%

-20%

-10%

0%

10%

20%

30%

40%

% price change YoY Jewellery Recycling

koz

0

100

200

300

400

500

600

700

2009 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E 2019E 2020E

Indian jewellery demand (koz) ROW jewellery demand (koz)


Source: Deutsche Bank, JMAT, SFA Oxford, PGI

As a rough indication of Chinese demand, which is mostly dominated by the

jewellery market, trading volumes on the Shanghai Gold exchange have tailed

off after a strong start to the year. Whilst cumulative volumes year to date are

still above the 2015 levels, they are tracking below 2012 – 2014 levels. More

encouragingly however, is the return to “normality” in our view, with trading

volumes far more sensitive to price volatility, and we note that volumes have

picked up as platinum prices corrected below the USD1,000/oz level.

6 July 2016

Platinum

SA Platinum


Figure 54: After a strong start, trading volumes have

started to taper off. (Cumulative Pt trading volumes on

the SGE)

Figure 55: Pt trading volumes have recovered in Q2’16,

but relative price strength has seen a lack of interest

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000

2012 2013 2014 2015 2016

kg

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

0

100

200

300

400

500

600

700

800

Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16

Volume traded ( 20 day moving average) Pt Price at LME (US$/oz)

kgUS$/Oz

Source: Deutsche Bank, SGE

Source: Deutsche Bank, SGE

Industrial demand multiplier to remain constant Industrial demand has grown at a 1.6x multiple of global GDP since 2009 if we remove the more volatile glass demand component from the calculation. We think it unlikely that this multiple will stay at this elevated level over the next five years, which we think will be closer to 0.7x. This equates to growth of 2.1% p.a. over the next five years (or 160koz over the next five years), which is better than overall platinum growth of 1.6%.

Figure 56: Industrial platinum demand growth versus

global GDP

Figure 57: Platinum demand by sector in the Industrial

sector

y = 4.3287x - 0.1029R² = 0.5044

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

-3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 5.0%

Industrial platinum demand growth %

Global GDP %

0

500

1,000

1,500

2,000

2,500

Chemical Electrical Petroleum Medical Glass Other

koz

Source: Deutsche Bank Source: Deutsche Bank, JMAT, SFA Oxford

Much of the growth in the Chemical segment will come from higher platinum requirements in silicone production in China and the Rest of the World, also helped by demand growth for greater usage in the nitric acid sector. The US is expected to jump by over 100koz over the next two years due to expansions in petroleum refining capacity. Post 2017, we expect demand to slow as Gas to Liquids capacity offsets the slower growth in refining capacity. The situation is the reverse in Western Europe and Japan, where Petroleum refining demand is expected to shrink this year, but post modest growth. Capacity cuts of 1.1Mb/d in Europe and a further 1Mb/d forecast to close in Japan over the next four years is equivalent to c.200koz of installed platinum catalyst capacity.

6 July 2016

Platinum

SA Platinum


Recycling volumes should rebound in 2016, along with scrap steel prices

Metal recycling volumes have fallen only three times on an annual basis since

1990. 2015 Autocat recycling volumes were down 5% in 2015, after the 23%

fall in platinum prices. The historical context is that platinum prices were down

18% in 2012, which led to a 9% fall in recycling volumes, and down 23% in

2009, which led to a 26% decline. Given the price move in 2015, the decline in

recycling volumes was relatively modest, although we would point out that the

move lower was less volatile. We forecast recycled platinum volumes to

rebound 14% in 2016E, as stocks held back in 2015 are released into the

market, especially as PGM prices and scrap steel prices have rebounded from

their lows earlier this year. The World Platinum Investment Council estimates

that Autocat recycling in Q1’16 was flat year on year, but up 27% on Q4’15.

We do note however that scrap prices have begun to fall over the past two

months. The scrap price in China looks to have stabilized and is still higher

than the lows in December last year.

Figure 58: Scrap steel prices (index to 100 Dec 2014)

have recovered since the lows last year

Figure 59: Autocat recycling volumes annual

40

50

60

70

80

90

100

110

Steel scrap shreded US fob East coast per tonne (USD/t)

Steel scrap shredded fob Rotterdam per tonne (USD/t)

Scrap / Heavy / China domestic Shanghai. Delivered mill Jiangsu (incl. 17% vat) (USD/t)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

Autocat recycling (koz) - lhs Dynamic recycling ratio -12Y (rhs)

Static recycling ratio (rhs)

Price and volatility induced fall in recycling

Source: Deutsche Bank, SBB, Bloomberg Finance LP


Relative value versus relative performance

Silver’s year to date out performance versus the other precious metals proves

that relative value does count…under the right circumstances. Silver had been

trading at the upper end of its trading range versus gold for much of 2015, and

well into 2016, peaking at 83x at the end of February before starting to rerate.

The current gold – silver ratio is at 72.5, which remains well above the long

term average of 61x. This suggests that silver could continue to rerate versus

gold, especially in a favourable environment for precious metals. The caveat

being that the US ISM stays above 50, and sentiment towards US growth

remains positive.

6 July 2016

Platinum

SA Platinum


Figure 60: Gold – silver ratio versus the US ISM Figure 61: Gold silver ratio since 1973

30

40

50

60

70

80

90

100

20

25

30

35

40

45

50

55

60

65

70

Jan-8

0

Apr-

81

Jul-82

Oct-

83

Jan-8

5

Apr-

86

Jul-87

Oct-

88

Jan-9

0

Apr-

91

Jul-92

Oct-

93

Jan-9

5

Apr-

96

Jul-97

Oct-

98

Jan-0

0

Apr-

01

Jul-02

Oct-

03

Jan-0

5

Apr-

06

Jul-07

Oct-

08

Jan-1

0

Apr-

11

Jul-12

Oct-

13

Jan-1

5

Apr-

16

US ISM Gold - Silver Ratio (RHS)

Launch of the first silver ETF

0.0

20.0

40.0

60.0

80.0

100.0

120.0

0

10

20

30

40

50

60

Mar-

73

Mar-

75

Mar-

77

Mar-

79

Mar-

81

Mar-

83

Mar-

85

Mar-

87

Mar-

89

Mar-

91

Mar-

93

Mar-

95

Mar-

97

Mar-

99

Mar-

01

Mar-

03

Mar-

05

Mar-

07

Mar-

09

Mar-

11

Mar-

13

Mar-

15

Silver price (US$/oz) - LHS Gold - Silver Ratio

Long term average 1983 - 2003

2003 - current

Hunt Brother's squeeze



The change in investor positioning is entirely congruent with the recent price

movements, with both gold and silver positioning being at record net longs on

the Comex. The extreme positioning does however raise the risks of sharp

reversals, dragging down prices in the near-term.

Figure 62: Non commercial net long positions on the

Comex Gold market


Comex Silver market

350

550

750

950

1150

1350

1550

1750

-60

-10

40

90

140

190

240

290

340

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Non-commercial net positions (lhs) Gold price (rhs)

Net Long

Net Short

K Contracts USD/oz

300

800

1300

1800

2300

2800

3300

3800

4300

-15

0

15

30

45

60

75

90

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Non-commercial net positions (lhs) Silver price (rhs)

Net Long

K Contracts

Net Short

USc/oz

Source: Deutsche Bank, Reuters, CFTC


The positioning in platinum and palladium especially is in stark contrast to gold

and silver. Platinum net longs are well off their record net long positions seen

in 2012, but remains well off the recent lows seen in 2015. This suggests that

sentiment remains luke-warm towards the metal, not out of kilter with our

assessment of the fundamentals. Palladium net longs are at an all time low,

which suggests that investor interest is positively cold. Given this level of

positioning, and considering how well prices have held up is a reflection of the

metals superior fundamentals. Given the nervousness around US Auto sales,

the positioning is understandable, but in our view looks anomalous versus the

other precious metals.

6 July 2016

Platinum

SA Platinum



Nymex Platinum market


Nymex Palladium market

400

800

1200

1600

2000

2400

-5

5

15

25

35

45

55

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Non-commercial net positions (lhs) Platinum price (rhs)

Net Long

Net Short

USD/ozK Contracts

100

300

500

700

900

1,100

-3,000

5,000

13,000

21,000

29,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Non-Commercial Net Positions (LHS) Palladium Price (RHS)

Net Long

Short

USD/ozK Contracts

Short

Net Short



When disaggregating the long and the short positioning, that long positions in

platinum have been far more stable, with rising and falling short positions

being more influential on the overall positioning. The propensity to short

platinum has increased over 2015. Long positions in palladium have been

falling since the middle of 2014, which suggests a structural repositioning, but

we note that the propensity to short palladium has increased since the middle

of 2015, at the same time as Chinese vehicle sales fell. Shorts have been

increasing of late, and will be very responsive to Chinese vehicle sales in our

view. Taking this reasoning a step further, should Electric vehicle sales and

penetration begin to surprise on the upside in China, we would expect this to

enhance investor propensity to short palladium.

Figure 66: Platinum speculative positioning on the

NYMEX

Figure 67: Palladium speculative positioning on the

NYMEX

0

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

0.5

1

1.5

2

2.5

3

3.5

Jan

-12

Mar-

12

May-1

2

Ju

l-1

2

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

May-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-1

6

Non-commercial long Non-commercial short Price $/oz (rhs)

moz

0

100

200

300

400

500

600

700

800

900

1,000

0

0.5

1

1.5

2

2.5

3

3.5

Jan

-12

Mar-

12

May-1

2

Ju

l-1

2

Sep

-12

No

v-1

2

Jan

-13

Mar-

13

May-1

3

Ju

l-1

3

Sep

-13

No

v-1

3

Jan

-14

Mar-

14

May-1

4

Ju

l-1

4

Sep

-14

No

v-1

4

Jan

-15

Mar-

15

May-1

5

Ju

l-1

5

Sep

-15

No

v-1

5

Jan

-16

Mar-

16

May-1

6

Non-commercial long Non-commercial short Price $/oz (rhs)

moz

Source: Deutsche Bank, CFTC, Bloomberg Finance LP

Source: Deutsche Bank, CFTC, Bloomberg Finance LP

There is also a marked difference between the ETF flows since the beginning

of the year. The total gold holdings in the combined ETF’s have increased by

33% or 15.65Moz. The silver ETF has caught up just recently and is up 6%, or

37.1 Moz since the beginning of the year. The main difference to note is that

silver ETF holdings have been very sticky, and that this move still puts silver

ETF holdings at record levels. In contrast, platinum and palladium ETF’s have

seen steady outflows of 50koz and 110koz respectively. This equates to a

decline of 2% and 6% of the total holdings respectively. The combination of

6 July 2016

Platinum

SA Platinum


ETF flows and positioning reinforces our view that the PGM’s are still being

viewed through an industrial lens, and with palladium investors particularly

there have been structural outflows with rising investor fatigue.

Figure 68: Total gold ETF holdings (tonnes) Figure 69: Total silver ETF holdings (tonnes)

600

800

1,000

1,200

1,400

1,600

1,800

2,000

0

400

800

1,200

1,600

2,000

2,400

2,800

2008 2009 2010 2011 2012 2013 2014 2015 2016

Total gold ETF holding (tonnes) Gold price (USD/oz, rhs)

0

10

20

30

40

50

60

0

5,000

10,000

15,000

20,000

25,000

2008 2009 2010 2011 2012 2013 2014 2015 2016

Total silver ETF holding (tonnes) Silver price (USD/oz, rhs)



Figure 70: Total platinum ETF holdings (tonnes) Figure 71: Total palladium ETF holdings (tonnes)

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2008 2009 2010 2011 2012 2013 2014 2015 2016

Total platinum ETF holding (Moz) Platinum Price (USD/oz) RHS

0

100

200

300

400

500

600

700

800

900

1,000

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2008 2009 2010 2011 2012 2013 2014 2015 2016

Total palladium ETF holdings (million oz)

Palladium Price (USD/oz) RHS



Rand-PGM prices: forecast changes We have made single-digit percentage changes to our Rand-PGM basket price forecasts over 2016E-2021E as we mark the second quarter to market as well as revise our USD-metal price expectations. The change in the Rand forecast changes our USD-PGM price forecasts as we view the basket-price to be determined in Rand (SA producers are the marginal producers, in our view).

6 July 2016

Platinum

SA Platinum


Figure 72: Revised PGM and Rand forecasts

2016e 2017e 2018e 2019e 2020e 2021e

Rand basket price (4E)* ZAR/oz 12,949 13,680 13,816 13,943 14,394 18,036

Previous 13,030 13,648 14,276 14,883 15,855 18,557

% change -0.6% 0.2% -3.2% -6.3% -9.2% -2.8%

Platinum US$/oz 979 1,003 1,050 1,200 1,250 1,420

Previous 939 890 1,030 1,250 1,390 1,450

% change 4.3% 12.6% 1.9% -4.0% -10.1% -2.1%

Palladium US$/oz 556 605 700 750 800 850

Previous 581 658 750 900 920 940

% change -4.3% -8.0% -6.7% -16.7% -13.0% -9.6%

Rhodium US$/oz 686 724 750 850 900 1,100

Previous 703 724 750 850 900 1,100

% change -2.4% 0.0% 0.0% 0.0% 0.0% 0.0%

Rand ZAR 15.51 15.77 14.92 13.41 13.21 14.75

Previous 15.93 16.77 15.38 13.36 13.11 14.63

% change -2.7% -6.0% -3.0% 0.4% 0.8% 0.8%

Source: Deutsche Bank, DataStream *(Based on simplified prill) of 60/30/8/2 Pt/Pd/Rh/Au)

We expect the Rand-Basket price to continue to track marginal costs of

production until 2021E; as we see the market as relatively well-

supplied/balanced until then.

We also believe the current price is not low enough to force closure of

production. The producers are managing the production base to be cash-flow

positive, in our view, and most production is cash flow positive after SIB

capex, although the majority of production (54% in 2016 on our estimates) has

a cash margin after cash costs and capex of 10% or below.

Figure 74: Price tracking marginal cost, which has

flattened and narrowed

Figure 75: 2016E margin curve at spot after cash-costs

and SIB capex

6,000

8,000

10,000

12,000

14,000

16,000

18,000

Rand basket (R/4 PGE oz) - rhs Marginal cost

Marginal cost (AISC) 50th cash

Tw

o R

ivers

Mogala

kw

en

a

Kro

ond

al

Am

andelb

ult

Moto

tolo

BR

PM

Kro

ond

al

Zim

pla

ts

Unki

Modik

waB

ooys

end

al

Maru

la

Ruste

nburg

Marik

an

a

Zondere

ind

e

Mim

osa

Lease A

rea

Unio

n

-20%

-10%

0%

10%

20%

30%

40%

- 2,000 4,000 6,000 8,000

Cash

marg

in a

fter

cash

co

sts

an

d c

ap

ex

Cumulative production (4E koz)

Source: Deutsche Bank, Company Data, Bloomberg Finance LP


Figure 73: Rand-basket: fcast & spot

6,000

7,000

8,000

9,000

10,000

11,000

12,000

13,000

14,000

15,000

1H16 Spot 2016e 2017e 2018e 2019e 2020e

Ran

d b

aske

t p

rice

(R

/4E

ou

nce

)


6 July 2016

Platinum

SA Platinum


Cost-curve dynamics: Lease Area unit costs increasing below mining-inflation

We believe that unit cost increases at the top-end of the cost curve will remain

below mining-inflation until 2019-2020, owing to the strategy of the two

significant high-cost producers (Impala Lease and Lonmin). The factors taken

into account are:

The Lease Area is increasing production from 575koz in FY15 to a targeted

830kozpa by FY2020.

Impala’s rights issue at the end of 2015 is intended to fund the ramp-

up of its two new shafts to achieve the targeted production increases.

Lonmin is spending significantly below sustaining capex levels as it mines

out reserves from areas in which it will not reinvest.

Lonmin’s rights issue has put it in a net cash position and its business

plan to maintain a lower level of production has flat unit costs and

unsustainably low capex until 2019.

Figure 77: Lonmin capex low until 2018-20E Figure 78: Lonmin costs flat as reserves monetised

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2015 2016e 2017e 2018e 2019e 2020e

Cap

ex (

Ran

ds m

illio

n)

6,000

7,000

8,000

9,000

10,000

11,000

12,000

2015 2016e 2017e 2018e 2019e 2020e

Cash

co

sts

of

pro

dcu

tio

n (

Ran

d/6

E P

GM

oz)



We believe Impala and Lonmin hold the top of the cost curve relatively flat

until 2019. However, at spot prices, we forecast a significant majority of

conventional mines cash negative after SIB from 2019. Modikwa (hybrid),

Rustenburg (hybrid) and Amandelbult (favourable prill splits) are the exception.

Figure 79: 2017E Cash+SIB capex margin curve - spot Figure 80: 2019E Cash+SIB capex margin curve - spot

Tw

o R

ivers

Mogala

kw

en

a

Am

andelb

ult

Moto

tolo

Kro

ond

al

Modik

wa

Moto

tolo

Zim

pla

ts

Kro

ond

al

BR

PM

Modik

wa

Unki

Ruste

nburg

Marik

an

a

Maru

la

Zondere

ind

e

Booys

end

al S

tyldrift

Mim

osa

Unio

n

Lease A

rea

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Cumulative 4E production

Mech/Open-pit Hybrid In ramp-up Conventional

Mogala

kw

en

a

Tw

o R

ivers

Zim

pla

ts

Unki Moto

tolo

Styld

riftK

roond

al

Am

andelb

ult

Moto

tolo

Modik

wa

Kro

ond

al

Ruste

nburg

Mim

osa

Booys

end

al

Modik

wa

BR

PM

Unio

nM

aru

la

Lease A

rea

Zondere

ind

e

Marik

an

a

-20%

-10%

0%

10%

20%

30%

40%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Cumulative 4E production (koz)




Figure 76: Low unit cost inflation at

Impala Lease area on higher prodn

-

5,000

10,000

15,000

20,000

25,000

30,000

FY13 FY14 FY15 FY16E FY17E FY18E FY19E FY20E

Co

st

per

pla

tin

um

ou

nce r

efi

ned

(R

/oz)


6 July 2016

Platinum

SA Platinum


Much of the industry is managing for the low price-environment by reducing

capital expenditure, in our view. This does not immediately impact production

but has a lagged impact. This low-capex strategy remains an option for the

industry as spot prices are above cash costs of production, in our view. This

can be seen in the cash only margin curves.

Figure 81: 2016E cash-cost only margin curve: spot Figure 82: 2019E cash-cost only margin curve: spot

Mogala

kw

en

a

Tw

o R

ivers

Kro

ond

al

Zim

pla

ts

Moto

tolo

Kro

ond

al

BR

PM

Am

andelb

ult

Unki

Marik

an

a

Zondere

ind

eM

odik

wa

Booys

end

al

Maru

la

Ruste

nburg

Modik

wa

Mim

osa

Styld

rift

Lease A

rea

Unio

n

-15%

-5%

5%

15%

25%

35%

45%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Cumulative production (koz 4E)


Mogala

kw

en

a

Tw

o R

ivers

Zim

pla

ts

Moto

tolo

Styld

riftK

roond

al

Moto

tolo

Unki

Mim

osa

Kro

ond

al

Am

andelb

ult

Modik

wa

Ruste

nburg

Booys

end

al

Modik

wa

Marik

an

a

BR

PM

Lease A

rea

Unio

n

Maru

laZ

ondere

ind

e

-10%

0%

10%

20%

30%

40%

50%

- 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Cumulative 4E production (koz)




Prices would have to decline to below cash costs of production for producers

to be strongly incentivised to cut production, in our view. We believe that

Amplats is currently restructuring Union mine (before planned sale) in order to

return it to a cash flow positive position.

Production evolution: new projects replacing depletion in the medium-term

Over 2016-2018E, we expect South African primary platinum production to

increase. Impala’s 16 and 20-shafts are the most significant additions to

production and are expected to add approximately 230-240kozpa by 2020. This

more than offsets current forecasts for production declines (mainly at Lonmin

Marikana and the other Impala Lease Area shafts) until 2019E.

Figure 83: Projects & mine declines: change in annual

platinum production

Figure 84: Net change in annual platinum production

Impala Lease ex-

16&20Lonmin Lonmin

Lonmin

Lonmin

A/lbult

BRPMUnion C&M

Union C&M

16-Shaft 16-Shaft

Mog debottleneck

StyldriftStyldrift

Lonmin projects Lonmin projects

-300

-200

-100

-

100

200

300

2016 2017 2018 2019 2020

Year-

on

-year

ch

an

ge i

n p

rod

ucti

on

(P

t ko

z)

-200

-150

-100

-50

-

50

100

150

200

2016 2017 2018 2019 2020

Net

ch

an

ge i

n a

nn

ual

pla

tin

um

pro

du

cti

on

(ko

z)

Net change if Union C&M

Net change

Net change w/o Lonmin, S/drift



We forecast net production declines from 2019 onwards if Lonmin’s

replacement projects and Styldrift (RBPlat) do not go ahead as planned. Net

production decline is deferred by one year to 2020 if Styldrift goes ahead as

6 July 2016

Platinum

SA Platinum


currently forecast (from 2018). 2020s net production decline is mainly from

Amandelbult’s Tumela upper section as it reaches the end of its life. A risk to

the upside for platinum production is that Amplats progress a production

replacement project at Amandelbult, as Amplats has previously suggested,

either through declines from surface or from Dishaba UG2.

There are platinum projects which we believe generate positive NPVs at

current spot prices which we believe are likely to go ahead, although most

likely to be replacement projects and not growth, given current low prices.

These include the Mogalakwena debottlenecking project, Mimosa expansion

and Kroondal tailings, among others.

Disruptions: the unpredictable variable which can have a significant impact

There have been numerous disruptions to South African production year-to-

date. These include:

Impala 14-Shaft fire (four fatalities), 1-Shaft fall of ground (two fatalities)

Lonmin safety stoppages related to fatalities at K3 and Rowland shafts.

Northam’s Zondereinde mine was closed after a two-week stoppage

related to violent incidents in the nearby town.

Figure 86: Supply disruptions, platinum ounces lost Figure 87: Source of supply disruptions 2006-2016ytd

165 160

300 218

125

307

710

152

1,423

218 179

0

200

400

600

800

1,000

1,200

1,400

1,600

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 e/ytd

Ou

ces,

000

s

Closures11%

Strikes52%Smelters

8%

Safety stoppages

16%

Eskom2% Geo & equip

failures11%



Fatalities are running at high levels year-to-date compared to recent history

and this is likely to cause production-losses as investigations are performed

and preventative training and other steps taken.

The platinum industry and unions are also due for wage negotiations as the

previous agreement expired 30 June 2016. The wages to be settled are in the

Rustenburg area, impacting Impala and Lonmin the most, while Amplats’

Rustenburg mines negotiations are likely to be closely watched by Sibanye as

the mines are in the process of being sold to Sibanye.

The previous wage negotiations were accompanied by an unprecedented five

month strike in 2014, although we note that the gold industry settled with

AMCU earlier this year with a strike called off at the last minute by AMCU.

Figure 85: Incentive price curve

Current basket

price

-

5,000

10,000

15,000

20,000

- 500 1,000 1,500 2,000 2,500 3,000 3,500

Req

uir

ed

basket

for

15

% I

RR

Ran

d p

er

4E

ou

nce (

R/4

Eo

z)

Cumulative production (platinum koz)


Figure 88: Platinum-mining fatalities

0

2

4

6

8

10

12

14

16

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Mine fatalities, South Africa

Cumulative

2012 2013 2014 2015 2016


6 July 2016

Platinum

SA Platinum


Platinum supply demand balance

Figure 89: Deutsche Bank platinum supply demand model

Platinum 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F

South African supply Koz 4,205 4,353 3,107 4,437 4,232 4,199 4,297 4,294 4,445

North American supply Koz 330 340 395 365 375 375 380 385 390

Russian production Koz 800 740 740 710 675 725 745 750 755

Zimbabw e Koz 365 402 390 404 451 449 449 450 450

Other Koz 110 200 225 200 205 210 215 220 225

Autocat recycling Koz 1,130 1,190 1,265 1,201 1,371 1,494 1,613 1,725 1,845

Total supply Koz 6,940 7,225 6,122 7,317 7,309 7,452 7,699 7,824 8,111

Supply growth % -10.1 4.1 -15.3 19.5 -0.1 2.0 3.3 1.6 3.7

Total demand Koz 7,090 7,795 7,186 7,684 7,593 7,682 7,812 7,946 8,162

Demand growth % -2.5 9.9 -7.8 6.9 -1.2 1.2 1.7 1.7 2.7

Autocatalyst Koz 3,190 3,180 3,245 3,419 3,431 3,463 3,503 3,556 3,625

Chemical Koz 505 585 585 600 603 619 633 648 664

Electrical Koz 180 170 185 155 157 160 162 164 166

Glass Koz 160 190 115 175 140 185 170 175 170

Investment Koz 455 945 160 260 165 90 90 100 110

Jew ellery Koz 1,920 2,080 2,215 2,365 2,400 2,448 2,470 2,522 2,634

Medical & Biomedical Koz 235 240 245 250 256 263 270 276 283

Petroleum Koz 180 170 155 160 135 150 190 175 175

Other Koz 265 235 280 300 305 305 325 330 335

Market balance Koz -150 -570 -1,063 -367 -284 -230 -113 -122 -51

Annual average price US$/oz 1397 1487 1386 1056 979 1003 1050 1200 1250

Market balance excl.

investment demand 305 375 -903 -107 -119 -140 -23 -22 59 Source: Deutsche Bank, SFA Oxford, JMAT

6 July 2016

Platinum

SA Platinum


Palladium: Not a lot is going right at the moment

More dependent on Europe than you would think On the face of it, palladium should be performing a lot better than it has year to date given the forecast deficit of 1.3Moz. However, there are a number of headwinds impacting the metal over the near to medium term. The latest of these headwinds is the Brexit vote which is likely to impact European vehicle demand as we outlined in the platinum section. The impact of these lower sales is over and above the impact from increased thrifting and a formulation change to meet a higher uptake of SCR autocats to meet real world driving conditions.

Figure 90: Regional platinum demand 2016E Figure 91: Regional palladium demand 2016E

Europe27%

Japan13%

North America13%

China28%

ROW19%

Europe20%

Japan12%

North America25%

China24%

ROW19%

Source: Deutsche Bank Source: Deutsche Bank

The US is currently the largest regional demand source for palladium with a quarter of global demand. Vehicle sales are in our view at a cyclical peak, and it is only through easier credit conditions that sales will continue to register further growth. Credit conditions in the US are already starting to tighten up, and in the absence of further stimulus (not impossible post Brexit), we would expect this to continue. Chinese vehicle sales have been robust year to date, with palladium imports up 42%. However, most of the pickup in demand was concentrated in January and February.

Figure 92: Federal Reserve US delinquency rates for

Commercial and Industrial Loans on the rise

Figure 93: Palladium imports into China

0

1

2

3

4

5

6

7

Mar-

87

Feb-8

8

Jan-8

9

Dec-8

9

Nov-9

0

Oct-

91

Sep-9

2

Aug-9

3

Jul-94

Jun-9

5

May-9

6

Apr-

97

Mar-

98

Feb-9

9

Jan-0

0

Dec-0

0

Nov-0

1

Oct-

02

Sep-0

3

Aug-0

4

Jul-05

Jun-0

6

May-0

7

Apr-

08

Mar-

09

Feb-1

0

Jan-1

1

Dec-1

1

Nov-1

2

Oct-

13

Sep-1

4

Aug-1

5

%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

Jun-0

9

Dec-

09

Jun-1

0

Dec-

10

Jun-1

1

Dec-

11

Jun-1

2

Dec-

12

Jun-1

3

Dec-

13

Jun-1

4

Dec-

14

Jun-1

5

Dec-

15

Palladium imports (kg) - rhs

Source: Deutsche Bank, Bloomberg Finance LP Source: Deutsche Bank, NBS

6 July 2016

Platinum

SA Platinum


The main demand driver for palladium until the end of the decade continues to

be Autocat demand. China and the Rest of the World autocat demand offsets

the demand contraction from Europe, North America and Japan. We outline

the other main driver for palladium demand, industrial demand, until the end of

the decade. Across all regions, we expect a decline demand in Industrial

applications, especially in Europe, Japan and the Rest of the World.

Figure 94: Medium term palladium autocat demand

growth by region

Figure 95: Medium term palladium demand drivers

7,730

486

347 -125

-63

-34 8,341

7,500

7,600

7,700

7,800

7,900

8,000

8,100

8,200

8,300

8,400

8,500

8,600

8,700

2015 China ROW Europe North America Japan 2020E

9,552

9,942

486

347 -125

-87

-79

-74-78

9,000

9,100

9,200

9,300

9,400

9,500

9,600

9,700

9,800

9,900

10,000

10,100

10,200

10,300

10,400

10,500

2015 China Autocats

ROW Autocats

Europe Autocats

ROW Industrial

Europe Industrial

Japan Industrial

Other 2020E

koz

Source: Deutsche Bank Source: SFA Oxford, Deutsche Bank

Whilst still up 5% year to date, Palladium has under-performed the precious metal complex, such that the Pt:Pd ratio is now back up at 1.8. However, unlike silver where the gold silver ratio was at the upper end of the historical range, we cannot make the same case for palladium. In the case of silver there was the case for a re-rating back towards a long term average in a favourable environment for gold and silver. In the case of palladium, the ratio continues to be well below the long run average of 2.63x.

Figure 96: Pt-Pd ratio Figure 97: Palladium supply demand balance

0.00

1.00

2.00

3.00

4.00

5.00

6.00

Oct-

93

Oct-

94

Oct-

95

Oct-

96

Oct-

97

Oct-

98

Oct-

99

Oct-

00

Oct-

01

Oct-

02

Oct-

03

Oct-

04

Oct-

05

Oct-

06

Oct-

07

Oct-

08

Oct-

09

Oct-

10

Oct-

11

Oct-

12

Oct-

13

Oct-

14

Oct-

15

0

300

600

900

1200

1500

-2,000

-1,500

-1,000

-500

0

500

1,000

1,500

2,000

2005 2007 2009 2011 2013 2015 2017F 2019F

US

$/o

zko

z

Market balance Annual average price

ForecastSurplus

Deficit

Source: Thomson Reuters Datastream, Deutsche Bank Source: Deutsche Bank, SFA Oxford, JMAT

6 July 2016

Platinum

SA Platinum


Figure 98: Palladium supply-demand balance

Palladium 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

South African supply koz 2,251 2,383 1,842 2,558 2,447 2,485 2,558 2,570 2,661 2,683 2,683

North American supply koz 895 928 1,055 1,038 1,015 1,008 1,001 994 988 981 975

Zimbabw e koz 265 331 315 327 353 353 353 354 354 354 354

Russian production koz 2,630 2,650 2,690 2,605 2,400 2,850 2,785 2,785 2,785 2,785 2,785

Russian stockdraw koz 260 250 0 0 0 0 0 0 0 0 0

Russian sales koz 2,890 2,900 2,690 2,605 2,400 2,850 2,785 2,785 2,785 2,785 2,785

Other mine koz 300 200 455 455 464 473 483 493 502 492 482

Secondary Supply 1,585 1,670 1,740 1,630 1,728 1,916 2,120 2,313 2,489 2,644 2,817

Total supply koz 8,186 8,412 8,097 8,612 8,406 9,085 9,300 9,508 9,779 9,939 10,097

Supply growth % -9.8 2.8 -3.7 6.4 -2.4 8.1 2.4 2.2 2.8 1.6 1.6

Total demand koz 9,480 9,443 9,910 9,062 9,566 9,501 9,608 9,727 9,810 9,934 10,028

Demand growth % 19.5 -0.4 5.0 -8.6 5.6 -0.7 1.1 1.2 0.9 1.3 0.9

Autocatalyst koz 6,835 7,223 7,505 7,730 7,887 7,903 8,057 8,209 8,341 8,483 8,592

Dental koz 530 460 425 470 435 420 408 395 380 371 362

Electronics koz 760 650 605 602 584 546 520 496 474 462 452

Chemical koz 530 510 490 510 560 525 520 516 513 510 508

Jew ellery koz 255 245 205 160 155 155 145 145 130 128 127

Investment koz 470 275 600 -490 -140 -138 -136 -134 -132 -130 -129

Other koz 100 80 80 80 85 90 95 100 105 110 115

Market balance koz -1,294 -1,031 -1,813 -450 -1,160 -416 -308 -219 -31 5 69

Annual average price US$/oz 644 726 803 692 556 605 700 750 800 850 813

Market balance without

investment demand koz -824 -756 -1,213 -940 -1,300 -554 -444 -353 -164 -125 -60 Source: Johnson Matthey, SFA oxford, Deutsche Bank

Rhodium: Nudging up the surplus

A rounding error for now The decline in Rhodium prices below USD700/oz means that the economic contribution to the miner’s revenue basket continues to decline. The switch to SCR technology from LNT’s, combined with a downgrade to global vehicle demand means that Autocat demand is forecast to decline by 28koz over the course of 2016E. We do however factor in an increase in demand of c.50koz by the end of the decade, driven in part by the implementation of RDE (a standard also known as Euro 6d), where we anticipate that Auto OEM’s will need to use both SCR and Lean NOx traps (high PGM and Rhodium loadings) in tandem. This is by no means certain, but LNT’s perform better under lower engine temperatures as encountered in urban driving while SCR performs better under higher engine temperatures such as motorway driving.

Figure 99: Rhodium short term demand drivers Figure 100: Rhodium medium demand drivers

1,0203 -28

995

900

920

940

960

980

1,000

1,020

1,040

2015 Industrial Auto 2016E

1,020

29

24 1,074

900

920

940

960

980

1,000

1,020

1,040

1,060

1,080

1,100

2015 Industrial Auto 2020E

Source: Deutsche Bank, SFA Oxford Source: Deutsche Bank, SFA Oxford

6 July 2016

Platinum

SA Platinum


Figure 101: Rhodium supply-demand balance

Rhodium 2012 2013 2014 2015 2016F 2017F 2018F 2019F 2020F 2021F 2022F

Tota l supply Koz 1,001 1,002 862 1,024 1,003 1,032 1,057 1,081 1,111 1,127 1,144

Supply growth % -4.0 0.0 -14.0 18.8 -2.0 2.9 2.4 2.3 2.8 1.5 1.4

South African supply koz 599 589 429 609 559 549 553 563 578 579 579

North American supply koz 35 35 30 30 30 30 30 30 30 30 30

Zimbabwe koz 30 31 37 35 39 39 39 39 39 39 39

Other koz 10 10 10 10 10 14 15 15 16 16 17

Russian sales koz 75 70 75 75 65 75 80 79 79 79 79

Secondary koz 252 267 280 265 300 325 340 355 370 385 400

Tota l demand Koz 958 1,045 1,005 1,030 1,005 1,017 1,040 1,062 1,084 1,106 1,125

Demand growth % 5.5 9.1 -3.8 2.5 -2.4 1.1 2.3 2.0 2.1 2.0 1.7

Autocat koz 782 820 830 855 827 828 846 863 880 897 911

Chemical koz 80 85 85 90 95 98 102 105 109 112 116

Electrical koz 5 5 5 5 5 10 10 8 8 6 5

Glass koz 25 35 30 25 20 21 23 24 26 28 30

Investment koz 36 60 10 10 10 10 10 10 10 10 10

Other koz 30 40 45 45 48 49 50 51 52 53 54

Market ba lance Koz 43 -44 -143 -7 -2 15 16 19 27 21 18

Annua l average pr ice

(USD/oz, US$/oz 1,274 1,067 1,172 953 686 724 750 850 900 1,100 1,353 Source: Johnson Matthey, SFA oxford, Deutsche Bank

Grant Sporre, (44) 20 7547 3943

[email protected]

Patrick Mann, (27) 11 775 7282

[email protected]

6 July 2016

Platinum

SA Platinum


Company Pages

Amplats

Outlook

Amplats will undergo a fundamental change when it disposes of Rustenburg

(sale to Sibanye pending) and Union and retaining processing agreements. The

"new" Amplats will generate returns in excess of its cost of capital from 2017,

in our view, for the first time in 8 years, as it attacks poor returns on both the

numerator (by structurally increasing margins) and the denominator (lowering

capital intensity).

Amplats' revenue will be split fairly equally between Mining and Purchases. Its

retained mines are set to dominate the bottom half of the South African PGM

cost-curve and Mining is likely to face lower cost-inflation than before.

In this challenging commodity price environment, Amplats' broad asset base

gives it more flexibility around mining options; its sunk capital in processing

facilities (a significant "moat" in platinum production) allow it to earn low-risk,

high-return processing earnings through its Purchases business.

Its defensive qualities are largely attributable to 1) the flagship open-cast

Mogalakwena mine on the Northern Limb of South Africa's Bushveld Complex

(a key asset firmly entrenched at the lower end of the cost-curve) and 2)

exposure to low-cost mechanised production, mainly through JVs, and 3) The

Purchasing business, smelting and refining ounces from non-managed mines.

Buy.

Valuation

We value Amplats on a sum-of-the-parts DCF basis using a WACC of 13% and

applying a 1x DCF exit multiple to derive our target price. For CY16 we use a

platinum price forecast of US$979/ounce and a ZAR/USD forecast of R15.51.

Risks

Downside risks to our view include: The Rustenburg disposal falling at a final

hurdle; a disposal price for Union higher/lower than our NPV valuation; lower

than forecast production from Mogalakwena; higher than forecast capex

required at core/retained assets. Further risks include underspending on capex

which may impair the longer term production base, operational difficulties

which could be encountered as a result of the electricity shortage in South

Africa leading to load-curtailment, disruptions from labour unrest and strikes

related to union rivalry in South Africa. Downside risks are also posed by the

company's management of cost inflation, its restructuring processes; as well

as rand-PGM prices, amongst others.

6 July 2016

Platinum

SA Platinum


Amplats: changes to estimates

We have made minor operational forecast changes (production, unit costs,

capex). The other changes to forecast are driven by Rand-Basket price

changes. We expect a significant positive catalyst in 2017 in the positive fiscal

impact of the disposal of Rustenburg to Sibanye. Thus, while we have

downgraded our HEPS expectations by 13%/7%/18% over FY16-18E, we

expect a significant jump in earnings in FY17e as revenue from loss-making

mined production becomes profitable revenue in processing ounces.

Figure 102: Summary changes to estimates, Amplats, FY16E-FY18E

Year end December 2016e 2017e 2018e

Mined & conc. Platinum koz 2,411 2,475 2,545

Previous 2,411 2,475 2,545

% chg 0.0% 0.0% 0.0%

Rand basket price* R/Pt oz 26,903 27,032 27,498

Previous 27,219 27,317 28,621

% chg -1.2% -1.0% -3.9%

Unit costs R/Pt oz 19,420 15,972 16,669

Previous 19,420 16,014 16,673

% chg 0.0% -0.3% 0.0%

Revenue Rm 64,139 66,332 69,407

Previous 64,893 67,031 72,240

% chg -1.2% -1.0% -3.9%

EBITDA Rm 11,122 14,038 14,232

Previous 12,013 14,743 16,237

% chg -7.4% -4.8% -12.3%

EBIT margins % 10.6% 15.0% 14.0%

Previous 11.9% 15.9% 16.3%

Capex (incl. waste stripping) Rm 5,105 4,372 6,188

Previous 5,105 4,375 6,187

% chg 0.0% -0.1% 0.0%

Free cash flow Rm 4,142 11,247 4,045

Previous 4,778 11,752 5,236

% chg -13.3% -4.3% -22.7%

Net debt/(cash) Rm 8,627 (2,620) (6,666)

Previous 7,991 (3,761) (8,997)

% chg 8.0% -30.3% -25.9%

HEPS SAcps 1,592 2,518 2,498

Previous 1,825 2,717 3,058

% chg -12.8% -7.3% -18.3%

* based on a simplified 60/30/8/2 prill split Source: Deutsche Bank, Company Data

6 July 2016

Platinum

SA Platinum


Model updated:04 July 2016

Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Amplats Reuters: AMSJ.J Bloomberg: AMS SJ

Buy Price (5 Jul 16) ZAR 397.00

Target Price ZAR 410.00

52 Week range ZAR 165.08 - 417.04

Market Cap (m) ZARm 103,776

USDm 7,017

Company Profile

Anglo American Platinum (Amplats) owns and operates eight PGM mines and one tailings retreatment facility in South Africa, as well as one mine in Zimbabwe (all 100% owned). It partners with Aquarius Platinum, ARM, and Xstrata in four 50:50 JV mines. Amplats has interests in Bokoni and BRPM mines as associates. The company operates three smelters, one base metals refinery and one precious metals refinery. Anglo American owns 80% of Amplats' issued share capital.

Price Performance

100

200

300

400

500

600

Jul 14 Jan 15 Jul 15 Jan 16

Amplats FTSE/JSE ALL SHARE (Rebased)

Margin Trends

048

1216202428

13 14 15 16E 17E 18E

EBITDA Margin EBIT Margin

Growth & Profitability

-40

-30

-20

-10

0

10

20

0

2

4

6

8

13 14 15 16E 17E 18E

Sales growth (LHS) ROE (RHS)

Solvency

0

5

10

15

20

-20

-10

0

10

20

30

40

13 14 15 16E 17E 18E

Net debt/equity (LHS) Net interest cover (RHS)

Patrick Mann

+27 11 775-7282 [email protected]

Fiscal year end 31-Dec 2013 2014 2015 2016E 2017E 2018E

Financial Summary

DB EPS (ZAR) 7.18 3.01 0.41 15.92 25.18 24.98

Reported EPS (ZAR) -3.63 2.39 -46.38 15.92 25.18 24.98

DPS (ZAR) 0.00 0.00 0.00 0.00 0.00 12.49

BVPS (ZAR) 186.6 189.7 150.9 165.2 180.8 191.4

Weighted average shares (m) 261 261 261 261 261 261

Average market cap (ZARm) 99,997 112,660 75,285 103,776 103,776 103,776

Enterprise value (ZARm) 101,341 116,311 82,737 107,397 96,563 93,967

Valuation Metrics P/E (DB) (x) 53.4 143.3 703.6 24.9 15.8 15.9

P/E (Reported) (x) nm 180.5 nm 24.9 15.8 15.9

P/BV (x) 2.11 1.80 1.23 2.40 2.20 2.07

FCF Yield (%) nm nm 4.3 4.0 10.8 3.9

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 3.1

EV/Sales (x) 1.9 2.1 1.4 1.7 1.5 1.4

EV/EBITDA (x) 10.2 18.9 8.9 9.7 6.9 5.7

EV/EBIT (x) 19.5 87.9 19.7 15.7 9.7 9.6

Income Statement (ZARm)

Sales revenue 52,827 55,612 59,815 64,139 66,332 69,407

Gross profit 11,393 7,482 10,345 12,575 14,947 17,475

EBITDA 9,979 6,161 9,266 11,122 14,038 16,541

Depreciation 4,774 4,838 5,074 4,298 4,085 6,795

Amortisation 0 0 0 0 0 0

EBIT 5,205 1,323 4,192 6,825 9,953 9,746

Net interest income(expense) -618 -537 -951 -1,044 -809 -676

Associates/affiliates -298 -128 -529 0 0 0

Exceptionals/extraordinaries -2,356 -405 -16,891 0 0 0

Other pre-tax income/(expense) -833 201 40 0 0 0

Profit before tax 1,100 454 -14,139 5,780 9,144 9,070

Income tax expense 2,191 82 -1,934 1,619 2,560 2,540

Minorities -144 -252 -80 0 0 0

Other post-tax income/(expense) 0 0 0 0 0 0

Net profit -947 624 -12,125 4,162 6,583 6,530

DB adjustments (including dilution) 2,821 162 12,232 0 0 0

DB Net profit 1,874 786 107 4,162 6,583 6,530

Cash Flow (ZARm)

Cash flow from operations 6,120 4,713 8,340 9,546 14,719 10,827

Net Capex -6,234 -6,827 -5,108 -5,409 -3,478 -6,788

Free cash flow -114 -2,114 3,232 4,136 11,241 4,039

Equity raised/(bought back) 8 -327 -120 -120 -120 -120

Dividends paid -35 -84 -102 -191 -293 -1,330

Net inc/(dec) in borrowings -50 3,204 -1,508 0 -2,000 -2,000

Other investing/financing cash flows -821 -639 -1,032 6 6 6

Net cash flow -1,012 40 470 3,831 8,834 596

Change in working capital -3,019 1,290 1,209 556 3,743 -399

Balance Sheet (ZARm)

Cash and other liquid assets 1,162 1,202 1,672 5,503 14,337 14,932

Tangible fixed assets 53,108 55,033 46,417 47,529 41,921 44,223

Goodwill/intangible assets 0 0 0 0 0 0

Associates/investments 10,238 10,757 4,906 4,906 4,906 4,906

Other assets 24,519 23,007 20,965 20,389 17,916 18,901

Total assets 89,027 89,999 73,960 78,327 79,081 82,962

Interest bearing debt 12,618 15,820 14,441 14,441 12,441 10,441

Other liabilities 26,401 23,653 19,496 20,012 18,596 21,629

Total liabilities 39,019 39,473 33,937 34,453 31,037 32,070

Shareholders' equity 49,882 50,736 40,434 44,285 48,455 51,304

Minorities 126 -210 -411 -411 -411 -411

Total shareholders' equity 50,008 50,526 40,023 43,874 48,044 50,893

Net debt 11,456 14,618 12,769 8,938 -1,896 -4,491

Key Company Metrics

Sales growth (%) nm 5.3 7.6 7.2 3.4 4.6

DB EPS growth (%) na -58.1 -86.4 3,789.7 58.2 -0.8

EBITDA Margin (%) 18.9 11.1 15.5 17.3 21.2 23.8

EBIT Margin (%) 9.9 2.4 7.0 10.6 15.0 14.0

Payout ratio (%) nm 0.0 nm 0.0 0.0 50.0

ROE (%) -2.7 1.7 -31.5 10.1 15.5 15.2

Capex/sales (%) 12.0 12.3 8.6 8.4 7.1 9.4

Capex/depreciation (x) 1.3 1.4 1.0 1.3 1.2 1.0

Net debt/equity (%) 22.9 28.9 31.9 20.4 -3.9 -8.8

Net interest cover (x) 8.4 2.5 4.4 6.5 12.3 14.4

Source: Company data, Deutsche Bank estimates

6 July 2016

Platinum

SA Platinum


AMPLATS OPERATIONAL SUMMARY DATA DECEMBER YEAR END

ASSUMPTIONS FY12 FY13 FY14 FY15 FY16e FY17e FY18e Amplats NAV valuation split

ZARUSD 8.18 9.77 10.87 12.94 15.51 15.77 14.92 Operation Rm %

Platinum (US$/oz) 1,558 1,487 1,386 1,056 979 1,003 1,050 Mogalakwena 43,640 58%

Net revenue per platinum ounce 19,764 22,586 26,219 24,203 26,903 27,032 27,498 Amandelbult 18,967 25%

Refined Platinum FY12 FY13 FY14 FY15 FY16e FY17e FY18e Unki 3,148 4%

koz Platinum Twickenham 2,081 3%

Mogalakwena 305 343 357 418 399 405 432 Modikwa 1,324 2%

Amandelbult 370 363 240 440 461 460 460 Mototolo 1,665 2%

Rustenburg 568 561 322 507 482 Kroondal 703 1%

Union 213 171 107 152 136 BRPM 3,217 4%

Twickenham - 10 11 13 - - - Operational value of mines 74,971 100%

Unki (100%) 65 67 60 69 71 70 70 Valuation of Union mining ops for sale 3,072

Subtotal 1,521 1,505 1,086 1,585 1,548 935 962 Valuation of smelters and refineries 34,309

Sale consideration for Rustenburg 4,439

Share of JVs owned 253 258 227 254 245 249 249 Investments: Wesizwe(13%), RBP (11.6%) 1,048

Modikwa - owned 65 64 49 54 57 61 61 Other costs: Costs from income statement -8,008

Kroondal - owned 112 130 119 139 130 130 130 Unfunded environmental obligations -1,522

Mototolo - owned 62 64 60 61 59 59 59 Net debt/cash -12,769

Equity Value 95,538

Total own mines 1,773 1,763 1,313 1,840 1,793 1,184 1,211 Number of shares in issue 268

JVs purchased 253 258 227 254 245 249 249 Value per share 356

Modikwa - purchased 65 64 49 54 57 61 61 Rolled forward at Ke 409

Kroondal- purchased 112 130 119 139 130 130 130

Mototolo- purchased 62 64 60 61 59 59 59

Associates 219 244 281 287 271 301 316

3rd parties purchased 134 105 57 80 74 720 748

TOTAL REFINED PLATINUM PRODUCTION 2,379 2,370 1,879 2,462 2,384 2,454 2,524

Cash operating cost per Pt oz, M&C FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Rustenburg 20,717 21,782

Bathopele 15,804 16,415 23,195

Khomanani 17,938 18,406 -

Thembelani 19,787 20,677 32,921

Khuseleka 18,236 17,454 -

Siphumelele 16,603 17,638 29,063

WLTR 10,230 9,447 13,047 Graph 2 - Cash operating costs per Pt oz, M&C 2016

Amandelbult 17,672 16,652 18,575 20,020

Tumela 15,778 17,087 25,991

Dishaba 14,606 16,718 27,433

Union 16,945 19,139 33,521 23,152 25,200

Mogalakwena 15,231 15,906 18,900 17,502 17,159 18,683 18,683

Unki (100%) 18,536 18,208 22,844 25,078 23,430 25,946 25,946

Modikwa 17,868 19,095 23,286 23,762 22,789 23,127 23,127

Kroondal 16,233 15,758 16,981 16,882 17,732 19,347 19,347

Mototolo 12,530 12,952 15,227 16,060 16,542 17,648 17,648

Group 16,364 16,527 22,309 19,119 19,420 15,972 16,669

Capex (Rm) FY12 FY13e FY14 FY15e FY16e FY17e FY17e

Rustenburg, incl WLTR 400 733

Bathopele 404 481 380 Graph 3 - Group cash operating cost and Revenue, per Pt oz

Khomanani 187 34 -

Thembelani 372 120 121

Khuseleka 251 94 -

Siphumelele 149 101 40

WLTR 52 14 2

Amandelbult 683 611 647 1,374

Tumela 303 399 571

Dishaba 130 160 172

Union 381 225 138 85 84

Mogalakwena 1,171 1,960 2,135 1,939 1,995 2,202 3,210

Twickenham (100%) - 480 545 304 - - -

Unki (100%) 453 478 402 246 238 247 249

Joint Ventures 542 533 739 536 596 629 493 Graph 4 - CAPEX spend forecasts for FY16e

Modikwa 187 221 336 211 253 257 99

Kroondal 285 236 287 225 236 258 273

Mototolo 70 76 116 100 107 114 120

Mining and retreatment 4,434 5,079 5,245 4,193 4,258 3,725 5,326

Total smelting and refining 1,001 847 779 406 700 500 715

Other 212 30 292 147 147 147 147

TOTAL CAPITAL EXPENDITURE 5,647 5,956 6,316 4,746 5,105 4,372 6,187

Capitalised interest 416 390 547 406 305 369 305

Total capitalised costs (incl cap. Interest) 6,063 6,346 6,863 5,152 5,409 4,741 6,492

Waste stripping 561 999 1,200 1,328 1,415

Capex ex-waste stripping, interest 5,755 3,747 3,905 3,045 4,773

Source: Company data, Deutsche Bank estimates, DataStream

700 900

1,100 1,300 1,500 1,700 1,900 2,100 2,300 2,500 2,700

FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Total own mines JVs purchased Associates 3rd parties purchased

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

Ruste

nburg

Am

an

delb

ult

Un

ion

Mo

gala

kwena

Un

ki (

100%

)

Mo

dik

wa

Kro

ondal

Mo

toto

lo

Gro

up

15,000

20,000

25,000

30,000

FY12 FY13 FY14 FY15 FY16e FY17e FY18e

Cash operating cost per Pt oz, M&C Net revenue per platinum ounce

Rustenburg, incl WLTR,

733 , 13%

Amandelbult, 611 , 11%

Union, 84 , 2%

Mogalakwena, 1,995 , 37%

Twickenham (100%), - , 0%

Unki (100%), 238 , 4%

Joint Ventures, 596 , 11%

Total smelting and refining,

700 , 13%

Other, 147 , 3%

Capitalised interest, 305

, 6%

6 July 2016

Platinum

SA Platinum


Impala

Outlook

Impala's flagship Lease Area mine, which produced over 1Mozpa from 1996

through to 2009, could reclaim its prestige and become the biggest single

platinum mine by 2020, if it achieves its planned ramp-up to 815-830kozpa.

While Impala should benefit from rising prices and production growth (albeit

off of a low-base) from the Lease Area should prove positive for Impala, its

deferral of 17-Shaft and other capital projects may mean that any increase in

production to target run-rates at the Lease Area could be short-lived. Impala

also faces challenges from weak-USD PGM prices at its Zimplats subsidiary.

We see a balance of upside and downside risks/catalysts and believe the

shares are fairly valued from a Risk-Reward basis. Hold.

Valuation

We value Impala on a sum-of-the-parts DCF model of life-of-mine cash flows.

We use a WACC of 13% and apply a 1x DCF exit multiple to derive our target

price. Given the uncertainty between Impala and the Zimbabwean government

regarding 51% ownership of Impala's Zimplats and Mimosa mines, we include

only 49% of Impala's ownership in these mines. For CY16 we use a platinum

price forecast of US$979/ounce and a ZAR/USD forecast of 15.51.

Risks

Upside/Downside Risks include: Rand-PGM prices; mining cost

inflation/containment; timing of the delivery of the new vertical shafts at the

Lease Area. Upside/Downside risks relating to the Zimbabwean regulatory

environment include: the outcome on indigenisation agreements and/or

valuation; changes to mining taxes and levies; legislative changes to the

treatment of export material for further processing in South Africa; and

governments determination on the industry as to whether a precious metals

refinery in Zimbabwe should be funded. A positive refinancing outcome for

Impala's February 2018 bonds could be a boost to the company; while a

liquidity crunch poses a downside risk should spot or lower prices persist for

longer than forecast or strikes or other production interruptions, including

those related to load-curtailment as a result of electricity shortages in South

Africa and/or a deterioration in safety trends, pose other downside risks.

6 July 2016

Platinum

SA Platinum


Impala: changes to estimates

We have adjusted price forecasts for Impala. The stronger Rand-USD has had

a favourable impact on unit costs as Zimplats’ costs are in USD. Our earnings

forecasts are changed by +16%/-25%/-2% in FY16E-18E. Note, however, that

margins are razor-thin at between -3% and +1% and small changes to

operational metrics result in significant forecast earnings and other financial

metric changes.

Figure 103: Summary changes to estimates, FY16E-18E.

Yr ending June FY16e FY17e FY18e

Group refined platinum production koz 1,456 1,541 1,582

Previous 1,456 1,541 1,582

% chg 0% 0% 0%

Lease Area production koz 626 710 750

Previous 626 710 750

% chg 0% 0% 0%

Revenue per platinum ounce R/oz 23,971 25,516 26,781

Previous 23,846 26,165 27,188

% chg 0.5% -2.5% -1.5%

Group average unit costs R/Pt oz 21,865 21,568 21,903

Previous 21,916 21,803 22,121

% chg -0.2% -1.1% -1.0%

Revenues Rm 34,898 39,321 42,364

Previous 34,716 40,321 43,008

% chg 0.5% -2.5% -1.5%

EBITDA Rm 1,188 3,290 4,591

Previous 918 3,502 4,675

% chg 29.3% -6.0% -1.8%

Operating profit Rm -1,899 -195 657

Previous -2,088 111 674

% chg -9.0% >-100% -2.5%

EBIT margins: current -5.4% -0.5% 1.6%

EBIT margins: previous -6.0% 0.3% 1.6%

Headline earnings Rm -1,096 -446 467

Previous -1,302 -356 474

% chg 15.8% -25.4% -1.6%

HE margins: current -3.1% -1.1% 1.1%

HE margins: previous -3.8% -0.9% 1.1%

Headline basic EPS R -1.67 -0.68 0.71

Previous -1.99 -0.54 0.72

% chg 15.8% 25.4% -1.6%

Capex Rm 3,678 3,955 4,272

Previous 3,687 4,006 4,321

% chg -0.2% -1.3% -1.1%

Free cash flow Rm -2,543 -1,079 -146

Previous -2,801 -892 -101

% chg 9.2% -20.9% -45.1%

Net debt/(cash) Rm 2,282 2,920 3,631

Previous 2,571 3,082 3,856

% chg -11% -5% -6%


6 July 2016

Platinum

SA Platinum



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Impala Platinum Reuters: IMPJ.J Bloomberg: IMP SJ

Hold Price (5 Jul 16) ZAR 52.41


52 Week range ZAR 23.24 - 59.00


USDm 2,321

Company Profile

Impala Platinum owns and operates the Impala mine on the Western Limb of SA's Bushveld Complex. The mine is commissioning two new shafts in a bid to ramp-up to c.815-830kozpa Pt by 2020. On the Eastern Limb, it owns and operates 73% of the Marula mine and 49% of Two Rivers, managed by JV partner ARM. In Zimbabwe, Impala owns and operates 87% of the Zimplats mine, ramping up to 260koz pa Pt in 2016, and 50% of the Mimosa mine with JV partner Aquarius. Impala also provides refining services for precious and base metal producers.

Price Performance

20

40

60

80

100

120


Impala PlatinumFTSE/JSE ALL SHARE (Rebased)

Margin Trends

-8-4048

1216

13 14 15 16E 17E 18E



-8

-6

-4

-2

0

2

4

-5

0

5

10

15

13 14 15 16E 17E 18E


Solvency

0

2

4

6

8

10

12

0

2

4

6

8

10

12

13 14 15 16E 17E 18E


Patrick Mann


Fiscal year end 30-Jun 2013 2014 2015 2016E 2017E 2018E

Financial Summary

DB EPS (ZAR) 3.30 0.86 0.36 -1.67 -0.68 0.71

Reported EPS (ZAR) 1.68 0.01 -6.02 -1.89 -0.68 0.71

DPS (ZAR) 0.95 0.00 0.00 0.00 0.00 0.20

BVPS (ZAR) 85.8 86.3 82.5 84.5 83.8 84.4




Valuation Metrics P/E (DB) (x) 41.4 134.7 218.5 nm nm 73.6

P/E (Reported) (x) 81.1 nm nm nm nm 73.6

P/BV (x) 1.08 1.24 0.66 0.62 0.63 0.62

FCF Yield (%) nm nm nm nm nm nm

Dividend Yield (%) 0.7 0.0 0.0 0.0 0.0 0.4

EV/Sales (x) 2.9 2.5 1.6 1.1 1.0 0.9

EV/EBITDA (x) 19.2 22.0 11.8 23.2 12.1 9.1

EV/EBIT (x) 39.2 74.7 28.7 nm nm 58.1


Sales revenue 30,032 29,028 32,477 34,898 39,321 42,364

Gross profit 7,214 5,583 4,221 1,808 3,423 4,529

EBITDA 4,538 3,320 4,411 1,592 3,145 4,220

Depreciation 2,314 2,341 2,593 3,234 3,340 3,563


EBIT 2,224 979 1,818 -1,642 -195 657

Net interest income(expense) -230 -178 -284 -584 -630 -437

Associates/affiliates 163 365 377 203 115 212

Exceptionals/extraordinaries 0 -1,000 -5,847 -257 0 0

Other pre-tax income/(expense) 242 -151 -420 -350 30 159

Profit before tax 2,399 15 -4,356 -2,631 -679 591

Income tax expense 1,476 144 -217 -1,314 -190 166

Minorities -99 -137 -476 -78 -43 -41


Net profit 1,022 8 -3,663 -1,239 -446 467

DB adjustments (including dilution) 979 515 3,884 143 0 0

DB Net profit 2,001 523 221 -1,096 -446 467

Cash Flow (ZARm)

Cash flow from operations 5,786 4,096 2,328 594 2,577 3,843

Net Capex -6,258 -4,436 -4,466 -3,675 -3,955 -4,272

Free cash flow -472 -340 -2,138 -3,081 -1,378 -429

Equity raised/(bought back) 36 8 1 3,900 0 0

Dividends paid -580 -371 -10 -33 0 -89

Net inc/(dec) in borrowings 4,466 -16 -264 -7 -522 0

Other investing/financing cash flows 308 911 703 736 299 282

Net cash flow 3,758 192 -1,708 1,515 -1,601 -235

Change in working capital -487 1,649 338 -702 0 0


Cash and other liquid assets 5,308 4,305 2,597 4,112 2,511 2,276



Associates/investments 1,335 3,380 3,802 4,879 4,836 3,561

Other assets 23,813 21,906 23,183 23,479 23,479 23,479

Total assets 80,719 79,867 77,215 83,710 82,682 81,881





Minorities 2,579 2,550 2,258 2,552 2,509 2,468


Net debt 3,014 3,482 5,479 4,968 6,047 4,971

Key Company Metrics

Sales growth (%) nm -3.3 11.9 7.5 12.7 7.7

DB EPS growth (%) na -73.9 -57.9 na 59.3 na

EBITDA Margin (%) 15.1 11.4 13.6 4.6 8.0 10.0

EBIT Margin (%) 7.4 3.4 5.6 -4.7 -0.5 1.6

Payout ratio (%) 56.4 0.0 nm nm nm 28.6

ROE (%) 2.0 0.0 -7.1 -2.4 -0.8 0.8

Capex/sales (%) 21.2 15.5 13.9 10.6 10.1 10.1


Net debt/equity (%) 5.5 6.3 10.5 8.6 10.5 8.6

Net interest cover (x) 9.7 5.5 6.4 nm nm 1.5


6 July 2016

Platinum

SA Platinum


ASSUMPTIONS FY14 FY15 FY16e FY17e FY18e FY19e NPV to Impala (attbl basis) Rm Per share (%)

ZAR/USD 10.43 11.48 14.69 15.62 15.41 14.16 Impala Lease Area 2,341 4 7%

Platinum (US$/oz) 1,432 1,248 954 990 1,038 1,125 Zimplats (49%) 10,947 8 34%

Total attr ibutable tonnes milled kt FY14 FY15 FY16e FY17e FY18e FY19e Mimosa (49%) 2,121 2 7%

Impala Lease Area 6,183 9,199 11,000 11,200 11,800 12,400 Marula (322) (0) -1%

Zimplats 5,939 5,164 6,200 6,200 6,200 6,200 Two Rivers 3,933 6 12%

Marula 1,794 1,662 1,800 1,818 1,836 1,855 IRS 12,029 18 38%

Mimosa (attributable) 1,227 1,293 1,300 1,300 1,300 1,300 Chrome Operations 881 1 3%

Two Rivers (attributable) 1,476 1,513 1,528 1,528 1,528 1,528 NPV Current Operat ions 31,929 100%

Total 16,618 18,831 21,828 22,046 22,664 23,283

Average Headgrade (5PGE+Au) g/t FY14 FY15 FY16e FY17e FY18e FY19e

Impala Lease Area 4.34 4.19 4.11 4.45 4.45 4.45

Zimplats 3.47 3.47 3.47 3.46 3.46 3.48

Marula 4.19 4.19 4.27 4.25 4.25 4.25

Mimosa (attributable) 3.92 3.93 3.89 3.93 3.93 3.93

Two Rivers (attributable) 4.01 3.98 4.09 4.00 4.00 4.00

Average Headgrade (5PGE+Au) 3.95 3.96 3.93 4.09 4.10 4.12

P lat inum Product ion koz FY14 FY15 FY16e FY17e FY18e FY19e

Impala Lease Area 411 575 626 710 750 790

Zimplats 240 190 260 260 260 261

Marula 79 74 83 84 85 85

Mimosa 110 117 118 120 120 120

IRS net 339 320 368 368 368 368

Total 1,178 1,276 1,456 1,541 1,582 1,624

Average cash cost per tonne milled R/t FY14 FY15 FY16e FY17e FY18e FY19e

Impala Lease Area 1,465 1,493 1,305 1,377 1,398 1,422

Zimplats 540 707 761 838 843 790

Marula 869 1,000 1,013 1,072 1,135 1,202

Mimosa 798 790 1,072 1,067 1,068 997

Two Rivers 611 617 629 657 687 718

R/oz FY14 FY15 FY16e FY17e FY18e FY19e


Zimplats 13,383 19,208 18,136 20,016 20,131 18,766

Marula 19,860 22,582 21,887 23,284 24,654 26,105

Mimosa 17,768 17,402 21,748 23,209 23,232 21,678

Group 19,430 22,222 21,865 21,568 21,903 21,945

CAPEX Rm FY14 FY15 FY16e FY17e FY18e FY19e


Zimplats 1,226 968 818 1,039 1,045 980

Marula 159 145 90 156 167 178

Mimosa 175 172 233 252 252 235

Total Attr ibutable Group Capex 4,345 4,287 3,912 4,207 4,524 3,487


IMPALA OPERATIONAL SUMMARY DATA

Graph 1 - Product ion prof ile to FY19e

Graph 2 - Cash Cost per Ref ined ounceAverage group cash cost per ref ined

plat inum oz (Excluding SBP)

JUNE YEAR END

300

500

700

900

1,100

1,300

1,500

1,700

FY14 FY15 FY16e FY17e FY18e FY19e

Pt P

rod

ucti

on

(ko

z)

Impala Lease Area Zimplats Marula Mimosa IRS net

-

5,000

10,000

15,000

20,000

25,000

30,000

FY14 FY15 FY16e FY17e FY18e FY19e

R /

refi

ned

Pt o

z

Impala Lease Area Zimplats Marula Mimosa Group

Impala Lease Area

7%

Zimplats (49%)34%

Mimosa (49%)6%

Two Rivers

12%

IRS37%

NPV split,attributable to Impala

6 July 2016

Platinum

SA Platinum


Northam

Outlook

We believe Northams share price reflects both the prospect of organic

production growth and higher-than-spot Rand-PGM prices; which DB

forecasts. Thus, despite a strong liquidity position and the potential for

mechanized production growth at Booysendal, we see a fair balance of upside

and downside risks to valuation. Northam's Booysendal mine, a mechanised

operation on the Eastern Limb of the BIC, will be competitively placed on the

industry cost-curve and has significant organic growth potential. 2016 is the

first year of full production from the initial phase of this mine complex. Free

cash flow should improve rapidly as project capex rolls off and production and

prices increase in CY16, with Northam poised to increase low-cost ounces if

PGM prices should rise further. We highlight dilutionary risk, however, from

the cumulative preference shares, issued by Zambezi Platinum (Northam's BEE

investor), which are guaranteed by Northam and due in May 2025. These are

accruing cumulative preference dividends at a rate of prime plus 350bps and

represent potential to dilute ordinary shareholders should Northam be required

to redeem them/be called on its guarantee. With a positive operational outlook

but premium valuation, we rate Northam a Hold.

Valuation

We value Northam on a sum-of-the-parts DCF basis using a WACC of 14% and

applying a 1x DCF exit multiple to derive our target price. For CY16 we use a

platinum price forecast of US$979/ounce and a ZAR/USD forecast of 15.51.

Risks

Upside and downside risks for Northam include Rand-PGM prices and

operational performance, considering the changes to the company's operating

strategy, including: Zondereinde's increased UG2 mining, furnace upgrade,

Booysendal North expansion, Booysendal Merensky and Booysendal South

projects. The company's ability to control operating and capital costs is also a

source of upside and downside risk.

6 July 2016

Platinum

SA Platinum


Northam: changes to estimates

We have adjusted the Rand-basket price forecasts in Northam’s forecast

financials. Our Normalised headline earnings per share have changed by 3%/-

12%/-8% over FY16-18E. We have included a revised project value for

Booysendal South of R7.1bn, which has supported our price target.

Figure 104: Summary changes to estimates, FY16E-FY18E

Year ending June FY16e FY17e FY18e

Group refined platinum sales koz 264 278 289


% chg 0.0% 0.0% 0.0%

Rand basket price (4E)* R/4E oz 12,163 13,300 13,939

Previous 12,102 13,567 14,061

% chg 0.5% -2.0% -0.9%

Cash operating cost R/4E oz 10,611 11,019 11,716

Previous 10,611 11,019 11,716

% chg 0.0% 0.0% 0.0%

Revenue Rm 6,445 7,505 8,048

Previous 6,414 7,679 8,152

% chg 0.5% -2.3% -1.3%

EBITDA Rm 840 1,389 1,438

Previous 816 1,547 1,531

% chg 3.0% -10.2% -6.1%

Headline earnings Rm -336 -137 -459

Previous -354 -22 -389

% chg -5% >100% -18%

Headline EPS SAcps -96 -39 -131

Previous -101 -6 -111

% chg -5% >100% -18%

Adjusted headline earnings Rm 552 875 787

Adjusted headline earnings SAcps 108 172 154


% chg 3.3% -12% -8.3%

Cash from operations Rm 1,063 1,286 1,253

Previous 1,043 1,409 1,319

% chg 1.9% -8.8% -5%

Capex Rm 1,260 980 833

Previous 1,260 980 833

% chg 0.0% 0.0% 0.0%

Free cash flow Rm -228 306 419

Previous -248 430 486

% chg -8.1% -28.8% -13.6%

Net debt / (cash) Rm 4,916 5,701 6,637

Previous 4,910 5,509 6,286

% chg 0.1% 3.5% 5.6%

* based on a simplified prill split of 60/30/8/2 Pt/Pd/Rh/Au Source: Deutsche Bank, Company Data

6 July 2016

Platinum

SA Platinum



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Northam Reuters: NHMJ.J Bloomberg: NHM SJ



52 Week range ZAR 19.30 - 49.50


USDm 1,106

Company Profile

Northam Platinum owns and operates 100% of the Zondereinde mine on the Western Limb of the South African Bushveld Complex. Zondereinde has a steady-state capacity of 300k p.a. PGM (4E) ounces. 2016 is also the first calendar year of full production from the first phase of Booysendal North, a mechanised UG2 mine on the Eastern Limb. While the first phase will produce around 160kozpa PGM (4E) ounces; there is potential for higher production from 1) an expansion of Booysendal North; 2) a Merensky mine, and/or 3) Booysendal South..

Price Performance

10

20

30

40

50

60


Northam FTSE/JSE ALL SHARE (Rebased)

Margin Trends

0

4

8

12

16

20

13 14 15 16E 17E 18E



-15

-10

-5

0

5

10

0

5

10

15

20

25

13 14 15 16E 17E 18E


Solvency

0

1

2

3

4

0

20

40

60

80

100

13 14 15 16E 17E 18E


Patrick Mann



Financial Summary

DB EPS (ZAR) 1.36 0.02 -2.03 -1.03 -0.57 -1.58

Reported EPS (ZAR) 1.32 0.02 -2.64 -1.15 -0.57 -1.58

DPS (ZAR) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (ZAR) 28.2 29.1 23.5 25.2 24.6 23.0




Valuation Metrics P/E (DB) (x) 24.2 nm nm nm nm nm

P/E (Reported) (x) 25.0 nm nm nm nm nm

P/BV (x) 1.13 1.56 1.71 1.86 1.90 2.03

FCF Yield (%) nm nm nm nm 1.9 2.6

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 3.0 3.0 3.3 3.3 2.9 2.8

EV/EBITDA (x) 15.9 32.1 21.4 25.1 15.7 15.8

EV/EBIT (x) 22.1 264.7 33.6 50.5 23.7 24.8


Sales revenue 4,421 5,339 6,036 6,445 7,505 8,048

Gross profit 842 507 936 840 1,389 1,438

EBITDA 842 507 936 840 1,389 1,438

Depreciation 235 446 340 423 467 518


EBIT 608 61 596 417 921 919

Net interest income(expense) 15 -116 -174 -655 -840 -1,224


Exceptionals/extraordinaries 0 0 -1,551 0 0 0

Other pre-tax income/(expense) 60 97 232 76 53 53

Profit before tax 697 46 -868 -157 140 -245

Income tax expense 169 26 166 246 340 306

Minorities 23 10 2 0 0 0


Net profit 505 9 -1,036 -403 -200 -551

DB adjustments (including dilution) 17 -1 241 41 0 0

DB Net profit 522 9 -795 -362 -200 -551

Cash Flow (ZARm)

Cash flow from operations 400 709 196 1,034 1,286 1,253

Net Capex -1,743 -894 -1,098 -1,260 -980 -833

Free cash flow -1,342 -185 -901 -226 306 419

Equity raised/(bought back) 2 579 0 0 0 0

Dividends paid -22 -11 -4 0 0 0

Net inc/(dec) in borrowings 1,516 -134 4,596 -1,372 0 0

Other investing/financing cash flows 39 118 -218 -31 0 0

Net cash flow 194 367 3,472 -1,629 306 419

Change in working capital -281 271 -221 48 -67 -63


Cash and other liquid assets 299 666 4,138 2,509 2,815 3,235



Associates/investments 495 497 276 248 253 259

Other assets 1,633 1,638 2,035 1,894 2,094 2,226

Total assets 14,358 14,741 19,151 18,187 19,211 20,084







Net debt 1,253 752 3,768 4,958 5,743 6,678

Key Company Metrics

Sales growth (%) nm 20.8 13.0 6.8 16.4 7.2

DB EPS growth (%) na -98.4 na 49.0 44.7 -175.4

EBITDA Margin (%) 19.1 9.5 15.5 13.0 18.5 17.9

EBIT Margin (%) 13.7 1.2 9.9 6.5 12.3 11.4

Payout ratio (%) 0.0 0.0 nm nm nm nm

ROE (%) 4.8 0.1 -10.1 -4.5 -2.3 -6.6

Capex/sales (%) 39.5 16.8 18.3 19.6 13.1 10.4


Net debt/equity (%) 11.6 6.6 40.9 56.3 66.7 82.8

Net interest cover (x) nm 0.5 3.4 0.6 1.1 0.8



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Northam Reuters: NHMJ.J Bloomberg: NHM SJ



52 Week range ZAR 19.30 - 49.50


USDm 1,128

Company Profile

Northam Platinum owns and operates 100% of the Zondereinde mine on the Western Limb of the South African Bushveld Complex. Zondereinde has a steady-state capacity of 300k p.a. PGM (4E) ounces. 2016 is also the first calendar year of full production from the first phase of Booysendal North, a mechanised UG2 mine on the Eastern Limb. While the first phase will produce around 160kozpa PGM (4E) ounces; there is potential for higher production from 1) an expansion of Booysendal North; 2) a Merensky mine, and/or 3) Booysendal South..

Price Performance

10

20

30

40

50

60


Northam FTSE/JSE ALL SHARE (Rebased)

Margin Trends

0

4

8

12

16

20

13 14 15 16E 17E 18E



-15

-10

-5

0

5

10

0

5

10

15

20

25

13 14 15 16E 17E 18E


Solvency

0

1

2

3

4

0

20

40

60

80

100

13 14 15 16E 17E 18E


Patrick Mann



Financial Summary

DB EPS (ZAR) 1.36 0.02 -2.03 -1.03 -0.57 -1.58

Reported EPS (ZAR) 1.32 0.02 -2.64 -1.15 -0.57 -1.58

DPS (ZAR) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (ZAR) 28.2 29.1 23.5 25.2 24.6 23.0




Valuation Metrics P/E (DB) (x) 24.2 nm nm nm nm nm

P/E (Reported) (x) 25.0 nm nm nm nm nm

P/BV (x) 1.13 1.56 1.71 1.86 1.91 2.04

FCF Yield (%) nm nm nm nm 1.9 2.6

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 3.0 3.0 3.3 3.3 2.9 2.8

EV/EBITDA (x) 15.9 32.1 21.4 25.1 15.8 15.9

EV/EBIT (x) 22.1 264.7 33.6 50.7 23.8 24.8


Sales revenue 4,421 5,339 6,036 6,445 7,505 8,048

Gross profit 842 507 936 840 1,389 1,438

EBITDA 842 507 936 840 1,389 1,438

Depreciation 235 446 340 423 467 518


EBIT 608 61 596 417 921 919

Net interest income(expense) 15 -116 -174 -655 -840 -1,224




Profit before tax 697 46 -868 -157 140 -245

Income tax expense 169 26 166 246 340 306



Net profit 505 9 -1,036 -403 -200 -551

DB adjustments (including dilution) 17 -1 241 41 0 0

DB Net profit 522 9 -795 -362 -200 -551

Cash Flow (ZARm)

Cash flow from operations 400 709 196 1,034 1,286 1,253

Net Capex -1,743 -894 -1,098 -1,260 -980 -833

Free cash flow -1,342 -185 -901 -226 306 419



Net inc/(dec) in borrowings 1,516 -134 4,596 -1,372 0 0

Other investing/financing cash flows 39 118 -218 -31 0 0

Net cash flow 194 367 3,472 -1,629 306 419

Change in working capital -281 271 -221 48 -67 -63


Cash and other liquid assets 299 666 4,138 2,509 2,815 3,235




Other assets 1,633 1,638 2,035 1,894 2,094 2,226

Total assets 14,358 14,741 19,151 18,187 19,211 20,084







Net debt 1,253 752 3,768 4,958 5,743 6,678

Key Company Metrics

Sales growth (%) nm 20.8 13.0 6.8 16.4 7.2

DB EPS growth (%) na -98.4 na 49.0 44.7 -175.4

EBITDA Margin (%) 19.1 9.5 15.5 13.0 18.5 17.9

EBIT Margin (%) 13.7 1.2 9.9 6.5 12.3 11.4

Payout ratio (%) 0.0 0.0 nm nm nm nm

ROE (%) 4.8 0.1 -10.1 -4.5 -2.3 -6.6

Capex/sales (%) 39.5 16.8 18.3 19.6 13.1 10.4


Net debt/equity (%) 11.6 6.6 40.9 56.3 66.7 82.8

Net interest cover (x) nm 0.5 3.4 0.6 1.1 0.8


6 July 2016

Platinum

SA Platinum


NORTHAM OPERATIONAL SUMMARY DATA JUNE YEAR END

ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e NPV ZARm Per share

ZAR/USD 8.90 10.43 11.48 14.69 15.62 15.41 Zondereinde R 3,009 R 8.6

Platinum (US$/oz) 1,552 1,432 1,248 954 990 1,038 Booysendal North R 5,966 R 17.1

Booysendal South R 7,134 R 20.4

Total tonnes milled kt FY13 FY14 FY15 FY16e FY17e FY18e Other R 43 R 0.1

Zondereinde 2,116 1,724 1,860 2,110 2,170 2,170 Net (debt)/cash R -3,685 R -10.5

Booysendal nm 1,517 1,786 2,111 2,500 2,650 NAV R 12,467 R 36

Total 2,116 3,241 3,647 4,221 4,670 4,820 Rolled forward at cost of equity R 41

Average Headgrade (4E) g/t FY13 FY14 FY15 FY16e FY17e FY18e

Zondereinde 4.9 5.0 4.9 4.9 4.8 4.8

Booysendal nm 2.6 2.6 2.7 2.7 2.7

Average 4.9 3.9 3.8 3.8 3.7 3.6

P lat inum ref ined koz FY13 FY14 FY15 FY16e FY17e FY18e

Zondereinde 207 190 186 172 176 176

Booysendal - 46 65 92 102 113

Total 207 236 250 264 278 289

Zondereinde Product ion kt FY13 FY14 FY15 FY16e FY17e FY18e

MER tonnes milled 958 804 796 870 870 870

UG2 tonnes milled 1,158 920 1,064 1,240 1,300 1,300 Graph 1 - Cash cost per tonne milled

Total 2,116 1,724 1,860 2,110 2,170 2,170

UG2 as a % of total % 54.7% 53.4% 57.2% 58.8% 59.9% 59.9%

Cash cost per tonne milled (incl conc. and smelt ) R / t FY13 FY14 FY15 FY16e FY17e FY18e

Zondereinde 1,322 1,526 1,650 1,424 1,509 1,638

Booysendal nm 527 658 661 661 681

Average cost per ton milled 1,322 1,058 1,164 1,042 1,055 1,112

Cash cost per 4E ounce R / oz FY13 FY14 FY15 FY16e FY17e FY18e

Zondereinde 10,508 12,270 12,643 11,298 11,996 13,007

Booysendal 11,169 9,337 9,403 9,703

Average 10,508 9,875 12,262 10,612 11,044 11,713

CAPEX Rm FY13 FY14 FY15 FY16e FY17e FY18e

Zondereinde 350 361 303 732 680 480

Booysendal 1,500 540 799 528 300 353

Total 1,850 901 1,102 1,260 980 833

Graph 2 - Forecast Production: Refined Pt ounces Graph 3 - Capex spend per mine


-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY13 FY14 FY15 FY16e

Rm

Zondereinde Booysendal

1,322

1,058

1,164

1,042

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800


ZA

R /

t

Zondereinde Booysendal Average cost per ton milled

-

50

100

150

200

250

300


000 o

z R

efin

ed

Pt


-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

FY13 FY14 FY15 FY16e FY17e FY18e

Rm


Zondereinde19%

Booysendal North

37%

Booysendal South

44%

Other0%

1,322

1,058 1,164

1,042 1,055 1,112

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800


ZA

R /

t

Zondereinde Booysendal Average cost per ton milled

-

50

100

150

200

250

300

350


'000 o

z R

efin

ed

Pt


6 July 2016

Platinum

SA Platinum


RBPlat

Outlook

RBPlat is one of the best positioned producers in the industry: a net cash

position, production is predominately high-margin Merensky, fully empowered

in terms of South Africa's BEE requirements and enviable labour relations

relative to the other producers. However, the low prices are weighing on

RBPlat, and its low-cost high-margin project, Styldrift, is on slow-development

given the low price environment. The project can deliver low-cost potential

ounces when/if prices recover, however this may not be soon enough to offset

production declines from BRPM South Shaft, nor is it fundable from only

operational cash flows and the current environment is not conducive for

tapping capital markets. In light of these factors and a fair valuation, we have a

Hold rating for RBPlat.

Valuation

We value RBPlat using a DCF, using a WACC of 13% and applying a 1x DCF

exit multiple to derive our target price. For CY16 we use a platinum price

forecast of US$979/ounce and a ZAR/USD forecast of 15.51.

Risks

Upside/Downside risks include Rand-PGM prices, cost and capex control,

particularly in light of the revised timeline for Styldrift; the timing of the

delivery of Styldrift and/or the final Styldrift design; unit cost control at the

Boschkoppie mine, particularly considering the upcoming South Shaft closure

(c.1/3 of production scheduled to close in 2018). Downside risks include the

availability of electrical-power as a result of delays to Eskom's substations

being built which are critical to Styldrifts completion and/or load-curtailment as

a result of electricity shortages in South Africa; concentrator performance as

the sole existing concentrator is being upgraded while remaining fully

operational.

6 July 2016

Platinum

SA Platinum


RBPlat: changes to estimates

We have made no changes to our operational forecasts for RBPlat. Our price

changes have resulted in earnings changes of -5% and -1% in FY16 and FY17

respectively. Low margins in FY18 (as we forecast Styldrift begins being

expensed as it begins operations) leads us to forecast a more significant

earnings decline in FY18.

Figure 105: Summary changes to estimates, FY16E-18E

Yr ending December FY16e FY17e FY18e

Pt metal in concentrate koz 206 229 239


% chg 0.0% 0.0% 0.0%

Cash unit cost per Pt ounce (Boschkoppie only)

R/Pt oz 14,867 15,999 17,286

Previous 14,867 15,999 17,286

% chg 0.0% 0.0% 0.0%

Revenues Rm 3,651 3,888 3,781

Previous 3,667 3,889 3,919

% chg -0.4% 0.0% -3.5%

Gross profit Rm 420 401 154


% chg -3.6% -0.3% -47.2%

EBITDA Rm 715 706 449


% chg -2.1% -0.2% -23.6%

Profit before tax Rm 340 237 -195

Previous 355 240 -55

% chg -4.4% -1.1% <-100%

HEPS Rps 0.87 0.60 -0.49

Previous 0.91 0.60 -0.14

% chg -5.2% -1.1% <-100%

Operating cash flow Rm 640 646 560


% chg -3.9% -0.7% -18.5%

Capex Rm 1,258 1,625 1,763

Previous 1,258 1,625 1,763

% chg 0.0% 0.0% 0.0%

Free cash flow Rm -619 -979 -1,203

Previous -592 -975 -1,076

% chg -4.4% -0.4% -11.8%

Net cash/(debt) Rm 299 -680 -1,883

Previous 325 -649 -1,726

% chg -8% -5% -9%


6 July 2016

Platinum

SA Platinum



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

RBPlat Reuters: RBPJ.J Bloomberg: RBP SJ



52 Week range ZAR 22.35 - 51.50


USDm 654

Company Profile

RBPlat is a black-owned, -controlled and -managed mid-tier platinum group metals producer. RBPlat owns 67% of the BRPM joint venture mine, with JV partner, Amplats. The BRPM JV is a well-established, shallow Merensky reef producer on the Western Limb of the Bushveld Complex. The company's strategy is to achieve operational excellence from its operating assets, to deliver organic growth from its Styldrift project, and to pursue selective M&A.

Price Performance

15

30

45

60

75

90


RBPlat FTSE/JSE ALL SHARE (Rebased)

Margin Trends

-10

0

10

20

30

40

13 14 15 16E 17E 18E



-30-25-20-15-10-505

-30

-20

-10

0

10

20

30

13 14 15 16E 17E 18E


Solvency

05101520253035

-15

-10

-5

0

5

10

15

13 14 15 16E 17E 18E


Patrick Mann



Financial Summary

DB EPS (ZAR) 1.73 2.38 -0.83 0.84 0.60 -0.49

Reported EPS (ZAR) 1.73 2.38 -15.89 0.84 0.60 -0.49

DPS (ZAR) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (ZAR) 72.2 75.3 57.0 57.9 58.5 58.0




Valuation Metrics P/E (DB) (x) 32.3 27.5 nm 59.9 84.6 nm

P/E (Reported) (x) 32.2 27.5 nm 59.9 84.6 nm

P/BV (x) 0.82 0.70 0.47 0.87 0.86 0.87


Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 3.8 3.9 3.5 3.6 3.6 4.0

EV/EBITDA (x) 12.4 12.2 36.1 18.2 19.9 33.9

EV/EBIT (x) 21.8 19.3 nm 45.7 57.4 nm


Sales revenue 3,251 3,768 3,045 3,651 3,888 3,781

Gross profit 1,035 1,300 389 850 863 627

EBITDA 1,007 1,188 294 715 706 449

Depreciation 372 370 367 368 394 405


EBIT 574 753 -135 285 245 -25

Net interest income(expense) 39 91 81 55 -8 -170




Profit before tax 613 845 -4,520 340 237 -195

Income tax expense 165 246 -753 96 66 -55

Minorities 164 158 -722 82 56 -46


Net profit 284 441 -3,045 161 114 -94


DB Net profit 284 441 -160 161 114 -94

Cash Flow (ZARm)

Cash flow from operations 908 1,427 619 640 646 560

Net Capex -1,036 -1,676 -2,018 -1,258 -1,625 -1,763

Free cash flow -129 -249 -1,399 -619 -979 -1,203

Equity raised/(bought back) 0 1,479 0 0 0 0

Dividends paid 0 0 0 0 0 0

Net inc/(dec) in borrowings 0 0 0 0 750 3,000

Other investing/financing cash flows 252 -138 452 0 0 0

Net cash flow 123 1,091 -947 -619 -229 1,797

Change in working capital -134 50 612 -110 -25 307


Cash and other liquid assets 773 1,864 918 299 70 1,867


Goodwill/intangible assets 8,966 8,907 6,744 6,682 6,615 6,546


Other assets 1,458 1,843 1,968 2,249 2,359 2,013

Total assets 20,818 23,504 19,759 20,250 21,295 24,035

Interest bearing debt 0 0 0 0 750 3,750




Minorities 4,128 4,286 3,564 3,646 3,702 3,656


Net debt -773 -1,864 -918 -299 680 1,883

Key Company Metrics

Sales growth (%) nm 15.9 -19.2 19.9 6.5 -2.7

DB EPS growth (%) na 37.9 na na -29.2 na

EBITDA Margin (%) 31.0 31.5 9.7 19.6 18.2 11.9

EBIT Margin (%) 17.6 20.0 -4.4 7.8 6.3 -0.7

Payout ratio (%) 0.0 0.0 nm 0.0 0.0 nm

ROE (%) 2.4 3.4 -24.5 1.5 1.0 -0.8

Capex/sales (%) 31.9 44.5 66.3 34.5 41.8 46.6


Net debt/equity (%) -4.8 -10.2 -6.3 -2.0 4.6 12.8

Net interest cover (x) nm nm nm nm 31.8 nm



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

RBPlat Reuters: RBPJ.J Bloomberg: RBP SJ



52 Week range ZAR 22.35 - 49.37


USDm 650

Company Profile

RBPlat is a black-owned, -controlled and -managed mid-tier platinum group metals producer. RBPlat owns 67% of the BRPM joint venture mine, with JV partner, Amplats. The BRPM JV is a well-established, shallow Merensky reef producer on the Western Limb of the Bushveld Complex. The company's strategy is to achieve operational excellence from its operating assets, to deliver organic growth from its Styldrift project, and to pursue selective M&A.

Price Performance

15

30

45

60

75

90


RBPlat FTSE/JSE ALL SHARE (Rebased)

Margin Trends

-10

0

10

20

30

40

13 14 15 16E 17E 18E



-30-25-20-15-10-505

-30

-20

-10

0

10

20

30

13 14 15 16E 17E 18E


Solvency

05101520253035

-15

-10

-5

0

5

10

15

13 14 15 16E 17E 18E


Patrick Mann



Financial Summary

DB EPS (ZAR) 1.73 2.38 -0.83 0.84 0.60 -0.49

Reported EPS (ZAR) 1.73 2.38 -15.89 0.84 0.60 -0.49

DPS (ZAR) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (ZAR) 72.2 75.3 57.0 57.9 58.5 58.0




Valuation Metrics P/E (DB) (x) 32.3 27.5 nm 58.6 82.7 nm

P/E (Reported) (x) 32.2 27.5 nm 58.6 82.7 nm

P/BV (x) 0.82 0.70 0.47 0.85 0.84 0.85


Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 3.8 3.9 3.5 3.5 3.6 4.0

EV/EBITDA (x) 12.4 12.2 36.1 17.9 19.6 33.4

EV/EBIT (x) 21.8 19.3 nm 44.9 56.5 nm


Sales revenue 3,251 3,768 3,045 3,651 3,888 3,781

Gross profit 1,035 1,300 389 850 863 627

EBITDA 1,007 1,188 294 715 706 449

Depreciation 372 370 367 368 394 405


EBIT 574 753 -135 285 245 -25

Net interest income(expense) 39 91 81 55 -8 -170




Profit before tax 613 845 -4,520 340 237 -195

Income tax expense 165 246 -753 96 66 -55

Minorities 164 158 -722 82 56 -46


Net profit 284 441 -3,045 161 114 -94


DB Net profit 284 441 -160 161 114 -94

Cash Flow (ZARm)

Cash flow from operations 908 1,427 619 640 646 560

Net Capex -1,036 -1,676 -2,018 -1,258 -1,625 -1,763

Free cash flow -129 -249 -1,399 -619 -979 -1,203

Equity raised/(bought back) 0 1,479 0 0 0 0

Dividends paid 0 0 0 0 0 0

Net inc/(dec) in borrowings 0 0 0 0 750 3,000

Other investing/financing cash flows 252 -138 452 0 0 0

Net cash flow 123 1,091 -947 -619 -229 1,797

Change in working capital -134 50 612 -110 -25 307


Cash and other liquid assets 773 1,864 918 299 70 1,867


Goodwill/intangible assets 8,966 8,907 6,744 6,682 6,615 6,546


Other assets 1,458 1,843 1,968 2,249 2,359 2,013

Total assets 20,818 23,504 19,759 20,250 21,295 24,035

Interest bearing debt 0 0 0 0 750 3,750




Minorities 4,128 4,286 3,564 3,646 3,702 3,656


Net debt -773 -1,864 -918 -299 680 1,883

Key Company Metrics

Sales growth (%) nm 15.9 -19.2 19.9 6.5 -2.7

DB EPS growth (%) na 37.9 na na -29.2 na

EBITDA Margin (%) 31.0 31.5 9.7 19.6 18.2 11.9

EBIT Margin (%) 17.6 20.0 -4.4 7.8 6.3 -0.7

Payout ratio (%) 0.0 0.0 nm 0.0 0.0 nm

ROE (%) 2.4 3.4 -24.5 1.5 1.0 -0.8

Capex/sales (%) 31.9 44.5 66.3 34.5 41.8 46.6


Net debt/equity (%) -4.8 -10.2 -6.3 -2.0 4.6 12.8

Net interest cover (x) nm nm nm nm 31.8 nm


6 July 2016

Platinum

SA Platinum


RBPLAT OPERATIONAL SUMMARY DECEMBER YEAR END

ASSUMPTIONS FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e Present values: Rm

ZARUSD 10.87 12.94 15.51 15.77 14.92 13.41 13.21 14.75 2.2% Operat ional NPV (100% basis) 10,728

Platinum US$/oz 1,386 1,056 979 1,003 1,050 1,200 1,250 1,420 5.1% Impala Royalty agreement 68

Basket price per 4E oz R/4E oz 13,301 11,105 12,983 13,775 13,905 14,063 14,592 18,225 9% Less corporate costs, royalties -1,990

Basket price per Pt oz R/Pt oz 19,842 17,256 20,067 21,291 21,491 21,735 22,554 28,168 9% Enterprise Value 8,806

(Less debt), add cash in JV 326

Tonnes milled, source: kt FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e NAV, 100% basis 9,132

BRPM 2,479 2,461 2,461 2,478 2,388 1,438 1,380 1,380 RBPlat shareholders, 2/3rds 6,088

Styldrift 400 600 810 1,522 2,080 2,700 (Less debt), add cash in RBPlat 531

Total tonnes milled 2,479 2,461 2,861 3,078 3,198 2,960 3,460 4,080 9% Value of RBPlat to shareholders in RBP6,619

Number of shares in issue 192

Pt in concentrate koz FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e NAV/share 35

BRPM 190 177 182 183 176 106 101 101 Rolled forward at Ke 40

Styldrift 24 47 63 118 161 209 DB target pr ice (ZAR/share) 42.00

Total Pt in concentrate 190 177 206 229 239 224 263 310 10%

Cost metr ics FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e Graph 1: Revenue & Cost per Pt oz, FY14-FY21E

Cash operating costs Rm 2,452 2,645 2,789 3,012 3,141 3,856 4,269 5,334 12%

ZAR / tonne milled R / t 957 1,066 1,099 1,179 1,273 1,303 1,234 1,307 3%

ZAR / Pt oz R / oz 12,463 14,504 14,867 15,999 17,286 17,246 16,261 17,205 3%

BRPM only incl. Styldrift

CAPEX Rm FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e

SIB 154 112 108 175 213 368 414 533 30%

Replacement & expansion 1,569 1,897 1,150 1,450 1,550 1,500 1,000 -

Total Capex 1,724 2,009 1,258 1,625 1,763 1,868 1,414 533 -20%

Graph 3 - Tonnes milled, FY14-FY21E Graph 4 - Source of tonnes, FY15 vs. FY21E Graph 2 - Capex FY14 to FY21e


15-21E

CAGR

MER tonnes

76%

UG2 tonnes

24%

Tonnes delivered 2015

-

500

1,000

1,500

2,000

2,500

FY14 FY15 FY16e FY17e FY18e FY19e FY20e FY21e

Cap

ex, R

m

SIB Replacement & expansion

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500


To

nn

es m

ille

d (kt)

BRPM Styldrift

-

5,000

10,000

15,000

20,000

25,000

30,000


Ran

d p

er p

lati

nu

m o

un

ce

Cash cost per Pt oz

Basket price per Pt oz

MER tonnes

93%

UG2 tonnes

7%

Tonnes delivered 2021E

MER tonnes

UG2 tonnes

6 July 2016

Platinum

SA Platinum


Lonmin

Outlook

As a marginal producer, our price forecasts (based on marginal costs) leave

Lonmin leaking cash slowly but steadily over time. Lonmin's position as the

marginal producer with a single mine complex also leaves the group's balance

sheet vulnerable to both operational risks (strikes, safety stoppages,

operational failures) as well as to prices declining further. We believe higher-

than-forecast prices (i.e. above marginal cost) are unlikely in the medium term

given the well-supplied PGM metals market; and alternative sources of metal

for end-users from recycling and above-ground stocks. Lonmin has performed

operationally, assisted by its high ore reserve availability, and has no further

obvious levers to pull in our view. Management has already made the tough

decision to lower production: output from the Marikana complex will reduce by

100koz to 650kozpa over FY16 and FY17 as the Hossy and Newman Shafts are

closed and some of the smaller, contractor-operated mines are put onto care-

and-maintenance. We see a concentration of downside risks to being exposed

to the high-cost producer in an industry under pressure, and with low-prices

expected to persist for the medium term we have a Sell recommendation.

Valuation

Our price target is derived by applying a 1x multiple to the group's DCF

valuation. Our life-of-mine cash flows are discounted at a WACC of 10.0%

(Beta 1.4, ERP 6%).

Risks

Risks include a weaker-than-expected rand and/or higher-than-expected PGM

prices leading to stronger-than-forecast cash flow, taking pressure off the

balance sheet. Additional risks include corporate action or an approach for

Lonmin given its distressed position; better-than-expected production as a

result of unexpected improvements in productivity; grades; recoveries or a

combination of the above.

6 July 2016

Platinum

SA Platinum


Lonmin: changes to estimates

We have updated our Lonmin forecasts for new prices. Note that Lonmin,

reporting in USD, can have changes to reported metrics as a result of changes

in the Rand-USD forecasts even if margins are unchanged. We expect Lonmin

to be cash flow positive in FY17 before it turns cash flow negative again in

FY18 as it is required to ramp-up its capex spend.

Figure 106: Summary changes to estimates, FY16E-18E

Yr end September FY16e FY17e FY18e

Refined platinum production koz 717 668 654


% chg 0.0% 0.0% 0.0%

R basket incl base metals R/PGM oz 11,247 12,193 12,357

Previous 11,314 12,536 12,950

% chg -0.6% -2.7% -4.6%

Total C1 cash costs R/PGM oz 10,381 10,232 10,312

Previous 10,381 10,227 10,301

% chg 0.0% 0.0% 0.1%

Revenue US$m 1,045 999 1,030

Previous 1,039 968 1,038

% chg 0.6% 3.2% -0.8%

Underlying EBITDA US$m 96 98 128


% chg -4% -15% -22%

Net Profit/(Loss) US$m (5) (15) 5

Previous (1) 2 35

% chg >100% >100% -87%

Attributable profit US$m (3) (13) 4

Previous 0 1 30

% chg >100% >100% -87%

Underlying diluted EPS USc (2.5) (4.7) 1.4

Previous (1.1) 0.5 10.7

% chg >100% >100% -87%

Cash from operations US$m (2) 98 115

Previous (2) 122 136

% chg 25% -19% -15%

Total Capex US$m 80 71 142

Previous 80 67 137

% chg 0.0% 6.1% 3.9%

Net debt/(cash) US$m -112 -140 -113

Previous -113 -168 -167

% chg -0.4% -16.5% -32%


6 July 2016

Platinum

SA Platinum



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Lonmin Plc Reuters: LONJ.J Bloomberg: LON SJ

Sell Price (4 Jul 16) ZAR 43.37


52 Week range ZAR 8.70 - 258.05


USDm 745

Company Profile

Lonmin specialises in the mining of PGMs (platinum group metals). The group operates a number of platinum mines, concentrators, smelters and a refinery in its core Marikana operations, all situated in the Bushveld Igneous Complex of South Africa. The company's target is to produce 700koz in FY16, and 650kozpa in the two years thereafter.

Price Performance

0

150

300

450

600

750


Lonmin Plc FTSE/JSE ALL SHARE (Rebased)

Margin Trends

-160

-120

-80

-40

0

40

13 14 15 16E 17E 18E



-80

-60

-40

-20

0

20

-60

-40

-20

0

20

40

13 14 15 16E 17E 18E


Solvency

0

5

10

15

20

-10

-5

0

5

10

15

13 14 15 16E 17E 18E


Patrick Mann


Fiscal year end 30-Sep 2013 2014 2015 2016E 2017E 2018E

Financial Summary

DB EPS (USD) 0.20 0.05 -0.16 -0.02 -0.05 0.01

Reported EPS (USD) 0.31 -0.33 -2.86 -0.01 -0.05 0.01

DPS (USD) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (USD) 6.4 5.7 2.8 8.0 7.1 7.1


Average market cap (USDm) 31,245 32,518 14,024 745 745 745

Enterprise value (USDm) 30,779 32,304 13,953 383 354 381

Valuation Metrics P/E (DB) (x) 287.8 nm nm nm nm 214.6


P/BV (x) 10.11 6.60 1.13 0.37 0.42 0.42

FCF Yield (%) nm nm nm nm 3.3 nm

Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 20.2 33.5 10.8 0.4 0.4 0.4

EV/EBITDA (x) 101.2 nm nm 3.7 3.6 3.0

EV/EBIT (x) 209.4 nm nm nm nm 25.8

Income Statement (USDm)

Sales revenue 1,520 965 1,293 1,045 999 1,030

Gross profit 304 -113 -52 103 98 128

EBITDA 304 -113 -52 103 98 128

Depreciation 157 142 1,966 111 110 113


EBIT 147 -255 -2,018 -8 -12 15


Associates/affiliates 4 -6 -5 -2 0 0

Exceptionals/extraordinaries 0 0 0 0 0 0

Other pre-tax income/(expense) -2 -1 0 0 0 0

Profit before tax 140 -326 -2,262 -20 -21 6

Income tax expense -58 -123 -363 -15 -6 2

Minorities 32 -15 -238 -2 -2 1


Net profit 166 -188 -1,661 -3 -13 4

DB adjustments (including dilution) -57 219 1,567 -3 0 0

DB Net profit 109 31 -94 -6 -13 4

Cash Flow (USDm)

Cash flow from operations 16 -116 -12 -2 98 115

Net Capex -159 -93 -136 -80 -71 -142

Free cash flow -143 -209 -148 -83 28 -27



Net inc/(dec) in borrowings -742 175 331 -355 0 0

Other investing/financing cash flows -42 12 10 -15 0 0

Net cash flow -114 -58 177 -58 28 -27

Change in working capital -223 32 60 -47 9 -3

Balance Sheet (USDm)

Cash and other liquid assets 201 143 320 262 290 263




Other assets 539 451 391 376 360 363

Total assets 4,616 4,365 2,429 2,319 2,291 2,296

Interest bearing debt 0 172 505 150 150 150

Other liabilities 1,006 811 404 273 266 266

Total liabilities 1,006 983 909 423 416 416


Minorities 201 149 -109 -111 -113 -112


Net debt -201 29 185 -112 -140 -113

Key Company Metrics

Sales growth (%) nm -36.5 34.0 -19.2 -4.4 3.1

DB EPS growth (%) na -73.6 na 84.8 -90.5 na

EBITDA Margin (%) 20.0 -11.7 -4.0 9.9 9.9 12.4

EBIT Margin (%) 9.7 -26.4 -156.1 -0.7 -1.2 1.4

Payout ratio (%) 0.0 nm nm nm nm 0.0

ROE (%) 5.6 -5.7 -68.3 -0.2 -0.7 0.2

Capex/sales (%) 10.5 9.6 10.5 7.7 7.1 13.8


Net debt/equity (%) -5.6 0.9 12.2 -5.9 -7.4 -6.0

Net interest cover (x) 16.3 nm nm nm nm 1.7


6 July 2016

Platinum

SA Platinum



Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Lonmin Plc Reuters: LONJ.J Bloomberg: LON SJ

Sell Price (5 Jul 16) ZAR 42.32


52 Week range ZAR 8.70 - 258.05


USDm 714

Company Profile


Price Performance

0

150

300

450

600

750


Lonmin Plc FTSE/JSE ALL SHARE (Rebased)

Margin Trends

-160

-120

-80

-40

0

40

13 14 15 16E 17E 18E



-80

-60

-40

-20

0

20

-60

-40

-20

0

20

40

13 14 15 16E 17E 18E


Solvency

0

5

10

15

20

-10

-5

0

5

10

15

13 14 15 16E 17E 18E


Patrick Mann



Financial Summary

DB EPS (USD) 0.20 0.05 -0.16 -0.02 -0.05 0.01

Reported EPS (USD) 0.31 -0.33 -2.86 -0.01 -0.05 0.01

DPS (USD) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (USD) 6.4 5.7 2.8 8.0 7.1 7.1






P/BV (x) 10.11 6.60 1.13 0.36 0.40 0.40


Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 20.2 33.5 10.8 0.3 0.3 0.3

EV/EBITDA (x) 101.2 nm nm 3.4 3.3 2.7



Sales revenue 1,520 965 1,293 1,045 999 1,030

Gross profit 304 -113 -52 103 98 128

EBITDA 304 -113 -52 103 98 128

Depreciation 157 142 1,966 111 110 113


EBIT 147 -255 -2,018 -8 -12 15







Minorities 32 -15 -238 -2 -2 1


Net profit 166 -188 -1,661 -3 -13 4


DB Net profit 109 31 -94 -6 -13 4

Cash Flow (USDm)


Net Capex -159 -93 -136 -80 -71 -142

Free cash flow -143 -209 -148 -83 28 -27





Net cash flow -114 -58 177 -58 28 -27







Other assets 539 451 391 376 360 363

Total assets 4,616 4,365 2,429 2,319 2,291 2,296





Minorities 201 149 -109 -111 -113 -112


Net debt -201 29 185 -112 -140 -113

Key Company Metrics

Sales growth (%) nm -36.5 34.0 -19.2 -4.4 3.1


EBITDA Margin (%) 20.0 -11.7 -4.0 9.9 9.9 12.4

EBIT Margin (%) 9.7 -26.4 -156.1 -0.7 -1.2 1.4


ROE (%) 5.6 -5.7 -68.3 -0.2 -0.7 0.2

Capex/sales (%) 10.5 9.6 10.5 7.7 7.1 13.8


Net debt/equity (%) -5.6 0.9 12.2 -5.9 -7.4 -6.0




Running the numbers

Sub-Saharan Africa

South Africa

Platinum

Lonmin Plc Reuters: LMI.L Bloomberg: LMI LN

Sell Price (5 Jul 16) GBP 221.25

Target Price GBP 106.00

52 Week range GBP 36.75 - 1,284.81

Market Cap (m) GBPm 552

USDm 721

Company Profile


Price Performance

0

10

20

30

40


Lonmin Plc FTSE 100 INDEX (Rebased)

Margin Trends

-160

-120

-80

-40

0

40

13 14 15 16E 17E 18E



-150

-100

-50

0

50

-60

-40

-20

0

20

40

13 14 15 16E 17E 18E


Solvency

0

5

10

15

20

-10

-5

0

5

10

15

13 14 15 16E 17E 18E


Anna Mulholland, CFA



Financial Summary

DB EPS (USD) 0.20 0.05 -0.16 -0.02 -0.05 0.01

Reported EPS (USD) 0.31 -0.33 -2.86 -0.01 -0.05 0.01

DPS (USD) 0.00 0.00 0.00 0.00 0.00 0.00

BVPS (USD) 6.4 5.7 2.8 8.0 7.1 7.1






P/BV (x) 9.73 6.40 1.06 0.36 0.41 0.41


Dividend Yield (%) 0.0 0.0 0.0 0.0 0.0 0.0

EV/Sales (x) 19.6 32.4 10.7 0.3 0.3 0.3

EV/EBITDA (x) 97.8 nm nm 3.5 3.3 2.8



Sales revenue 1,520 965 1,293 1,045 999 1,030

Gross profit 304 -113 -52 103 98 128

EBITDA 304 -113 -52 103 98 128

Depreciation 157 142 1,966 111 110 113


EBIT 147 -255 -2,018 -8 -12 15







Minorities 32 -15 -238 -2 -2 1


Net profit 166 -188 -1,661 -3 -13 4


DB Net profit 109 31 -94 -6 -13 4

Cash Flow (USDm)


Net Capex -159 -93 -136 -80 -71 -142

Free cash flow -143 -209 -148 -83 28 -27





Net cash flow -114 -58 177 -58 28 -27







Other assets 539 451 391 376 360 363

Total assets 4,616 4,365 2,429 2,319 2,291 2,296





Minorities 201 149 -109 -111 -113 -112


Net debt -201 29 185 -112 -140 -113

Key Company Metrics

Sales growth (%) nm -36.5 34.0 -19.2 -4.4 3.1


EBITDA Margin (%) 20.0 -11.7 -4.0 9.9 9.9 12.4

EBIT Margin (%) 9.7 -26.4 -156.1 -0.7 -1.2 1.4


ROE (%) 12.4 -14.1 -124.0 -0.2 -1.0 0.3

Capex/sales (%) 10.5 9.6 10.5 7.7 7.1 13.8


Net debt/equity (%) -5.6 0.9 12.2 -5.9 -7.4 -6.0



6 July 2016

Platinum

SA Platinum


LONMIN OPERATIONAL AND FINANCIAL SUMMARY DATA - SEPTEMBER YEAR END

ASSUMPTIONS FY13 FY14 FY15 FY16e FY17e FY18e FY19e FY20e Valuation

ZAR/USD 9.24 10.55 12.01 15.18 15.71 15.13 13.79 13.26 USD Mn US$/Sh R/Sh

Platinum (USD/oz) 1,519 1,413 1,095 948 1,007 1,038 1,163 1,238 Mining operations:

Palladium (USD/oz) 709 787 718 555 599 676 738 788 Marikana & Pandora (100%) 446 1.58 23.3

Rhodium (USD/oz) 1,110 1,093 998 682 723 743 825 888 Less: JV minorities 80 0.28 4.2

Gold (USD/oz) 1,508 1,132 1,487 1,328 1,333 1,314 1,333 1,363 Total operations 366 1.30 19.1

PGM Basket Price, ZAR/ 6E oz 10,115 10,456 10,207 10,746 11,707 11,852 12,038 12,286 Corporate -67 -0.24 -3.5

PGM Basket Price, USD/ 6E oz 1,097 995 849 710 745 783 873 926 Exploration -68 -0.24 -3.6

PGMs in concentrate (koz) Less: Net debt/(cash) -114 -0.40 -5.9

Marikana 1,320 679 1,336 1,247 1,216 1,192 1,048 1,155 Total to shareholders 345 1.22 18.0

Pandora 79 37 74 73 82 80 66 65

Purchases 6 7 10 9 9 9 8 9 PGMs in concentrate, koz (2016F)

Total PGMs 1,405 725 1,420 1,329 1,307 1,280 1,123 1,229

Refined production (koz)

Platinum 709.0 436.2 759.7 717.1 667.9 654.0 575.7 626.8

Palladium 320.5 210.5 350.3 325.1 312.4 305.8 268.9 293.0

Gold 19.0 12.4 18.2 18.1 17.9 17.4 16.1 16.3

Rhodium 81.0 78.5 102.5 107.4 94.5 92.8 80.1 89.7

Ruthenium 177.6 114.6 183.9 167.0 157.0 154.1 133.2 149.0

Iridium 29.1 29.9 32.7 38.1 37.4 36.7 31.7 35.5

Total PGMs 1,336.1 882.1 1,447.4 1,372.8 1,287.1 1,260.8 1,105.8 1,210.3

Nickel (kt) 3.5 1.8 3.7 3.5 3.1 3.1 2.7 3.0

Copper (kt) 2.2 1.0 2.3 2.1 1.9 1.9 1.6 1.8

Refined sales (koz)

Platinum 695.8 441.7 751.6 730.1 667.9 654.0 575.7 626.8

Palladium 313.0 212.5 347.9 332.3 312.4 305.8 268.9 293.0

Gold 18.4 13.1 19.2 19.2 17.9 17.4 16.1 16.3 Refined production, koz

Rhodium 77.6 81.1 92.5 114.6 94.5 92.8 80.1 89.7

Ruthenium 168.3 121.9 192.5 170.1 157.0 154.1 133.2 149.0

Iridium 28.8 29.8 30.1 38.4 37.4 36.7 31.7 35.5

Total PGMs 1,302.0 900.1 1,433.9 1,404.7 1,287.1 1,260.8 1,105.8 1,210.3

Nickel (kt) 3.6 2.3 3.7 3.5 3.1 3.1 2.7 3.0

Copper (kt) 2.1 1.4 2.1 2.1 1.9 1.9 1.6 1.8

Cash costs (PGM)

Cash cost, ZAR/ 6E oz 9,183 13,539 10,339 10,381 10,232 10,312 11,135 10,897

Cash cost, USD/ 6E oz 994 1,284 861 684 651 682 808 822

Financials (US$m)

Underlying EBITDA 321 194 21 96 98 128 78 132

Operating cash f low 16 -116 -12 -2 98 115 67 93

Capex 159 93 136 80 71 142 187 238

Cash cost profile Financials, US$m

Source : Company data, DB estimates

400

600

800

1,000

1,200

1,400

FY13 FY14 FY15 FY16e FY17e FY18e FY19e FY20e

PGM Basket Price, USD/ 6E oz Cash cost, USD/ 6E oz

-150

-100

-50

0

50

100

150

200

250

300

350

-150

-100

-50

-

50

100

150

200

250

300

350


Capex Operating cash flow Underlying EBITDA

Marikana, 1,247

Pandora, 73

Purchases, 9

0

200

400

600

800

1,000

1,200

1,400

1,600


Platinum Palladium Gold Rhodium Ruthenium Iridium

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Appendix 1

Important Disclosures

Additional information available upon request

*Prices are current as of the end of the previous trading session unless otherwise indicated and are sourced from local exchanges via Reuters, Bloomberg and other vendors . Other information is sourced from Deutsche Bank, subject companies, and other sources. For disclosures pertaining to recommendations or estimates made on securities other than the primary subject of this research, please see the most recently published company report or visit our global disclosure look-up page on our website at http://gm.db.com/ger/disclosure/DisclosureDirectory.eqsr

Analyst Certification

The views expressed in this report accurately reflect the personal views of the undersigned lead analyst about the subject issuers and the securities of those issuers. In addition, the undersigned lead analyst has not and will not receive any compensation for providing a specific recommendation or view in this report. Patrick Mann

Equity rating key Equity rating dispersion and banking relationships

Buy: Based on a current 12- month view of total share-holder return (TSR = percentage change in share price from current price to projected target price plus pro-jected dividend yield ) , we recommend that investors buy the stock.

Sell: Based on a current 12-month view of total share-holder return, we recommend that investors sell the stock

Hold: We take a neutral view on the stock 12-months out and, based on this time horizon, do not recommend either a Buy or Sell.

Newly issued research recommendations and target prices supersede previously published research.

44 %50 %

6 %26 % 23 %

0 %0

5

10

15

20

25

30

35

40

Buy Hold Sell

GEMs South African Universe

Companies Covered Cos. w/ Banking Relationship

Regulatory Disclosures

1.Important Additional Conflict Disclosures

Aside from within this report, important conflict disclosures can also be found at https://gm.db.com/equities under the

"Disclosures Lookup" and "Legal" tabs. Investors are strongly encouraged to review this information before investing.

2.Short-Term Trade Ideas

Deutsche Bank equity research analysts sometimes have shorter-term trade ideas (known as SOLAR ideas) that are

consistent or inconsistent with Deutsche Bank's existing longer term ratings. These trade ideas can be found at the

SOLAR link at http://gm.db.com.

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Additional Information

The information and opinions in this report were prepared by Deutsche Bank AG or one of its affiliates (collectively

"Deutsche Bank"). Though the information herein is believed to be reliable and has been obtained from public sources

believed to be reliable, Deutsche Bank makes no representation as to its accuracy or completeness.

If you use the services of Deutsche Bank in connection with a purchase or sale of a security that is discussed in this

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Deutsche Bank may consider this report in deciding to trade as principal. It may also engage in transactions, for its own

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loss. The longer the maturity of a certain cash flow and the higher the move in the discount factor, the higher will be the

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administrative warnings from the SEBI for breaches of Indian regulations.

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distributed by Deutsche Bank AG. Related financial products or services are only available to Professional Clients, as

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