Materials Analyst/Strategist, Janus Analysis

Gaius King

Materials Analyst/Strategist

Accelerating Tomorrow’s Independent Research

Boost Research

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Thematic (Sector/Industry)

<ul>
<li>Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth</li>
<li>Widespread adoption of Hydrogen considered unlikely</li>
<li>41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand</li>
<li>Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies</li>
<li>Hybrid premium ~ 8% like-for-like over a combustion vehicle </li>
<li>Carpooling/ride-share platforms have hallmarks of being a macro-trend</li>
<li>W. Asian carpool CAGR of 77.6% over past 11 years</li>
<li>Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership
</li>
<li>Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance </li>
<li>Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum</li>
<li>Primary platinum-surplus to grow in time, downward pressure on price</li>
</ul>
Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?


Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth
Widespread adoption of Hydrogen considered unlikely
41% of Platinum &amp; 84% of Palladium reliant on autocatalyst demand
Hybrids in Europe up 107% in three years at 1:7 to diesel counterparts, without subsidies
Hybrid premium ~ 8% like-for-like over a combustion vehicle 
Carpooling/ride-share platforms have hallmarks of being a macro-trend
W. Asian carpool CAGR of 77.6% over past 11 years
Est. by close 2019 &gt;62m people globally will utilise trans. platforms, forgoing car ownership

Adverse impact on vehicle growth, models, drive-trains, R&amp;D, insurance &amp; finance 
Logistics industry diesel transitioning will affect LT PGM demand, in particular platinum
Primary platinum-surplus to grow in time, downward pressure on price

Auto-catalysts make up the majority of platinums (41%) and in particular, palladium (84%) end use demand.  To determine the future demand profile for PGMs, therefore, we examined the types and likelihood of future drivetrains, as well as technologies affecting unit demand.
Hydrogen's key attraction is its potential green credentials, and if it was to ever became a reality, resultant PGM catalyst demand would outstrip all existing suppliers.  To achieve that noble aim, however, gargantuan energy resources would be needed to conduct electrolysis of water, thermodynamically, a very energy intensive process.  Our analysis concludes that hydrogen will remain a boutique industry, confined to economies with abundant hydrocarbon production, with conversion relying on steam reformation.  Overall impact of hydrogen on PGM demand, will be marginal at best.
Presently, EVs have substantial range and recharge hurdles to overcome before they could ever be a primary mode of transport for many; with global demand primarily driven by Chinese directives, not by the Western consumer.  In the short to medium-term, we do not expect EVs to impact PGM demand significantly.  However, we preface that statement by our belief that in the longer-term, the largest adopter of EVs will be within the commercial logistics sector, currently dominated by diesel power plants, which rely on a substantial amount of platinum within its auto-catalysts.  Widespread adoption of EVs and robotic drones and the replacement of traditional diesel drivetrains will only exacerbate current over-supply in platinum, in time, we forecast its price to fall substantially.
Hybrid sales are up 107% in Europe over the past three years without any state subsidies.  It is reasonable to assume that potential demand of PGMs have, and will continue to be, stymied by hybrid advances.  But we expect overall (even modest) growth in car volume sales should maintain current market dynamics, in the short to medium term.
Carpooling and a host of other transactional transport options are now a realistic, flexible and affordable life-style choice, that contradict the necessity of car ownership.  Especially among the inner-city urbanites, with Asia averaging a CAGR of 77.6% over the past decade.  Car manufacturers are already experiencing significant sales headwinds.  On average it has been found that members/fleet ratio (i.e. No. of cars divided by No. of members) range between 61 – 76, a fraction of unit demand when compared with an average Western family of three or four members, often owning two vehicles.  Using decade average regional CAGRs, projecting three years in advance, the potential number of decreased car sales globally could reach 62m by the close of 2019.  To put that into context, Volkswagen and Toyota produce between 10 to 11m  units each pa.  This raises the question of whether recent sluggish global car sales is somehow related to the almost exponential growth in carpooling/ride-share platforms?

PGMs: Facing Technological Obsolescence? (P. 2)

Leading Independent Investment Research, Morningstar, Inc.

Morningstar

Leading Independent Investment Research

Morningstar, Inc.

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We think the market, on balance, is too optimistic on the outlook for the mining services sector, with an average 34% overvaluation for the nine companies we cover. Our sector fair value factors 4.5% annual revenue growth for the five years to fiscal 2021, including no growth in fiscal 2017. EBITDA growth is a bit higher at 6.4%, due to aggressive cost-outs and industry deflation. Mining and energy remain the foundations, supporting an estimated two thirds of sector earnings. However, we don’t expect investment activity here to bottom until fiscal 2018, and even then, expect only a modest turnaround—well below what the market is pricing in. Instead, we view growth stemming from increased maintenance activity, rising public infrastructure spending unrelated to mining and energy (particularly in Australian road and rail programs in line with government budgets), and other specialised nonmining activities like ALS Limited’s life sciences focus. More than half our forecast earnings boost is totally unrelated to resources; we believe the market overestimates the likely improvement in commodity investment.We derive a sector price/fair value of 1.34, with all companies trading at some premium. Least overvalued is are global explosives provider <a href="https://www.smartkarma.com/entities/895" target="_blank" data-smartkarma-citation="entities:895:1">Orica Ltd (ORI AU)</a> at 1.1, and authorised Caterpillar dealer <a href="https://www.smartkarma.com/entities/803" target="_blank" data-smartkarma-citation="entities:803:1">Seven Group Holdings Ltd (SVW AU)</a> at 1.2. Most overvalued are materials tester <a href="https://www.smartkarma.com/entities/14351" target="_blank" data-smartkarma-citation="entities:14351:1">Als Ltd (ALQ AU)</a> at 1.7, and oil and gas engineering services provider <a href="https://www.smartkarma.com/entities/178" target="_blank" data-smartkarma-citation="entities:178:1">Worleyparsons Ltd (WOR AU)</a>  at 1.6.Analyst: Mark Taylor

We think the market, on balance, is too optimistic on the outlook for the mining services sector, with an average 34% overvaluation for the nine companies we cover. Our sector fair value factors 4.5% annual revenue growth for the five years to fiscal 2021, including no growth in fiscal 2017. EBITDA growth is a bit higher at 6.4%, due to aggressive cost-outs and industry deflation. Mining and energy remain the foundations, supporting an estimated two thirds of sector earnings. However, we don’t expect investment activity here to bottom until fiscal 2018, and even then, expect only a modest turnaround—well below what the market is pricing in. Instead, we view growth stemming from increased maintenance activity, rising public infrastructure spending unrelated to mining and energy (particularly in Australian road and rail programs in line with government budgets), and other specialised nonmining activities like ALS Limited’s life sciences focus. More than half our forecast earnings boost is totally unrelated to resources; we believe the market overestimates the likely improvement in commodity investment.We derive a sector price/fair value of 1.34, with all companies trading at some premium. Least overvalued is are global explosives provider Orica Ltd (ORI AU) at 1.1, and authorised Caterpillar dealer Seven Group Holdings Ltd (SVW AU) at 1.2. Most overvalued are materials tester Als Ltd (ALQ AU) at 1.7, and oil and gas engineering services provider Worleyparsons Ltd (WOR AU)  at 1.6.Analyst: Mark Taylor

Shares Overcook Potential for a Mining Services Turnaround

FX Strategist

Greg Gibbs

Fundamental analysis of topical themes in FX

Amplifying Global FX Capital

Amplifying Global FX Capital was founded in 2015 and is fully owned by Greg Gibbs. It is a registered company both in Australia and Colorado, USA and is a licensed in Australia to provide financial services.

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Greg Gibbs has spent his working life of more than 26 years in financial markets, beginning in 1989 at the Reserve Bank of Australia, after completing a Bachelor of Economics Degree (Honours) at the Australian National University. He has been a CFA Charterholder since 2005. He has worked in Sydney, Singapore, New York and London for major global banks and presented on foreign exchange markets to major financial institutions and companies around the world, and maintained a high profile in the financial media.

Before Amplifying Global FX Capital, Greg was the Head of Asia Pacific Market Strategy at the Royal Bank of Scotland based Singapore. He now resides in Breckenridge Colorado.

Macroeconomics

Domestic Australian factors are being overshadowed by global developments.  These global drivers account for both its rapid rebound over the last month and its significant correction in recent days.  Throughout this move we have been skeptical that the AUD can sustain its rally with significant local political and economic uncertainty.  These risks remain and continue to make it difficult to hold long AUD positions.  On the other hand, political and economic uncertainty in many alternative currencies are equally troubling. In Australia, economic momentum picked up in 2015, but has been more mixed in 2016.  The housing market is starting to ebb from strong levels, political risks remain elevated, bank equity performance has been weak, potentially a drag on confidence.  However, Global drivers remain in control, and while uncertainty is elevated in Australia, it is not clear that it will be sufficient to throw the Australian economy off course.  The RBA Statement continued to express a steady policy outlook albeit with an easing bias.

Domestic Australian factors are being overshadowed by global developments.  These global drivers account for both its rapid rebound over the last month and its significant correction in recent days.  Throughout this move we have been skeptical that the AUD can sustain its rally with significant local political and economic uncertainty.  These risks remain and continue to make it difficult to hold long AUD positions.  On the other hand, political and economic uncertainty in many alternative currencies are equally troubling. In Australia, economic momentum picked up in 2015, but has been more mixed in 2016.  The housing market is starting to ebb from strong levels, political risks remain elevated, bank equity performance has been weak, potentially a drag on confidence.  However, Global drivers remain in control, and while uncertainty is elevated in Australia, it is not clear that it will be sufficient to throw the Australian economy off course.  The RBA Statement continued to express a steady policy outlook albeit with an easing bias.

AmpGFX - AUD in No Man's Land, Political and Economic Risks Remain Elevated

Special Situations, Content Strategist, Smartkarma

Crispin Francis

Special Situations, Content Strategist

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Event-Driven

17 March 2016 - BRIEF-Competition Tribunal conditionally approves Sibanye-Aquarius Platinum deal<ul><li>Tribunal has approved the merger of Sibanye Rustenburg Platinum Mines Proprietary Ltd and Rustenburg Mines, subject to certain conditions: retrenchments as a result of the consolidation shall be limited to 260 employees. </li></ul>Source: <a href="http://www.reuters.com/article/idUSFWN16O05A" target="_blank">Reuters</a>AQP is listed on the ASX, LON and JSE; the USD 0.195 offer will be converted to the local currency of shareholders. <table class="table table-striped"><tbody>
<tr>
<td>Ticker</td>
<td>Share Price (lc ccy)</td>
<td>Ccy Code</td>
<td>FX Rate</td>
<td>Offer Price</td>
</tr>
</tbody></table>…

17 March 2016 - BRIEF-Competition Tribunal conditionally approves Sibanye-Aquarius Platinum dealTribunal has approved the merger of Sibanye Rustenburg Platinum Mines Proprietary Ltd and Rustenburg Mines, subject to certain conditions: retrenchments as a result of the consolidation shall be limited to 260 employees. Source: ReutersAQP is listed on the ASX, LON and JSE; the USD 0.195 offer will be converted to the local currency of shareholders. 

Ticker
Share Price (lc ccy)
Ccy Code
FX Rate
Offer Price

…

<ul><li>On 6 Oct 2015, JSE-listed Sibanye Gold submitted an offer for&nbsp;Aquarius.</li><li>The Offer is at USD 0.195 per share of AQP for ASX, JSE or&nbsp;LSE listed counters.</li><li>Shareholders will receive their cash payment in AUD, ZAR or GBP according to the prevailing exchange rates at 5pm (Sydney Time) on the Record Date (fifth business day after the last trade date).</li></ul>The Amalgamation&nbsp;Booklet has just been released along with the IFA&nbsp;Report. The IFA has concluded that the deal is fair and reasonable and the directors have unanimously recommendedSurprisingly , the spread for all three counters is wide, ranging from 17 to 19%!In this insight, we take an in-depth look through the Amalgamation&nbsp;Booklet and IFA report. We identify the key risks to the transaction and discuss&nbsp;if the spreads deserve to be this wide or if this is a great arbitrage opportunity.

On 6 Oct 2015, JSE-listed Sibanye Gold submitted an offer for&nbsp;Aquarius.The Offer is at USD 0.195 per share of AQP for ASX, JSE or&nbsp;LSE listed counters.Shareholders will receive their cash payment in AUD, ZAR or GBP according to the prevailing exchange rates at 5pm (Sydney Time) on the Record Date (fifth business day after the last trade date).The Amalgamation&nbsp;Booklet has just been released along with the IFA&nbsp;Report. The IFA has concluded that the deal is fair and reasonable and the directors have unanimously recommendedSurprisingly , the spread for all three counters is wide, ranging from 17 to 19%!In this insight, we take an in-depth look through the Amalgamation&nbsp;Booklet and IFA report. We identify the key risks to the transaction and discuss&nbsp;if the spreads deserve to be this wide or if this is a great arbitrage opportunity.

Australia

Aquarius Platinum Limited is a platinum group metals producer in Africa.  The Company, through subsidiaries, operates the Kroondal and Marikana mines and also has stakes in the Mimosa Platinum Mine in Zimbabwe.

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Aquarius Platinum (AQP AU)

PGMs: Facing Technological Obsolescence? (P. 2)

Transportation industries Kodak Moment embracing Hybrids, modest near-term EV growth Widespread adoption of Hydrogen considered unlikely 41% of...

Boost Research

Shares Overcook Potential for a Mining Services Turnaround

We think the market, on balance, is too optimistic on the outlook for the mining services sector, with an average 34% overvaluation for the nine...

Morningstar, Inc.

AmpGFX - AUD in No Man's Land, Political and Economic Risks Remain Elevated

Domestic Australian factors are being overshadowed by global developments. These global drivers account for both its rapid rebound over the last...

Greg Gibbs

Aquarius - Antitrust Approval Granted

17 March 2016 - BRIEF-Competition Tribunal conditionally approves Sibanye-Aquarius Platinum dealTribunal has approved the merger of Sibanye...

Crispin Francis

Aquarius - Platinum Rating?

On 6 Oct 2015, JSE-listed Sibanye Gold submitted an offer for Aquarius. The Offer is at USD 0.195 per share of AQP for ASX, JSE or LSE listed...

Crispin Francis

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