Metal fatigue
PORTFOLIO JOHN BULL
Last week I described Lonrho, the African trading group with a London quotation, as a speculation. The share price had shot up from around 21s to 37s on the news that the company had found platinum under 12,700 acres of its land. My own purchase, of 250 shares was made at 36s 3d. Since then the platinum market has had an unpleasant shock. Rustenburg Platinum, which is the leading producer, an- nounced that Universal Oil Products of America had found a new petrol reforming catalyst which for a given reforming capacity will utilize platinum more efficiently. At the same time, Rustenburg intends to increase the capacity of its mines from their present 750,000 ounces per annum beyond the 850,000 previously envisaged to 1 million ounces. Rustenburg expects to be hitting 850,000 ounces towards the end of 1969, 950,000 in early 1970 and 1 million by the end of that year. The board believes that once Rustenburg produces platinum at the rate of approximately 1 million ounces per annum—'world demand for platinum will be adequately met, and that market may indeed from time to time and in certain circumstances be oversupplied?
The effect of this convoluted and somewhat threatening announcement has been clear enough. Share prices have come back fast. In three trading days Potgietersrust has fallen from 77s 6d to 68s 6d, Lydenburg from 162s 6d to 142s 6d, Union Platinum from 67s 6d to 58s 9d and Waterval from 71s 3d to 613, 3d— all companies with direct or indirect interests in Rustenburg. Lonrho has become a rather wild market, managing on Tuesday, for in- stance, to close 6d harder at 33s 6d against the trend. The question is: does one exit from the platinum scene, accepting the small loss in- volved (2s 9d a share plus expenses) on Lonrho?
I have decided• to hang on. I am impressed by Rustenburg's decision to increase capacity. which acknowledges that demand for the metal will continue to rise partly because the oil industry itself is expanding its use of the sort of plant which uses platinum, albeit more efficiently in the future: and partly because new uses for platinum are being developed, in nitric acid plants, for instance, for fertiliser produc- tion. I also take courage from the fact that the huge premium which the open market sup- plies command—£100 to £110 an ounce—pro vides a good buffer for the mines selling at the producer price (£50 an ounce), as I assume Lonrho will. That is, if an over-supply situation does develop, then the first casualty will be the free market price. And as the free market at present supplies about one quarter of world needs, it is a substantial shock absorber. In any case, Lonrho's possible output will increase world supplies by only about 7 per cent.
. If Lonrho can make a profit at a pro- ducer price of £50, then the shares will be worth considerably more than their present level. If the company's platinum find is un- economical, then the shares go back to where they were-21s. I am not suggesting that the market was wrong to mark down the platinum producers. Prospects now are not quite so good as they were. But the £50 an ounce producer price looks safe enough to me, and that is what matters to Lonrho.
Valuations at 11 September 1968 First portfolio 100 Empire Stores at 74s 6d .. £372 50 Phoenix Assurance at 182s 6d . • £456 225 Lyle Shipping at 23s £259 100 Unilever at 77s 3d • • £386 £2,000 War Loan at £47 • • • • £940 300 Witan at 21s .. • • • • £315 250 E. Scragg at 27s £337 50 Barclays Bank at 84s 9d £212 200 Throgmorton Secured Growth
(Capital) at 19s, 9d • • • • £198 leo National and Grindlays Bank
at 65s •• •• •• •• £325 500 Clarkson (Engineers) at 16s 6d .. £412 60 Rio Tinto Zinc at 154s 6d .. £453 1,000 Associated British Foods at 13s 61d £678 1,000 Jamaica Public Service at 6s lid £306 250 Associated British Picture at 43s .. £538 Cash with local authority at 7i per cent £438 £6,625
Deduct: expenses £160
Total £6,465 Second portfolio: Total £5,236 (details next week).
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