Platinum Foresight - Adapt or
die.
PGM markets, earnings & valuations updated.
Resuming ratings for IMP on OW, NHM on N.
Downgrading AMS to UW from N.
Gold & Precious Metals
Steve ShepherdAC
(27-11) 507-0386
steve.a.shepherd@jpmorgan.com
Allan CookeAC
(27-11) 507-0384
allan.j.cooke@jpmorgan.com
J.P. Morgan Equities Ltd.
Summary Ratings and Estimates
Company Price Rating Price Target PT End Date Metric Current FYE Next FYE
Anglo American Platinum Corporation Ltd (c) 43,000 UW (c) 36,900 Jul-09 Adj. EPS (c) 4,540.00 (c) -1,490.00
prior N (c) 46,000 May-09 (c) 5,110.00 (c) -170.00
Aquarius Platinum Limited (p) 154 UW (p) 117 Jul-09 Adj. EPS ($) (0.33) ($) 0.03
prior (p) 142 May-09 ($) (0.10) ($) 0.11
Eastern Platinum Ltd. (c) 295 OW (c) 520 Jul-09 Adj. EPS ($) 0.06 ($) 0.01
prior (c) 700 May-09 ($) 0.09
Impala Platinum Holdings Ltd (c) 12,199 OW (c) 14,100 Jul-09 Adj. EPS (c) 877.00 (c) 371.00
prior (c) 22,200 Feb-09 (c) 1,279.00 (c) 877.00
Lonmin plc (p) 789 N (p) 790 Jul-09 Adj. EPS ($) (1.13) ($) (0.72)
prior (p) 1,210 May-09 ($) (0.80) ($) 0.04
Northam Platinum Ltd (c) 1,775 N (c) 2,040 Jul-09 Adj. EPS (c) 147.00 (c) -4.00
prior (c) 4,800 Feb-09 (c) 134.00 (c) 59.00
Source: Company data, Reuters, J.P. Morgan estimates. All prices as at 09 Jan 22 except for Anglo American Platinum Corporation Ltd[09 Jan 21].
See page 55 for analyst certification and important disclosures, including non-US analyst disclosures.
J.P. Morgan does and seeks to do business with companies covered in its research reports. As a result, 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.
Figure 1: Platinum sector vs PGM
basket price
Base 100
0
50
100
150
200
Jan-08
Apr-08
Jul-08
Oct-08
Jan-09
JSE Platinum Index
Rand Basket price (6E+Ni+Cu)
Source: Bloomberg
• When we published our last Foresight in Nov 2008, we highlighted a
bleak outlook and the impact of a collapse in PGM prices on the miners.
The picture has since deteriorated, with poor global vehicle sales data and
rising inventories, while consumers are in survival mode. Timing a
recovery is tricky.
• Miners are stamping on the capex brakes and in some cases production
too. Globally we see cuts of c840koz compared to our November analysis.
But we still see a potential oversupply in 2009 & 2010 and caution about
underestimating the recent shocks to generally over-borrowed consumers.
Employers are shedding jobs and home prices are still declining, so
purchases of cars, electronic “toys” and expensive jewellery can’t be a
priority for consumers (and credit for such purchases has dried up). These
products are key demand drivers for PGMs.
• By our calculation, the Pt equities all offer value using LT prices. But
with horrible numbers in prospect for the next two reporting seasons (Feb &
August) at least in our view, and with uncertainty over the timing of a
recovery, we’ll be surprised if shares don't retreat again before this is over.
We think it's too soon to buy, but is it too late to sell? We certainly think
there’ll be a cheaper time to buy. We remain UW Platinum and continue to
prefer gold. Our stock-specific recommendations focus on cash flow,
balance sheet strength and management delivery.
• On a Pt sector relative basis, our preferred major exposure on a 6m view is
defensive and cash-flush Implats (OW). We downgrade AMS to UW (N) -
the visible metrics look weak, as does the cash flow, & the balance sheet
carries debt. We resume coverage on Northam with our previous N rating.
Cashed up Eastplats appears mispriced in our numbers: OW. Problembeset
Aquarius’ valuation still appears demanding in our view (UW). We
revise our EPS forecasts for the platinum companies based on our latest
industry outlook (see Table 2).
• Our theme in this note is the need for and possible direction of
restructuring of the SA Pt industry. It’s about capital, operating and tax
efficiency – change is needed, in our view.

Table of Contents
Introduction ..............................................................................4
The platinum industry has seen a precipitous metals price collapse ............................4
Price-induced distress and mining mishaps have forced
platinum production cuts ........................................................5
Platinum miners’ margins hammered by the PGM prices collapse .............................5
Supply-side interventions.............................................................................................6
Current PGM prices won’t sustain the platinum industry LT......................................7
What of demand? – A vexed question....................................8
No sustained commodities bull market has ever been created by reducing supply......8
A rapid rebound in metal prices looks a long-shot to us......9
Inventory may be an immediate concern .....................................................................9
A way ahead for the SA Platinum industry: Rationalisation
.................................................................................................11
Time to eliminate the misfits .....................................................................................11
Will low PGM prices overcome “the battle of the egos”? .........................................11
Western Bushveld misfits ..........................................................................................13
Eastern Bushveld misfits............................................................................................15
Northern Bushveld misfits .........................................................................................16
Conclusions................................................................................................................17
Exchange rate, metal price and costs escalation
assumptions ...........................................................................19
Key Company-specific model changes & EPS forecasts ...20
AngloPlat ...................................................................................................................20
Implats .......................................................................................................................21
Lonmin.......................................................................................................................21
Northam .....................................................................................................................21
Aquarius.....................................................................................................................21
Eastern Platinum ........................................................................................................22
DCF-based valuation and price targets ................................22
Derivation of price targets .........................................................................................23
AngloPlat ...................................................................................................................24
Implats .......................................................................................................................25
Lonmin.......................................................................................................................26
Northam .....................................................................................................................28
Aquarius.....................................................................................................................29
Eastplats.....................................................................................................................30
Risks to our valuations and price targets ............................32
Sensitivity analysis ................................................................33
Investment conclusion...........................................................34

Tables
Table 1: Summary of key PGM price forecast changes.............................................19
Table 2: Summary of EPS forecast updates...............................................................20
Table 3: Platinum company WACC (rand terms) calculation assumptions...............22
Table 4: DCF-based valuations and price target summary ........................................23
Table 5: DCF sensitivity to key pricing assumptions ................................................33
Table 6: FY2010 EPS sensitivity to key pricing assumptions ...................................33
Table 7: Base case DCF sensitivity to discount rates.................................................33
Table 8: DCF sensitivity to resource valuation..........................................................33
Table 9: Platinum market Analysis............................................................................35
Table 10: Quarterly and long-term platinum price forecasts .....................................36
Table 11: Palladium market Analysis ........................................................................37
Table 12: Quarterly and long-term palladium price forecast .....................................38
Table 13: Rhodium market demand and supply tables ..............................................39
Table 14: Quarterly and long-term rhodium price forecast........................................40
Figures
Figure 1: Platinum sector vs PGM basket price........................................................... 1
Figure 2: Basket prices.................................................................................................5
Figure 3: Break-Even platinum price including maintenance capex for FY2009........6
Figure 4: "Harvest mode" break-even platinum prices for FY2009.............................7
Figure 5: Global auto sales ........................................................................................10
Figure 6: Global auto sales and production................................................................10
Figure 7: The platinum fields of southern Africa.......................................................12
Figure 8: Northern sector of the W Bushveld ............................................................13
Figure 9: Southern sector of the W Bushveld ............................................................14
Figure 10: The eastern sector of the Bushveld...........................................................15
Figure 11: The northern sector of the Bushveld.........................................................16
Figure 12: AMS Share Price ......................................................................................24
Figure 13: AMS vs JSE Plat index.............................................................................24
Figure 14: Breakdown of our DCF-based valuation for Angloplat............................24
Figure 15: IMP Share Price........................................................................................25
Figure 16: IMP vs JSE Plat index ..............................................................................25
Figure 17: Breakdown of our DCF-based valuation for Implats................................26
Figure 19: LON vs JSE Plat Index.............................................................................26
Figure 20: Lonmin DCF Breakdown .........................................................................27
Figure 21: NHM Share Price .....................................................................................28
Figure 22: NHM vs JSE Plat index............................................................................28
Figure 23: Breakdown of our DCF-based valuation for Northam .............................29
Figure 25: AQP vs JSE Plat Index.............................................................................29
Figure 26: Aquarius DCF Breakdown .......................................................................30
Figure 27: EPS share price.........................................................................................30
Figure 29: Eastplats DCF Breakdown .......................................................................31
Figure 30: Platinum NYMEX non-commercial positions (contracts)........................35
Figure 31: Palladium NYMEX non-commercial positions (contracts of 1000ozs) ...37
Figure 32: The Rhodium Price...................................................................................39
Appendices
Appendix I: PGM markets analysis ...........................................................................35
Appendix II: Company-specific investment arguments,
financial statements and risks ....................................................................................41