Africa’s biggest fund manager favors South African platinum equities over those of gold, betting against the price performance of the metals and the share performance of the companies that mine them.
The Pretoria, South Africa-based Public Investment Corp., which manages the equivalent of $150 billion, is the biggest or second-largest shareholder in South Africa’s four top gold producers and two largest platinum miners, according to data compiled by Bloomberg. It prefers platinum because of the metal’s industrial applications, while gold is primarily used in jewelry or for investment purposes, Chief Investment Officer Daniel Matjila said.
The gold price advanced 7.1 percent this year compared with a 3.7 percent gain for platinum. At the same time, an index of gold stocks traded in Johannesburg surged 51 percent, heading for its first annual increase in three, while a measure of platinum shares declined 12 percent in what will be its fourth year of losses.
“Platinum is strategic in the long term,” Matjila said in an Aug. 27 interview at Bloomberg’s offices in Johannesburg. “We like industrial metals, not those about sentiment.”
South Africa is the world’s biggest producer of platinum, accounting for about three quarters of all supply, and Africa’s largest supplier of gold.
The PIC, which manages money on behalf of the Government Employees Pension Fund, holds 11.8 percent of Impala Platinum Holdings Ltd., the second-largest producer of the metal, and 3.2 percent of Anglo American Platinum Ltd., the biggest. It also owns 7.6 percent of AngloGold Ashanti Ltd., 7.7 percent of Gold Fields Ltd., 7.5 percent of Sibanye Gold Ltd. and 6.5 percent of Harmony Gold Mining Co.
Output tumbled at Anglo American Platinum, Impala and Lonmin Plc after a five-month wage strike this year, prompting them to review growth plans or put mines up for sale.
“We want to hang in there,” Matjila said. “It should bounce back at some point. We are a long-term player.”
Police shot dead 34 protesters in August 2012 during a wage strike at Lonmin’s Marikana mine, the deadliest police action since the end of apartheid in 1994.
“The most important thing is to try and resolve all these problems around mining, the Marikana issue, the social issue,” Matjila, 52, said. “We need to come up with a solution, at least a long term solution.”
South Africa plans to promote manufacturing to reinvigorate sluggish economic growth, which measured an annualized 0.6 percent in the second quarter after contracting 0.6 percent in the first three months of the year. South African companies should explore more ways of using platinum in domestic manufacturing, Matjila said.
Platinum is used in catalytic converters to reduce pollution from cars and its use in fuel cells, which convert hydrogen into electricity, is being explored.
“It’s got such good industrial use,” Matjila said. “We need to figure out how to enhance that. Maybe through beneficiation and many other things, industries around that. And try to create even better value.”
The PIC will keep stakes in gold producers, Matjila said.
“We’ll continue to play in gold,” Matjila said. “It’s still one of the most important precious metals in our view, but we don’t believe we’ll go in in a big way. The best we can do is just to keep the position we have at the moment.”
The PIC is simultaneously planning to boost its investment in energy, a shortage of which has stifled South Africa’s economic growth.
The PIC will invest into potential shale gas projects “in a big way,” Matjila said.
Explorers including Royal Dutch Shell Plc seek to tap as much as 390 trillion cubic feet of gas resources beneath the semi-arid Karoo region, an area the size of Montana, the eighth-biggest deposits in the world, according to the U.S. Energy Information Administration.
As the government turns to private companies to help state-owned power utility Eskom Holdings SOC Ltd. fill a 225 billion-rand expansion funding shortfall in the five years through March 2018, the PIC will also be a “big player” in financing new power plants, Matjila said.