PGM_outlook-100119_watermark

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Risks

Our earnings forecasts and valuations are based on assumptions detailed in this report. Our forecasts are subject to downside risks, including the following:

▪Lower-than-forecast commodity prices.

▪Stronger-than-forecast producer currencies.

▪High global debt levels. The IMF recently warned that public and private sector debt has increased to $164trn or 225% of global GDP in 2018. This is higher than its previous peak in 2009.

▪Trade barriers. A full-blown global trade war could have a negative impact on global economic growth.

▪Electric vehicle production growth could decrease demand for PGMs.

▪Supply growth from a recent ramp-up of latent capacity that was mothballed during the low commodity price environment in 2015 and 2016.

▪Value-destruction through poor capital allocation – unexpected value-destructive acquisitions or the approval of marginal projects. The Norilsk shareholder shootout transaction could influence our earnings forecasts and valuation materially, with a wide range of potential outcomes.

▪Resource nationalism, including risks of higher mining taxes and royalties, pressure on miners to spend more on communities or the environment and possibly outright expropriation of mining assets. We do not see this theme disappearing and believe there could be upside risk to miners’ spending on royalties, taxes and communities.

▪Increased government regulation in producer countries, which could negatively affect profitability.

▪Higher-than-forecast mining inflation, especially if recovering demand puts pressure on scarce resources and skills.

▪Higher-than-forecast maintenance capex – miners need to spend more capex to maintain volumes as mining complexity increases. Underestimating maintenance capex would negatively affect our valuations.

▪Infrastructure constraints and shortages of skills, electricity and water in mining regions could affect production and costs more than we expect.

▪Overestimation of mineral reserves.

Renaissance Capital

10 January 2019

Metals & Mining

11

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Catalysts

Short term

1.Weaker producer currencies could offset lower commodity prices to some extent and support mining company margins.

2.Prudent capital allocation and higher dividends.

Medium term

1.Falling production from existing mines. Falling grades and increasing mining complexity are likely to result in volume declines at existing mining operations and push up production costs. Miners with long-life, low-cost resources should benefit as competitors face more volume and cost pressure.

2.Delays in expected new supply from approved projects. Mining projects are becoming more difficult owing to: 1) permitting and environmental issues; 2) infrastructure constraints; 3) competition for skilled labour and mining equipment; 4) new and riskier geographies; 5) growing resource nationalism; and 6) difficulties in accessing finance.

3.Spot commodity prices do not incentivise new production and sector capex remains at decade lows, which we believe should limit new supply over the medium term. The next generation of mines are likely to be more complex and higher-cost than currently installed capacity. Miners with long-life resources should eventually benefit from higher incentive prices and a superior cost base.

4.Share buybacks: Recovering FCFs should result in surplus cash. We have not factored share buybacks into our forecasts, but they could support share prices.

5.Lower-than-expected cost of capital, as projects and acquisitions are debt financed at historically low interest rates.

6.Continued low interest rates, which could: 1) stimulate industrial demand; and 2) increase investment demand for commodities more than we expect.

7.Technological change, including a major shift towards fuel cells.

Long term

1.Sector consolidation. If the sector becomes starved of new supply over the medium term, commodity prices should eventually rise closer to incentive price levels. At that point, we think miners would be likely to target volume growth, rather than cash preservation. Given that some miners are trading below replacement cost, we think it could be cheaper for companies to buy de-risked, producing competitors, with low-cost assets, than to build risky new greenfield projects with up to a 10-year lag to positive cash flows. Low interest rates could reduce the cost of capital for acquisitions. In our view, this would:

a.continue to constrain new supply to the market as ‘capex’ invested in sector consolidation does not result in incremental global supply.

b.be likely to push up mining company valuations much closer to replacement cost, which is significantly above current share prices.

2.Higher incentive prices to make existing miners more competitive. We believe next-generation mines are likely to be lower-grade, more complex and face more regulatory issues than existing producers. We therefore believe commodity prices higher than historical trends may be required to incentivise the next generation of mines. This would effectively move existing low-cost, long-life miners down the cost curve and enhance their margins.

Renaissance Capital

10 January 2019

Metals & Mining

12

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Anglo American Platinum – HOLD

Renaissance Capital

10 January 2019

Metals & Mining

Figure 23: Anglo American Platinum, ZARmn (unless otherwise noted)

Anglo American Platinum			AMSJ.J						Target price, ZAR:					540
Market capitalisation, ZARmn:			145,735						Last price, ZAR:					537
Enterprise value, ZARmn:			147,042						Potential 12-month return:					2.9%
Dec-YE		2016	2017	2018E	2019E	2020E		Dec-YE	2016	2017		2018E	2019E	2020E
Income statement								Balance sheet
Revenue		61,944	65,671	74,708	85,729	88,974		Net operating assets	44,516	40,109		44,433	46,051	47,684
EBITDA		9,168	12,367	16,216	20,511	21,897		Investments	2,585	2,725		2,341	2,388	2,436
EBIT		4,501	8,274	12,065	16,033	17,227		Equity	40,016	41,527		46,773	54,609	63,048
Net interest		-1,153	-951	-95	-213	87		Minority interest	-234	-526		259	259	259
Taxation		-364	-1,616	-3,022	-4,904	-5,367		Net debt	7,319	1,833		-258	-6,429	-13,187
Equity accounted income		-115	-362	48	0	0
Attributable profit		552	1,945	6,844	10,848	11,854		Balance sheet ratios
Headline earnings		1,867	3,886	8,027	10,848	11,854		Gearing (net debt/(net debt+equity))	15.5%	4.2%		-0.6%	-13.3%	-26.4%
HEPS, ZAc		713	1,482	3,018	4,037	4,412		Net debt to EBITDA	0.8x	0.1x		0.0x	-0.3x	-0.6x
								RoCE	8.1%	16.6%		24.1%	30.0%	31.2%
Thomson Reuters consensus HEPS, ZAc				2,610	3,009	3,608		RoIC (after tax)	4.0%	11.9%		18.4%	21.3%	21.9%
DPS declared, ZAc		0	349	895	1,211	1,323		RoE	4.7%	9.5%		18.2%	21.4%	20.1%
Breakdown of EBIT								Cash flow statement
Mogalakwena		4,785	7,029	7,894	9,938	10,090		Operating cash flow	11,030	9,486		12,597	16,644	17,092
EBIT margin		34%	44%	41%	46%	46%		Capex (net of disposals)	-4,695	-4,744		-6,271	-6,523	-6,219
Amandelbult		1,293	1,699	3,208	4,570	5,195		Other	1,399	1,841		-3,267	-670	-622
EBIT margin		12%	15%	23%	30%	33%		FCF	7,734	6,583		3,059	9,451	10,252
Unki		22	369	351	545	656		Equity shareholders' cash	5,450	5,486		4,024	9,183	10,173
EBIT margin		1%	15%	14%	19%	22%		Dividends and share buy backs	0	0		-1,933	-3,012	-3,415
JV operations		626	659	1,834	2,684	2,479		Movement in net debt	5,450	5,486		2,091	6,171	6,758
EBIT margin		10%	11%	23%	26%	24%		Cash flow ratios
Third party		1,319	2,104	2,722	3,068	3,175
EBIT margin		9%	8%	9%	9%	8%		Working capital turnover, days	49	52		51	46	47
Other		-3,544	-3,586	-3,945	-4,772	-4,368		FCF yield	7.8%	7.3%		2.9%	6.9%	7.8%
EBIT		4,501	8,274	12,065	16,033	17,227		Equity shareholders' yield	5.9%	6.2%		3.8%	6.4%	7.1%
Income statement ratios								Capex/EBITDA	44.9%	36.0%		37.7%	30.2%	27.2%
								Cash conversion	2.9x	1.4x		0.5x	0.8x	0.9x
EBITDA margin		15%	19%	22%	24%	25%		Valuation
EBIT margin		7%	13%	16%	19%	19%
HEPS growth		1626%	108%	104%	34%	9%		SoTP DCF fair value and calculation of target price					ZARmn	ZAR/sh
Dividend payout ratio		0%	47%	35%	30%	30%		Union mine					23	0
Input assumptions								Amandelbult operations					33,074	123
								Mogalakwena mine					103,624	387
Platinum, $/oz		988	950	880	870	1,070		Twickenham mine					-428	-2
Palladium, $/oz		614	871	1,030	1,216	1,088		Unki mine					6,794	25
Rhodium, $/oz		694	1,108	2,218	2,379	2,163		Modikwa					4,138	15
USD/ZAR		14.70	13.31	13.24	14.31	14.14		Mototolo					3,562	13
Sales volumes, koz								Kroondal					2,697	10
								Third party sales					8,858	33
Mined platinum		1,809	1,389	1,328	1,399	1,369		Other					-17,679	-66
Third party platinum		652	1,066	1,172	1,201	1,221		Enterprise value					144,662	540
Total platinum sales		2,416	2,505	2,466	2,600	2,591		Investments as at 31 December 2017					2,725	10
Volume growth		-2.2%	3.7%	-1.6%	5.4%	-0.4%		Net debt as at 31 December 2017					-1,833	-7
3PGM breakeven price, $/oz								Cash used in share buy-backs during 2018E					0	0
								Equity value					145,554	543
Mogalakwena		530	430	533	492	517
								Rounded to						540
Amandelbult		684	761	727	712	704		Current share price on 8/1/2019						536.7
Unki		699	660	751	775	770		Expected share price return						0.6%
JV operations		702	788	746	770	837		Plus: expected dividend yield						2.3%
Group (mined production)		754	744	744	743	756		Total implied one-year return						2.9%
Contribution to FY18E underlying EBITDA								Share price range, ZAR:
								12-month high	552	12-month low				299
Third party		Union		Amandelbult				Price move since high	-2.9%	Price move since low				79.6%
16%					19%
		1%						Calculation of WACC
Kroondal
								WACC	11.4%	Cost of debt				10.0%
6%								Risk-free rate	9.0%	Tax rate				28%
Mototolo
								Equity risk premium	4.0% After-tax cost of debt					7.2%
3%
Modikwa								Beta	1.30	Debt weighting				40%
3%			Mogalakwena					Cost of equity	14.2%	Terminal growth rate				6.0%
Unki				49%				Valuation ratios
								Dec-YE	2016	2017		2018E	2019E	2020E
3%								P/E multiple	48.5x	22.4x		13.1x	13.3x	12.2x
								Dividend yield	0.0%	1.1%		2.3%	2.3%	2.5%
								EV/EBITDA	9.5x	6.8x		6.4x	6.4x	5.7x
								P/B	2.3x	2.1x		2.3x	2.6x	2.3x
								NAV per share, ZAR	149	155		174	204	235

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

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Impala Platinum – BUY

Renaissance Capital

10 January 2019

Metals & Mining

Figure 24: Impala Platinum, ZARmn (unless otherwise noted)

Impala Platinum	IMPJ.J	Target price, ZAR:	45.0
Market capitalisation, ZARmn:	30,526	Last price, ZAR:	37.1
Enterprise value, ZARmn:	39,553	Potential 12-month return:	21.3%

Jun-YE		2017	2018	2019E	2020E	2021E
Income statement
Revenue		40,540	39,587	41,506	53,956	51,383
Underlying EBITDA		3,622	5,884	8,743	9,933	11,658
Underlying EBIT		-474	1,684	4,957	6,192	8,331
Net interest		-400	-701	-614	-324	-37
Taxation		2,461	2,042	-1,216	-1,643	-2,322
Minority interest in profit		122	-114	-307	-352	-339
Attributable profit		-7,976	-10,907	2,820	3,873	5,632
Headline earnings		-983	-1,228	2,820	3,873	5,632
HEPS, ZAc		-137	-171	392	539	784
Thomson Reuters consensus HEPS, ZAc				196	286	436
DPS declared, ZAc		0	0	0	0	0
Underlying EBIT		-1,760	-1,083	1,576	2,126	4,245
Rustenburg lease
EBIT margin		-6%	-4%	5%	6%	13%
Zimplats		1,169	1,911	2,069	2,613	2,775
EBIT margin		17%	26%	25%	28%	29%
Marula		-627	-6	220	172	-5
EBIT margin		-39%	0%	8%	6%	0%
Mimosa		2	320	235	346	386
EBIT margin		0%	16%	11%	15%	16%
Two Rivers		460	419	684	753	735
EBIT margin		24%	23%	32%	32%	31%
Other		282	123	173	182	196
EBIT		-474	1,684	4,957	6,192	8,331
Income statement ratios
EBITDA margin		9%	15%	21%	18%	23%
EBIT margin		-1%	4%	12%	11%	16%
HEPS growth		-1242%	-25%	329%	37%	45%
Dividend payout ratio		0%	0%	0%	0%	0%
Input assumptions
Platinum, $/oz		988	940	820	970	1,134
Palladium, $/oz		738	977	1,151	1,152	1,050
Rhodium, $/oz		821	1,634	2,440	2,271	2,098
USD/ZAR		13.60	12.85	14.25	14.25	14.09
Production volumes, koz
Mined platinum		1,121	1,048	1,159	1,144	1,004
Third party platinum		244	241	180	180	180
Joint venture platinum		165	180	145	149	149
Gross refined platinum		1,530	1,468	1,484	1,473	1,333
Volume growth		6.4%	-4.0%	1.1%	-0.7%	-9.5%
3PGM breakeven price, $/oz
Rustenburg lease		1,071	1,183	1,066	1,123	982
Zimplats		653	783	765	781	807
Marula		1,201	970	962	1,053	1,158
Mimosa		888	896	934	956	978
Two Rivers		677	797	717	758	807
Group (mined production)		895	959	902	941	876
Contribution to FY19E proportionately consolidated underlying EBITDA
	Two Rivers
Mimosa	10%				Rustenburg Lease
6%					46%

IRS 1%

Zimplats

37%

Jun-YE					2019E	2020E	2021E
		2017	2018
Balance sheet
Net operating assets		51,832	45,914		44,722	45,490	46,964
Investments		-929	326		333	339	346
Equity		46,807	37,213		40,033	43,906	49,538
Minority interest		2,425	2,380		2,380	2,380	2,380
Net debt (including finance leases)		1,671	6,647		2,642	-457	-4,608
Balance sheet ratios
Gearing (net debt/(net debt+equity))		3.4%	15.2%		6.2%	-1.1%	-10.3%
Net debt to EBITDA		0.5x	1.1x		0.3x	0.0x	-0.4x
RoCE		-0.8%	3.2%		10.5%	13.1%	17.3%
RoIC (after tax)		-8.5%	-5.9%		7.6%	9.5%	12.5%
RoE		-1.9%	-2.9%		7.3%	9.2%	12.1%
Cash flow statement
Operating cash flow		-1,247	-1,256		9,436	7,810	8,031
Capex (net of disposals)		-3,798	-5,106		-4,675	-4,119	-3,506
Other		3,856	3,305		0	0	0
FCF		-1,189	-3,057		4,761	3,690	4,525
Equity shareholders' cash		846	-4,976		4,005	3,099	4,152
Dividends and share buy backs		0	0		0	0	0
Movement in net debt		846	-4,976		4,005	3,099	4,152
Cash flow ratios
Working capital turnover, days		58	81		49	48	60
FCF yield		-2.9%	-9.8%		15.0%	12.9%	18.5%
Equity shareholders' yield		2.3%	-22.3%		15.0%	11.6%	15.6%
Capex/EBITDA		104.9%	86.8%		53.5%	41.5%	30.1%
Cash conversion		-0.9x	4.1x		1.4x	0.8x	0.7x
Valuation
SoTP DCF fair value and calculation of target price						ZARmn	ZAR/sh
Rustenburg lease						19,757	27.5
Zimplats (effective interest = 87%)						14,793	20.6
Marula (effective interest = 73%)						-279	-0.4
Afplats (effective interest = 74%)						0	0.0
IRS (third party only)						205	0.3
Mimosa (effective interest = 50%)						1,700	2.4
Two Rivers (effective interest = 46%)						4,801	6.7
Chrome operations						404	0.6
Enterprise value						41,382	57.6
Investments as at 30 June 2018						326	0.5
Net debt as at 30 June 2018						-6,647	-9.2
Cash used in share buy-backs during 2019E						0	0.0
Convertible debt conversion cost at ZAR50/share						-1,585	-2.2
Anticipated indigenization discount of Zimplats and Mimosa						-841	-1.2
Equity value						32,634	45.4
Rounded to							45.0
Current share price on 8/1/2019							37.1
Expected share price return							21.3%
Plus: expected dividend yield							0.0%
Total implied one-year return							21.3%
Share price range, ZAR:
12-month high		39	12-month low				16
Price move since high		-4.4%	Price move since low				137.7%
Calculation of WACC
WACC		15.4%	Cost of debt				10.0%
Risk-free rate		9.0%	Tax rate				28%
Equity risk premium		6.0%	After-tax cost of debt				7.2%
Beta		1.30	Debt weighting				15%
Cost of equity		16.8%	Terminal growth rate				0.0%
Valuation ratios
Jun-YE		2017	2018		2019E	2020E	2021E
P/E multiple		-36.6x	-18.2x		9.5x	6.9x	4.7x
Dividend yield		0.0%	0.0%		0.0%	0.0%	0.0%
EV/EBITDA		11.3x	5.3x		3.6x	2.9x	2.1x
P/B		0.8x	0.6x		0.7x	0.6x	0.5x
NAV per share, ZAR		64	52		56	61	69

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

14

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Lonmin – SELL

Renaissance Capital

10 January 2019

Metals & Mining

Figure 25: Lonmin, $mn (unless otherwise noted)

Lonmin		LONJ.J						Target price, ZAR:					7.0
Market capitalisation, $mn:		182						Last price, ZAR:					9.0
Enterprise value, $mn:		68						Potential 12-month return:					-22.6%
Sep-YE	2017	2018	2019E	2020E	2021E		Sep-YE	2017	2018		2019E	2020E	2021E
Income statement							Cash flow statement
Revenue	1,166	1,345	1,340	1,155	1,123		Operating cash flow	79	140		117	115	51
Underlying EBITDA	38	115	231	144	73		Capex (net of disposals)	-100	-73		-110	-110	-102
Underlying EBIT	-28	101	212	121	47		Other	20	-34		4	4	0
Net interest	-88	-30	-13	-5	-6		FCF	-1	33		12	8	-52
Taxation	18	-6	-56	-32	-11		Equity shareholders' cash	-70	11		3	4	-56
Minority interest profit	156	-20	-20	-11	-4		Dividends and share buy backs	0	0		0	0	0
Attributable profit	-998	42	124	72	25		Movement in net debt	-70	11		3	4	-56
Underlying earnings	-103	63	124	72	25		Cash flow ratios
Underlying EPS, USc	-37	22	44	25	9			31	21		36	41	45
							Working capital turnover, days
- ZAR	-4.87	3.06	6.30	3.60	1.30		FCF yield	0%	47%		18%	14%	-44%
Thomson Reuters consensus HEPS, ZAR			1.61	1.93	1.73		Equity shareholders' yield	-17%	6%		1%	2%	-31%
DPS declared, USc	0	0	0	0	0		Capex/EBITDA	263%	63%		47%	77%	141%
Income statement ratios							Cash conversion	0.7x	0.2x		0.0x	0.1x	-2.2x
							Valuation
EBITDA margin	3%	9%	17%	12%	6%
EBIT margin	-2%	8%	16%	10%	4%		Calculation of target price						ZAR/sh
EPS growth	-3%	161%	97%	-42%	-64%		DCF fair value per share						-0.3
Dividend payout ratio	0%	0%	0%	0%	0%		Smelting and refining value per share						7.0
Input assumptions							Total value per share						6.7
							Rounded to						7.0
Platinum, $/oz	955	905	840	1,020	1,149		Current share price on 8/1/2019						9.0
Palladium, $/oz	794	990	1,212	1,120	1,045		Expected share price return						-22.6%
Rhodium, $/oz	927	1,957	2,435	2,217	2,089		Plus: expected dividend yield						0.0%
USD/ZAR	13.38	13.07	14.31	14.20	14.11		Total implied one-year return						-22.6%
Breakeven price, $/3PGMoz	927	992	967	1,096	1,207		Implied Lonmin share price based on Sibanye's proposed offer						ZAR/sh
Platinum volumes, koz
		629	640	520	500		At share exchange ratio of 0.967 and assuming market values on 8/1/2019						9.9
Metal in concentrate	644
Gross refined	688	666	658	538	518		Share price range, ZAR:
Sales	706	676	658	538	518		12-month high	15	12-month low				7
Volume growth	-4.0%	-4.3%	-2.7%	-18.2%	-3.7%		Price move since high	-41.6%	Price move since low				39.1%
Balance sheet							Calculation of WACC
Net operating assets	363	440	581	660	745		WACC	11.0%	Cost of debt				5.0%
Investments less rehab provision	-100	-97	-97	-97	-97		Risk-free rate	4.0%	Tax rate				28%
Equity	685	757	881	952	978		Equity risk premium	6.0% After-tax cost of debt					3.6%
Minority interest	-323	-300	-280	-269	-265		Beta	1.30	Debt weighting				10%
Net debt	-99	-114	-117	-121	-65		Cost of equity	11.8%	Terminal growth rate				0.0%
Balance sheet ratios							Valuation ratios
Gearing (net debt/(net debt+equity))	-16.9%	-17.7%	-15.2%	-14.6%	-7.1%		Sep-YE	2017	2018		2019E	2020E	2021E
Net debt to EBITDA	-2.6x	-1.0x	-0.5x	-0.8x	-0.9x		P/E multiple	-4.1x	2.9x		1.5x	2.6x	7.2x
RoCE	-2.1%	12.0%	41.5%	19.5%	6.6%		Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
RoIC (after tax)	-4.6%	9.9%	29.9%	14.0%	4.8%		EV/EBITDA	0.0x	-2.0x		-0.9x	-1.4x	-2.0x
RoE	-8.8%	8.7%	15.1%	7.8%	2.6%		P/B	0.6x	0.2x		0.2x	0.2x	0.2x
							NAV per share, ZAR	32	35		45	48	49

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

15

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Northam Platinum – SELL

Renaissance Capital

10 January 2019

Metals & Mining

Figure 26: Northam Platinum, ZARmn (unless otherwise noted)

Northam			NHMJ.J						Target price, ZAR:					40.0
Market capitalisation, ZARmn:			21,960						Last price, ZAR:					42.8
Enterprise value, ZARmn:			27,231						Potential 12-month return:					-6.5%
Jun-YE		2017	2018	2019E	2020E	2021E		Jun-YE	2017	2018		2019E	2020E	2021E
Income statement								Balance sheet
Revenue		6,865	7,553	14,328	14,251	15,956		Net operating assets	15,261	19,650		19,986	20,817	21,751
Underlying EBITDA		1,068	1,268	3,136	4,027	4,794		Investments	8	0		0	0	0
Underlying EBIT		616	826	2,470	3,410	4,154		Equity	8,092	7,387		7,495	8,105	9,054
Equity accounted income		5	4	0	0	0		Minority interest	0	0		0	0	0
Net interest		-984	-1,137	-1,467	-1,623	-1,800		Net debt	7,177	12,263		12,491	12,711	12,698
Other operating items		-57	-164	-331	-342	-356		Balance sheet ratios
Taxation		-212	-232	-564	-834	-1,050
Minority interest in profit		0	0	0	0	0		Gearing (net debt/(net debt+equity))	47.0%	62.4%		62.5%	61.1%	58.4%
Attributable profit		-634	-702	108	611	948		Net debt to EBITDA	6.7x	9.7x		4.0x	3.2x	2.6x
Headline earnings		-635	-699	108	611	948		RoCE	3.9%	4.4%		11.4%	15.2%	17.8%
HEPS, ZAc		-182	-201	31	175	271		RoIC (after tax)	4.2%	5.9%		10.8%	12.5%	14.0%
								RoE	-7.5%	-9.0%		1.5%	7.8%	11.1%
Normalised HEPS, ZAc		78	83	288	424	533		Cash flow statement
Thomson Reuters consensus HEPS, ZAc				-70	54	382
DPS declared, ZAc		0	0	0	0	0		Operating cash flow	934	225		3,585	3,482	3,728
								Capex (net of disposals)	-1,645	-3,778		-2,050	-1,762	-1,572
Underlying EBIT								Other	-433	-413		-331	-342	-356
Zondereinde operations		177	298	1,044	1,420	1,468		FCF	-1,143	-3,966		1,205	1,379	1,800
EBIT margin		4%	7%	11%	17%	17%		Equity shareholders' cash	-1,127	-3,980		1,115	1,314	1,766
Booysendal operations		437	525	1,427	1,990	2,687		Dividends and share buy backs	0	0		0	0	0
EBIT margin		17%	17%	31%	33%	37%		Non-cash increase in debt	-1,017	-1,107		-1,343	-1,534	-1,753
EBIT		616	826	2,470	3,410	4,154		Movement in net debt	-2,144	-5,086		-228	-220	14
Income statement ratios								Cash flow ratios
EBITDA margin		16%	17%	22%	28%	30%		Working capital days	58	118		47	46	45
EBIT margin		9%	11%	17%	24%	26%		FCF yield	-4.8%	-14.3%		4.4%	5.0%	6.5%
HEPS growth		-29%	-10%	115%	466%	55%		Equity shareholders' yield	-6.7%	-25.7%		7.5%	8.8%	11.8%
Dividend payout ratio		0%	0%	0%	0%	0%		Capex/EBITDA	154.0%	297.9%		65.4%	43.8%	32.8%
Input assumptions								Cash conversion	1.8x	5.7x		10.3x	2.2x	1.9x
								Valuation
Platinum, $/oz		988	940	820	970	1,134
Palladium, $/oz		738	977	1,151	1,152	1,050		SoTP DCF fair value and calculation of target price					ZARmn	ZAR/sh
Rhodium, $/oz		821	1,634	2,440	2,271	2,098		Zondereinde operations					8,302	23.7
$/ZAR		13.60	12.85	14.25	14.25	14.09		Booysendal operations					18,022	51.5
								Other					-184	-0.5
3PGM sales volumes (excl. third party)								Enterprise value					26,141	74.7
Zondereinde operations		230	178	469	347	347		Investments as at 30 June 2018					0	0.0
Booysendal operations		188	199	264	331	397		Net debt as at 30 June 2018					-12,263	-35.1
Group		418	377	732	678	744		Cash used in share buy-backs during 2019E					0	0.0
Volume growth		-0.5%	-9.7%	94.2%	-7.4%	9.7%		Minority interest					0	0.0
3PGM breakeven price, $/oz								Equity value					13,878	39.7
		832	921	867	867	902		Rounded to						40
Zondereinde operations								Current share price on 8/1/2019						42.8
Booysendal operations		653	741	653	700	697		Expected share price return						-6.5%
Group (mined production)		751	826	790	785	792		Plus: expected dividend yield						0.0%
Contribution to FY19E underlying EBITDA								Total implied one-year return						-6.5%
								Share price range, ZAR:
								12-month high	60	12-month low				32
								Price move since high	-28.9% Price move since low					35.2%
								Calculation of WACC
								WACC	14.5%	Cost of debt				12.5%
					Zondereinde			Risk-free rate	9.0%	Tax rate				28%
					45%			Equity risk premium	6.0% After-tax cost of debt					9.0%
								Beta	1.3	Debt weighting				30%
Booysendal								Cost of equity	16.8%	Terminal growth rate				6.0%
55%								Valuation ratios
								Jun-YE	2017	2018		2019E	2020E	2021E
								P/E multiple	-26.4x	-22.1x		138.7x	24.5x	15.8x
								Normalised P/E multiple	61.5x	53.5x		14.9x	10.1x	8.0x
								Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
								EV/EBITDA	22.4x	21.9x		8.8x	6.9x	5.8x
								P/B	2.1x	2.1x		2.0x	1.8x	1.7x
								NAV per share, ZAR	23	21		21	23	26

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

16

vk.com/id446425943

Sibanye-Stillwater – HOLD

Renaissance Capital

10 January 2019

Metals & Mining

Figure 27: Sibanye-Stillwater, $mn (unless otherwise noted)
Sibanye-Stillwater				SGLJ.J							Target price, ZAR:					11.1
Market capitalisation, $mn:				1,700							Last price, ZAR:					10.4
Enterprise value, $mn:				3,733							Potential 12-month return:					6.8%
Dec-YE			2016	2017		2018E	2019E	2020E		Dec-YE	2016	2017		2018E	2019E	2020E
Income statement										Balance sheet
Revenue			2,128	3,449		3,745	4,342	4,465		Net operating assets	1,938	4,316		3,716	3,882	3,969
EBITDA			717	680		705	1,190	1,152		Investments, net of rehab provision	-134	-466		-390	-390	-390
EBIT			442	251		233	703	635		Equity	1,220	1,942		1,901	2,248	2,554
Other items			-79	-47		-54	-88	-105		Minority interest	0	0		1	4	6
Net interest			-94	-254		-100	-149	-126		Net debt	585	1,908		1,424	1,239	1,018
Taxation			-77	221		-23	-130	-113		Balance sheet ratios
Minority interest in profit			29	-0		-6	-14	-12
Net profit for the year			263	-333		49	348	306		Gearing (net debt/(net debt+equity))	32.4%	49.6%		42.8%	35.5%	28.5%
Headline earnings			171	-17		51	348	306		Net debt to EBITDA	0.8x	2.8x		2.0x	1.0x	0.9x
Headline EPS, ZAR			1.62	-0.12		0.29	2.02	1.74		RoCE	23.7%	6.8%		4.9%	15.4%	13.5%
										RoIC (after tax)	23.3%	22.2%		3.3%	11.8%	10.6%
Consensus HEPS, ZAR						0.33	1.40	1.57		RoE	15.7%	-1.1%		2.6%	16.8%	12.7%
DPS declared, ZAR			1.45	0.00		0.00	0.00	0.24		Cash flow statement
Underlying EBIT										Operating cash flow	573	1,120		1,134	941	1,010
Driefontein			192	54		-59	73	77		Capex (net of disposals)	-283	-458		-528	-548	-584
EBIT margin			30%	9%		-14%	14%	14%		Other cash flows	-633	-3,074		31	-88	-105
Kloof			181	123		76	177	124		Free cash flow	-342	-2,412		637	304	321
EBIT margin			30%	19%		12%	25%	20%		Equity shareholders' cash	-276	-2,262		484	185	221
Beatrix			89	16		14	51	31		Dividends and share buy-backs	-110	939		0	0	0
EBIT margin			22%	4%		4%	14%	9%		Surplus (deficit) cash	-386	-1,324		484	185	221
Rustenburg			1	45		83	106	99		Cash flow ratios
EBIT margin			1%	6%		10%	11%	9%
Stillwater			0	54		133	249	258		Working capital turnover, days	15	27		-23	-11	-8
EBIT margin			-	8%		11%	18%	17%		FCF yield	-13.6%	-50.6%		20.0%	10.4%	11.8%
Other			-22	-40		-13	47	46		Equity shareholders' yield	-14.3%	-79.2%		27.6%	11.0%	13.1%
Adjusted EBIT			442	251		233	703	635		Capex/EBITDA	39.4%	67.4%		74.8%	46.1%	50.7%
Income statement ratios										Cash conversion	-1.6x	134.7x		9.6x	0.5x	0.7x
										Valuation
EBITDA margin			34%	20%		19%	27%	26%
EBIT margin			21%	7%		6%	16%	14%		SoTP DCF fair value					$mn	ZAR/sh
HEPS Growth			119%	-107%		342%	597%	-14%		Driefontein					302	1.9
Dividend payout ratio			57%	0%		-	0%	14%		Kloof					756	4.8
Input assumptions										Beatrix					108	0.7
										Cooke					-290	-1.8
Gold, $/oz			1,248	1,258		1,269	1,350	1,338		Burnstone					106	0.7
Platinum, $/oz			988	950		880	870	1,070		Rustenburg					924	5.8
Palladium, $/oz			614	871		1,030	1,216	1,088		Kroondal					200	1.3
ZAR/$			14.70	13.31		13.24	14.31	14.14		Stillwater					2,909	18.4
Gold breakeven price, $/oz			976	1,161		1,288	1,177	1,231		Equity accounted income					261	1.6
PGM breakeven price, $/oz			776	1,049		1,189	1,226	1,250		Corporate and other					-1,018	-6.4
Mined volumes, koz										Operating value					4,257	26.9
										Financial instruments and rehab provision as at 31 December 2017					-466	-2.9
Driefontein			516	485		331	400	420		Enterprise value					3,791	23.9
Kloof			488	529		514	523	460		Net debt as at 31 December 2017					-1,908	-12.0
Beatrix			323	292		274	266	266		Minority interest					-124	-0.8
Cooke			181	100		31	28	0		19.9% stake in Aldebaran					7	0.0
Gold			1,508	1,407		1,174	1,324	1,293		Cash raised in rights issue during 2018E					0	0.0
Rustenburg			138	810		769	785	810		Equity value					1,765	11.1
Kroondal			178	241		245	240	220
										Rounded to						11.1
Mimosa			91	124		122	120	120		Share price on 8/1/2019						10.4
Stillwater			0	355		587	700	800		Expected share price return						6.7%
PGM's			421	1,550		1,741	1,863	1,968		Plus: expected dividend yield						0.1%
Attributable Cu eq volume growth			24%	50%		-2%	9%	2%		Total implied one-year return						6.8%
Contribution to FY18E proportionately consolidated underlying EBITDA										Share price range, ZAR:		12-month low on 19-7-2018				7
										12-month high on 15-1-2018	16
										Price move since high	-37.0% Price move since low					52.5%
			Driefontein							Calculation of WACC
Stillwater			3%				Kloof
										WACC	9.6%	Cost of debt				5.0%
							21%
37%										Risk-free rate	4.0%	Tax rate				28%
										Equity risk premium	5.5% After-tax cost of debt					0.7%
										Beta	1.30	Debt weighting				20%
										Cost of equity	11.2%	Terminal growth rate				2.0%
								Beatrix		Valuation ratios
								7%
										Dec-YE, $mn	2016	2017		2018E	2019E	2020E
Plat Mile							DRD Gold	Cooke
										P/E multiple	26.1x	-131.8x		35.8x	4.9x	5.5x
0%	Mimosa			Rustenburg			0%	-4%
										Dividend yield	4.7%	0.0%		0.0%	0.0%	2.3%
	6%
		Kroondal		16%						EV/EBITDA	3.5x	7.0x		4.5x	2.5x	2.4x
		6%
										P/B	1.6x	1.5x		0.9x	0.8x	0.7x
										NAV per share, $	1.3	0.9		0.8	1.0	1.1
										NAV per share, ZAR	19	12		11	14	16

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

17

vk.com/id446425943

Royal Bafokeng Platinum – SELL

Renaissance Capital

10 January 2019

Metals & Mining

Figure 28: Royal Bafokeng Platinum, ZARmn (unless otherwise noted)

Royal Bafokeng Platinum		RBPJ.J						Target price, ZAR:					25.0
Market capitalisation, ZARmn:		7,099						Last price, ZAR:					28.0
Enterprise value, ZARmn:		10,443						Potential 12-month return:					-10.7%
Dec-YE	2016	2017	2018E	2019E	2020E		Dec-YE	2016	2017		2018E	2019E	2020E
Income statement							Balance sheet
Revenue	3,342	3,499	3,505	7,419	8,456		Net operating assets	13,944	13,988		15,873	18,580	19,950
Underlying EBITDA	553	673	737	2,132	2,783		Investments	35	36		40	40	41
Underlying EBIT	241	312	372	1,503	2,094		Equity	11,156	10,679		11,086	15,690	16,872
Other operating items	-68	-106	-197	-188	-204		Minority interest	3,658	3,745		3,815	0	0
Net interest	84	85	23	-218	-248		Net debt	-835	-401		1,012	2,930	3,119
Taxation	8	-84	-80	-307	-460		Balance sheet ratios
Minority interest in profit	-94	-96	-61	0	0
Attributable profit	168	-753	30	790	1,182		Gearing (net debt/(net debt+equity))	-8.1%	-3.9%		8.4%	15.7%	15.6%
Headline earnings	167	109	43	790	1,182		Net debt to EBITDA	-1.5x	-0.6x		1.4x	1.4x	1.1x
HEPS, ZAc	87	56	21	380	568		RoCE	1.4%	1.8%		2.0%	7.0%	8.9%
							RoIC (after tax)	0.9%	2.5%		2.1%	7.1%	7.3%
Thomson Reuters consensus HEPS, ZAc			28	138	368		RoE	1.5%	1.0%		0.4%	5.9%	7.3%
DPS declared, ZAc	0	0	0	0	0		Cash flow statement
Underlying EBIT							Operating cash flow	602	1,063		1,195	1,152	2,150
BRPM	241	312	373	347	359		Capex	-1,126	-2,160		-3,164	-1,936	-1,101
EBIT margin	7%	9%	11%	12%	12%		Other	385	611		179	-976	-1,058
Styldrift	0	0	-0	1,156	1,735		FCF	-139	-486		-1,789	-1,760	-9
EBIT margin	-	-	-	26%	32%		Equity shareholders' cash	-82	-435		-1,768	-1,918	-188
EBIT	241	312	372	1,503	2,094		Dividends and share buy backs	0	0		355	0	0
Income statement ratios							Movement in net debt	-82	-435		-1,413	-1,918	-188
							Cash flow ratios
EBITDA margin	17%	19%	21%	29%	33%
EBIT margin	7%	9%	11%	20%	25%		Working capital turnover, days	16	-11		-56	22	30
HEPS growth	204%	-35%	-63%	1729%	50%		FCF yield	-1.3%	-5.0%		-17.5%	-20.1%	-0.1%
Dividend payout ratio	0%	0%	0%	0%	0%		Equity shareholders' yield	-1.0%	-6.8%		-32.6%	-32.9%	-3.2%
Input assumptions							Capex/EBITDA	203.7%	320.8%		429.4%	90.8%	39.6%
							Cash conversion	-0.5x	-4.0x		-41.3x	-2.4x	-0.2x
Platinum, $/oz	988	950	880	870	1,070		Valuation
Palladium, $/oz	614	871	1,030	1,216	1,088
Rhodium, $/oz	694	1,108	2,218	2,379	2,163		Calculation of target price					ZARmn	ZAR/sh
USD/ZAR	14.70	13.31	13.24	14.31	14.14		BRPM					2,202	10.6
							Styldrift					2,829	13.6
Platinum sales volumes, koz							Enterprise value					5,031	24.2
BRPM volumes	177	183	168	130	120		Investments as at 31 December 2017					36	0.2
Styldrift volumes	0	0	0	190	220		Net debt as at 31 December 2017					401	1.9
Group total	177	183	168	320	340		Cash used in share buy-backs during 2018E					0	0.0
Volume growth	-0.1%	3.3%	-8.0%	90.4%	6.3%		Minority interest					0	0.0
3PGM breakeven price, $/oz							Convertible debt conversion cost at ZAR43/share					-276	-1.3
	718	682	647	652	651		Equity value					5,191	25.0
BRPM							Rounded to						25.0
Styldrift	-	-	-	547	456		Current share price on 8/1/2019						28.0
Group (mined production)	718	682	647	588	525		Expected share price return						-10.7%
							Plus: expected dividend yield						0.0%
RBPlats - Divisional DCF valuation							Total implied one-year return						-10.7%
							Share price range, ZAR:
Styldrift							12-month high	35	12-month low				15
56%							Price move since high	-20.0% Price move since low					86.6%
							Calculation of WACC
							WACC	15.4%	Cost of debt				10.0%
							Risk-free rate	9.0%	Tax rate				28%
							Equity risk premium	6.0% After-tax cost of debt					7.2%
							Beta	1.30	Debt weighting				15%
							Cost of equity	16.8%	Terminal growth rate				6.0%
							Valuation ratios
							Dec-YE	2016	2017		2018E	2019E	2020E
			BRPM				P/E multiple	47.7x	58.5x		125.6x	7.4x	4.9x
			44%				Dividend yield	0.0%	0.0%		0.0%	0.0%	0.0%
							EV/EBITDA	19.5x	14.4x		13.9x	4.1x	3.2x
							P/B	0.7x	0.6x		0.5x	0.4x	0.3x
							NAV per share, ZAR	58	55		53	75	81

Source: Bloomberg, Thomson Reuters, Renaissance Capital estimates

18

vk.com/id446425943

NorNickel – BUY

Renaissance Capital

10 January 2019

Metals & Mining

Figure 29: NorNickel, $mn (unless otherwise noted)

	NorNickel			GMKN.MM
	Market capitalisation, $mn:			31,170
	Enterprise value, $mn:			39,702
	Dec-YE		2016	2017	2018E	2019E	2020E
	Income statement
	Revenue		8,259	9,146	11,196	10,849	11,695
	EBITDA		3,898	3,995	5,861	5,644	6,161
	EBIT		3,280	3,123	5,131	4,847	5,289
	Net interest		-339	-458	-375	-373	-462
	Taxation		-745	-721	-942	-1,074	-1,158
	Minority interest in profit		5	6	-7	-100	-152
	Net profit for the year		2,535	2,129	3,355	3,300	3,516
	Underlying earnings		2,535	2,129	3,355	3,300	3,516
	Underlying EPS, $		1.62	1.35	2.12	2.09	2.22
	Thomson Reuters consensus EPS, $				2.38	2.49	2.56
	DPS declared, $		1.08	1.17	2.16	2.11	2.24
	Thomson Reuters consensus DPS, $			########	1.88	2.11	2.37
	EBIT by division
	Russia (GMK & KGMK)		3,524	4,299	5,831	5,452	5,707
	EBIT margin		55%	58%	67%	65%	66%
	NN Harjavalta		17	59	31	-47	73
	EBIT margin		2%	7%	3%	-5%	7%
	Other metallurgical		-11	-126	70	251	380
	EBIT margin		-157%	-371%	25%	40%	45%
	Other non-metallurgical		96	91	-13	5	5
	EBIT margin		9%	11%	-1%	1%	1%
	Other		-285	-973	-782	-814	-877
	Income statement ratios
	EBITDA margin		47%	44%	52%	52%	53%
	EBIT margin		40%	34%	46%	45%	45%
	EPS growth		47%	-17%	58%	-2%	7%
	Dividend payout ratio		67%	87%	102%	101%	101%
	Dividend as % of EBITDA		44%	46%	58%	59%	58%
	Input assumptions
	Nickel, $/t		9,599	10,404	13,130	11,530	14,285
	Copper, $/t		4,867	6,170	6,532	6,000	6,367
	Palladium, $/oz		614	871	1,030	1,216	1,088
	Platinum, $/oz		988	950	880	870	1,070
	RUB/$		67	58	63	67	68
	Unit costs per nickel eq tonne, $		6,109	8,163	7,542	7,243	7,609
	Sustaining capex per nickel eq tonne, $		814	1,187	915	2,365	2,397
	Production volumes*		236	217	211	214	214
	Nickel, kt
	Copper, kt		360	401	461	481	494
	Palladium, koz		2,618	2,780	2,757	2,684	2,684
	Platinum, koz		644	670	670	648	648
	Attributable Cu eq volumes, kt		1,412	1,442	1,484	1,496	1,509
	Volume growth		-6%	2%	3%	1%	1%
	Contribution to 2018E revenue per commodity
		Semi-products and
	Rhodium	Silver	other
		Cobalt 0%	6%
	Gold 1%	3%					Nickel
Platinum 2%
							26%
6%

Palladium

29%

Copper

27%

	Target price, $:					24.0
	Last price, $:					19.5
	Potential 12-month return:					34%
Dec-YE	2016	2017		2018E	2019E	2020E
Balance sheet
Net operating assets	10,299	13,581		12,304	13,836	15,433
Financial instruments	198	267		259	259	259
Equity	4,986	4,333		3,828	3,783	3,749
Minority interest	74	331		310	410	562
Net debt	4,530	8,201		7,479	8,909	10,338
Balance sheet ratios
Gearing (net debt/(net debt+equity))	47.6%	65.4%		66.1%	70.2%	73.4%
Net debt to EBITDA	1.2x	2.1x		1.3x	1.6x	1.7x
RoCE	37.0%	28.1%		39.7%	37.1%	36.1%
RoIC (after tax)	31.1%	21.5%		31.5%	28.7%	27.9%
RoE	64.0%	45.7%		82.2%	86.7%	93.4%
Cash flow statement
Operating cash flow	3,737	1,339		6,047	4,514	4,890
Capex	-1,714	-2,002		-1,650	-2,300	-2,400
Other FCF	-930	431		29	0	0
FCF	1,093	-232		4,426	2,214	2,490
Equity shareholders' cash	770	-667		4,134	1,916	2,121
Dividends and share buy backs	-1,088	-3,004		-3,448	-3,345	-3,551
Surplus (deficit) cash	-318	-3,671		686	-1,429	-1,430
Cash flow ratios
Working capital days	24	96		38	40	40
Cash Conversion	0.3x	-0.3x		1.2x	0.6x	0.6x
FCF yield	4.0%	-0.7%		12.2%	5.5%	6.0%
Equity shareholders' yield	3.4%	-2.6%		14.5%	6.2%	6.9%
Capex/EBITDA	44.0%	50.1%		28.2%	40.8%	39.0%
Valuation
SoTP DCF valuation and calculation of target price					$mn	$/sh
Russia (GMK & KGMK)					51,577	32.6
Finland					825	0.5
Other metallurgical					4,637	2.9
Other non-metallurgical					30	0.0
Other					-11,047	-7.0
Total enterprise value					46,021	29.1
Net debt as at 31 December 2017					-8,201	-5.2
Cash used in share buy-backs					-	-
Other investments					267	0.2
Minority interest					-331	-0.2
Equity value as at 9/1/2019					37,756	23.9
Rounded to						24.0
Share price on 8/1/2019						19.5
Expected share price return						23.1%
Plus: expected dividend yield						10.9%
Total implied one-year return						33.9%
Share price range, $:
12-month high on 26/2/2018	21.3	12-month low on 10/4/2018				14.6
Price move since high	-8.6% Price move since low					33.8%
Calculation of discount rate
WACC	9.4%	Cost of debt				5.0%
Risk-free rate	4.0%	Tax rate				24%
Equity risk premium	6.0% After-tax cost of debt					3.8%
Beta	1.30	Debt weighting				30%
Cost of equity	11.8%	Terminal growth rate				2.5%
Valuation ratios
Dec-YE	2016	2017		2018E	2019E	2020E
P/E multiple	8.8x	12.0x		8.5x	9.4x	8.8x
Dividend yield	7.6%	7.2%		12.0%	10.8%	11.5%
EV/EBITDA	6.9x	8.6x		6.2x	7.1x	6.8x
P/B	4.5x	5.9x		7.5x	8.2x	8.2x
NAV per share, $	3.2	2.7		2.4	2.4	2.4

* From Russian own feed

Source: Bloomberg, Thomson Reuters, Company data, Renaissance Capital estimates

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Disclosures appendix

Renaissance Capital

10 January 2019

Metals & Mining

Analysts certification

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking.

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