Impala Platinum: The Only PGM Miner Outperforming SPY YTD; Rating Unchanged

seekingalpha09-26

Despite lower PGM prices, Impala remains profitable with $533 million EBITDA and $86 million operating income FY24.FY24 results show a 21% YoY increase in 6E production and stable unit costs, ...

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Despite weak PGM prices, the stock outperformed even SPY. The company still trades well below its previous peaks.I keep Impala’s rating a Buy.   mathieukorNote: I previously covered Impala Platinum Holdings (OTCQX:IMPUY) in April 2024. In the note, I discussed PGM market fundamentals and Impala strengths. The company has the best balance sheet in its peer group, relatively lower AISC, and attractive mining assets. At that time, Impala traded 0.93 TTM EV/Sales and 5.33 TTM EV/EBITDA. Considering all of that, I updated Impala’s rating to a Buy. Since my report, Impala is the only PGM stock that realized gains YTD. In today's note, I discuss the 2024 results, the PGM market, and the company’s rating. Note to readers: 2E means platinum + palladium, 3E means 2E + rhodium, 4E means 3E + gold, and 6E means 4E + osmium + ruthenium. PGM miners widely accept those acronyms.  Most of the figures are stated in South African rand. I imply an exchange rate of 17.31 R/US$ as of September 25, 2024, when required.  Introduction  Impala is the third company of the Big Three in PGM mining: Sibanye Stillwater (SBSW), Anglo American Platinum (OTCPK:ANGPY), and Impala Platinum (OTCQX:IMPUY). Among Impala’s flagship assets are Impala Rustenburg, the largest platinum mine in the world, and Zimplats in Zimbabwe. Impala reported good FY24 results, considering weak PGM prices. The 6E annual production grew by 21% YoY, and the PGM unit cost remained stable. 2024 operating results Impala achieved notable production growth YoY. The table below from the FY24 report shows the company’s production figures by segment:   IMPUY FY24 report Impala reported growth across all segments while keeping its unit costs stable, which is very helpful in adverse market conditions. Total 6E production increased by 21% year over year and realized 6E sales increased by 15.7%. Group 6E unit costs FY24 are $1,118/oz. This is between SBSW's $1,150/oz and ANGPY’s $1,010/oz. For SBSW, I use AISC for its South African PGM production. FY24 revenue per oz sold for Impala is $1,350/oz. In summary, the company stayed profitable over the fiscal 2024. Now, let’s look at Impala's assets performance in FY24. Its flagship asset, the Impala-Rustenburg mine, delivered 1.26 M 6E oz, 4% higher than the FY23 figure. Milled grade has improved by 3% YoY, reaching 3.99g/ton. Output reduction due to the Shaft 11 accident is estimated at 50 k 6E oz. Factors like reduced load curtailments and improved grade control lead to higher production figures, offsetting the losses from the Shaft 11 accident. Unit costs YoY remained stable at $1,257/oz FY24 vs. $1,252/oz FY23. For FY25, the projections are for 1.25-1.30 M 6E oz production. Bafokeng delivered 294 k 6E oz at a unit cost of $1,178/oz. Mine’s milled grade was 4.36g/t. Bafokeng figures were impacted by the illegal strike in the BRPM (Bafokeng Rasimone) mine and poor fleet availability in the Styldrift mine. Impala reported that the BRPM issue was resolved in July. Bafokeng is expected to produce between 490 000 and 530 000 6E oz in FY2025. Zimplats had a strong year, delivering 645 k 6E oz, or 6% more than FY23. Head grade declined by 0.01g/t to 3.32g/t. Zimplats is one of the mines with the lowest unit costs, at $829/oz. in FY25, Zimplats is projected to produce 630-660 k 6E oz. Marula’s production and milled grade declined by 7% and 3%, respectively, resulting in a 20% higher unit cost. FY24's cost is $1,128 compared to $941 FY23. FY24, the mine delivered 223 k 6E oz at 4.28g/t grade. Marula is expected to produce between 230-250 k 6E oz in 2025. Two Rivers mine produced 291 k 6E oz FY24 vs. 295 k oz FY23. The decline is due to lower grade at the Merensky stockpile, which increased unit cost to $954/oz vs. $807/oz FY23. FY25 projections are for 270-300 k 6E oz production. The Mimosa mine produced 4% more than in 2023. However, poor ground conditions impacted the milled grade, which declined to 3.61g/t. As a result, unit cost grew to $1,039/oz vs $1,030/oz in 2023. As seen, Impala has kept its assets in check. Production figures increased while unit cost remained relatively stable. Despite depressed spot prices, Impala reported profits measured in Headline earnings. The table below compares the 2024 and 2023 financial highlights.   IMPUY FY24 report IMPUY FY24 report  Revenues declined by 18.9% YoY due to low PGM prices. Rhodium and palladium have been the biggest losers in the 6E basket. Combined, they provide about 50% of Impala’s revenue. Gold is too minuscule in company revenue (about 4%) to have a positive impact due to it strong prices. Sibanye, among the big three, has the most significant exposure to gold. It represents approximately 22% of its revenues. Nevertheless, Impala’s stable unit costs save the year. The company reported $533 million EBITDA FY24 and $86 million operating income. Impala has the best balance sheet in its peer group, with 3.5% Total Debt/Equity and 27.3% Total Liabilities/Total Assets. The company holds $531 million in cash and $1,460 million in inventories. In FY24, Impala reported a net interest income of $41.1 million and gross interest expenses of $12.3 million. Simply, the company has a lot of room to wiggle in case of difficulties. Impala's policy is to distribute 30% of its free cash flow. Thus, Impala reported that $(389) million of FY24 dividends will not be distributed. Valuation Sibanye is the cheapest, while Anglo Platinum is the most expensive. Impala falls in the middle with 0.9 EV/Sales, 5.3 EV/EBITDA, and 1.2 Price/Book. KoyfinAll three companies have pros and cons. SBSW is not a PGM-only miner. It owns gold operations, uranium resources, and lithium assets. However, its PGM and gold operations have high AISC. On the other hand, Anglo Platinum is a PGM-focused company with the lowest AISC. Impala is also a PGM-only producer. It offers a competitive ASIC and the best balance sheet. Mr. Market reflects Anglo Platinum's strength while emphasizing Sibanye’s weaknesses. Impala is the middle child and, for now, is the only PGM miner that has realized double-digit YTD gains. KoyfinCuriously, Impala outperforms SPY, too. Most importantly, the company shares trade far below their peak price. In 2022, Impala's share price reached $18.51, while in 2008, it was $33.67. In my opinion, all three will thrive in a strong PGM market. That said, considering its present stock price, Impala has room for growth. Risks The risks for Impala are well-known: weak PGM prices, South Africa, and company financials. The latter, as seen, is almost nonexistent. Impala offers the best balance sheet in its peer group. That said, the company has a sufficient margin of safety in case of a prolonged PGM bear market. The PGM prices presents the most significant risk. Nevertheless, the consensus among investors is shifting. The automotive industry will focus on hybrid vehicles for the foreseeable future. So, PGM demand is here to stay. Yesterday, China brought good news to all commodity investors. PBOC cut banks' reserve requirement ratio (RRR) by 50 basis points. This would result in $142 billion available for a new landing. The seven-day repo rate was also reduced by 20 bps, impacting mid-term and loan prime rates. I believe this is bullish for all commodities, including PGMs. One variable that may undermine my thesis is Russia. According to the last Impala report, Russian refined production declined in 2024. This is positive because Nornickel flooded the market with its palladium in 1H24, further depressing prices. A lower output suggests decreased inventories, which can come for sale. South Africa has unstable business environment, which impact all enterprises. However, the future might be not as bleak as it seems. Below is quote from my last note on Sibanye: South Africa is still far from economic recovery. Nevertheless, the political winds have changed. The new government coalition between ANC and DA is a positive indicator for a better future. An improved political environment with less racial and populist division would improve business conditions. Despite its US operation, the majority of SBSW assets are in South Africa. Therefore, the company would benefit from better business conditions. I expect the PGM market to recover in the next few quarters. Impala is perfectly positioned to benefit from that. In the worst-case scenario, if the PGM bear market persists, Impala has enough liquidity to weather the storm. Investors Takeaway Impala is one of my favorite calls. Despite weak PGM prices, the stock outperformed even SPY. The company still trades well below its previous peaks. Meanwhile, it offers a robust balance sheet, tier-1 assets, and profitable operations. I keep Impala’s rating a Buy.  Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. 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