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Platinum Platinum|2004 2004 Interim Review Interim Review

16th November 2004 16th November 2004

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Platinum

• Demand to edge up to 6.47 million oz

Demand to edge up to 6.47 million oz

• Good growth in auto & industrial demand

Good growth in auto & industrial demand

• Purchasing by Chinese jewellers slides

Purchasing by Chinese jewellers slides

• Supplies to grow to 6.43 million oz

Supplies to grow to 6.43 million oz

• Market moving close to balance

Market moving close to balance

• Fund long positions help to support the price

Fund long positions help to support the price

• Demand for platinum to be 6.47 million oz in 2004. That’s only a 1% increase
• n last year and the same amount of demand as in 2002.
• This year there is good growth in autocatalyst and industrial demand for

platinum, and I’ll examine this in more detail as we go on.

• Offsetting most of this increase, purchasing by Chinese jewellers has fallen

significantly.

• Supplies will be a record, growing by 4% to 6.43 million oz.
• So we expect the platinum market to be slightly under-supplied this year,

which will be the sixth year in a row that supply has failed to meet demand.

• The price of platinum has averaged a record $845 per oz in the first 10 months
• f 2004, supported by hedge fund and other investor buying and the firmness of
• verall demand.

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Platinum Demand by Application Platinum Demand by Application

Autocatalyst: +7% Autocatalyst: +7%

500 1,000 1,500 2,000 2,500 3,000 3,500 2003 2004 '000 oz RoW N.America Japan Europe

3,210 3,430

Autocatalyst demand for platinum is forecast to rise by 7% in 2004 to 3.43 million oz Most of the growth will be in Europe, where autocatalyst platinum demand is expected to rise by 220,000 oz to 1.59 million oz – that’s over 45% of all demand in this sector. Demand in Japan and the Rest of the World is forecast to increase a little, but purchases by the North American auto industry will slip.

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Diesel share of European Diesel share of European new car sales, 1999 vs 2004 new car sales, 1999 vs 2004

1999 Diesel Gasoline 2004 Diesel Gasoline

What’s happening in Europe is a continuation of the trend of recent years – the persistent growth in sales of diesel cars in Europe. In 1999, diesels accounted for less than 30% of new car sales, this year almost

• ne in every two cars sold in the region will be diesel powered.

By the end of next year the proportion is almost sure to be over 50%.

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250 500 750 1,000 1,250 1,500 1,750 2,000 1999 2000 2001 2002 2003 2004

'000 oz

Pt in Diesel Pt in Gasoline

European Demand for Platinum European Demand for Platinum in Autocatalysts 1999 in Autocatalysts 1999 -

• 2004

2004

Driven by the diesel car sector, European auto demand for platinum has nearly trebled since 1999, (diesel catalytic converters are only able to use platinum at present). As this chart of how platinum is used in the European auto industry shows, diesel autocatalyst demand for platinum in 2004 (dark blue segment) will be nearly 4 times the level of 1999 (1.29 million oz). You should also be able to detect on the chart (light blue segment) a slight reduction in the use of platinum in catalysts for gasoline engine cars, as auto companies have been switching some models over to palladium catalysts.

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Autocatalyst demand: emission Autocatalyst demand: emission regulations tightening regulations tightening

Japan: National HDD regulations from Oct. 2005 Europe: Euro IV from Jan. 2005 USA: Tier 2 phase-in from Jan 2004 Other Asia: China, South Korea, India, Thailand…

Tightening emissions standards are also contributing to higher platinum demand, both for this year and into 2005. All the major vehicle markets are introducing new phases of legislation, as this list demonstrates. The new European rules are leading to higher average loadings of platinum on catalysts for diesel cars and in some cases fitting an additional catalysed diesel particulate filter. We are also already seeing the use of catalysts and filters on heavy vehicles in Japan to meet the forthcoming regulations.

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Platinum Demand by Application Platinum Demand by Application

Jewellery: Jewellery: -

• 10%

10%

500 1,000 1,500 2,000 2,500 2003 2004

'000 oz

RoW Europe N.America Japan China

2,440 2,200

Purchases of platinum for jewellery manufacture are forecast to fall by 10% in 2004 to 2.20 million oz. This is due almost entirely to a contraction in Chinese demand, which will drop for the second year in succession. Chinese purchases of platinum for jewellery are expected to slide from 1.2 million oz in 2003 to 960,000 oz this year.

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Falling Chinese Jewellery Demand Falling Chinese Jewellery Demand for Platinum for Platinum – – Why? Why?

Lower margins = increased production

• f WG plus addition of Pd jewellery

Higher platinum price:

Platinum stock levels reduced throughout the trade Greater competition in stores from less expensive WG Metal costs up but retail prices static = lower profit margins The strength of the platinum price has affected purchases of the metal by Chinese jewellers in several ways: While the average platinum spot price has risen significantly in 2004, retail prices

• f platinum jewellery in China have remained largely static due to the very

competitive nature of the market. Consequently, profit margins on platinum jewellery have been squeezed. In particular, margins were heavily pressured during March and early April, when the platinum price surged to a peak of $937. Jewellers consequently switched an increased proportion of output to more profitable white gold, and many also began producing palladium jewellery. The strength of the platinum price has also encouraged increased recycling of old platinum jewellery stock by retailers and wholesalers At the retail level, plain platinum jewellery has faced greater competition from less expensive white gold, but sales of higher-margin gem-set platinum jewellery are rising.

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Demand for Platinum Demand for Platinum in Jewellery in Jewellery – – Other Markets Other Markets

High Pt price = pressure on market share in USA Retail sales fall in Japan but less inventory recycling UK bridal the bright spot in Europe

In Japan, retail sales of platinum jewellery have weakened further but, after several years of substantial stock reduction, less inventory is likely to be recycled by retailers and wholesalers this year. As a result, purchases of metal by manufacturers are expected to improve slightly. In the USA, as elsewhere, the strength of the platinum price has resulted in a loss

• f sales to alternative white metals in the fashion sector of the market and demand

is down a little. The UK bridal market remains the one area of substantial growth for platinum jewellery sales in Europe.

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Platinum Demand by Application Platinum Demand by Application

Industrial: +9% Industrial: +9%

200 400 600 800 1,000 1,200 1,400 1,600 2003 2004

'000 oz

Petroleum Glass Electrical Chemical Other

1,400 1,530

Demand for platinum in industrial applications is forecast to grow 9% in 2004 to 1.53 million oz. Use of platinum in catalysts for the bulk chemicals industry (silicones, paraxylene) and in hard disc drives will both increase this year but the fastest rate

• f growth will be seen in the glass industry.

This is due to a major phase of expansion in LCD glass manufacturing capacity in Asia, which means higher demand for platinum-rhodium equipment. Glass demand for platinum is projected to climb by 45% to 240,000 oz in 2004.

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Platinum Demand by Application Platinum Demand by Application

(10) (10) 2,200 2,200 2,440 2,440 Jewellery Jewellery % change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz 7 7 3,430 3,430 3,210 3,210 Autocatalyst: gross Autocatalyst: gross 8 8 (695) (695) (645) (645) recovery recovery 9 9 1,530 1,530 1,400 1,400 Industrial Industrial (67) (67) 5 5 15 15 Investment Investment 1 1 6,470 6,470 6,420 6,420 TOTAL DEMAND TOTAL DEMAND

To recap: with autocatalyst and industrial demand for platinum growing robustly but purchases from the jewellery sector falling, total demand for platinum this year will grow by just 1% to 6.47 million oz. Turning to platinum supply:

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Platinum Supply by Region Platinum Supply by Region

Total supply: +4% Total supply: +4%

1,000 2,000 3,000 4,000 5,000 6,000 7,000 2003 2004

'000 oz

Other

• N. America

Russia South Africa

6,200 6,430

Total supply of platinum is forecast to rise 4% to 6.43 million oz this year. Output from South Africa will lead the growth. We project 4.98 million oz, which is an 8% increase on 2003. North American production is also expanding, but we expect a drop in sales of metal from Russia.

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South African Supply Factors South African Supply Factors

Industrial relations:

Anglo Platinum, Impala

Operational:

Anglo, Impala, Northam, Aquarius, Southern Platinum

Rand strength:

All producers

In South Africa, almost all the major producers are expected to increase output, but a number of problems have affected the industry this year: Anglo and Impala lost several days’ of production in October due to strike action by miners in disputes over annual wage increases. In addition, the expected rate of expansion of production at many of the pgm producers has fallen behind forecast levels this year due to operational problems. Were it not for these difficulties, South African platinum production would easily have exceeded 5 million oz this year. Rand strength has also been a worry, but offset so far by the high dollar price of platinum and rhodium.

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Other Supply Other Supply

North America: Inco’s output up strongly Russia: sales close to mine production Zimbabwe: modest growth

Shipments of platinum from Russia are therefore forecast to fall to 850,000 oz , closely reflecting the level of mine production. There are no signs of any sales from stock. In North America, Inco will produce substantially more pgm this year than in 2003, when the company suffered a three-month strike. North American platinum

• utput will rise 22% to a projected 360,000 oz as a result.

Modest growth expected in platinum production in Zimbabwe, with expansions at both the Mimosa and Ngezi mines having been completed.

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Platinum Supply by Region Platinum Supply by Region

% change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz

8 8 4,980 4,980 4,630 4,630 South Africa South Africa (19) (19) 850 850 1,050 1,050 Russia Russia 7 7 240 240 225 225 Others Others 4 4 6,430 6,430 6,200 6,200 TOTAL SUPPLY TOTAL SUPPLY 22 22 360 360 295 295 North America North America

So, with higher South African and North American platinum production

• utweighing a fall in Russian sales, total platinum supply is forecast to rise 4% to

6.43 million oz.

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Platinum Supply and Demand Platinum Supply and Demand

% change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz 1 1 6,470 6,470 6,420 6,420 Demand Demand 4 4 6,430 6,430 6,200 6,200 Supply Supply (40) (40) (220) (220) Movements in Stocks Movements in Stocks

With platinum supply climbing faster than demand this year, the market deficit is forecast to shrink to just 40,000 oz. This is easily the smallest shortfall in the last 6 years.

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Platinum price

January - October 2004

750 775 800 825 850 875 900 925 950 J F M A M J J A S O

$ per oz

Average Price

Platinum has traded above $800 for much of 2004 to date. The price rallied strongly between mid-February and early April, reaching a peak fixing in London of $937. A sharp correction downwards in late April/May was followed by a period of volatile trading, but since the beginning of September the platinum price has been confined to a narrower range, either side of $840. A significant influence on these short-term price movements has been hedge fund activity, as shown in the following chart:

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Platinum price vs NYMEX net speculative position

January - October 2004

750 775 800 825 850 875 900 925 950 J F M A M J J A S O

$ per oz

• 50

50 100 150 200 250 300 350

'000 oz

Total Net Spec. Average Price

The blue area represents the net position in platinum futures held by hedge funds and managed futures funds on the New York Mercantile Exchange. The pattern on the Tokyo Commodity Exchange is similar. Whilst solid physical demand for the metal has helped to provide support for the platinum price this year, it is clear that the flow of speculative money in and

• ut of the platinum market has had a major bearing on the price.

However we would have to admit that the fund activity in platinum is part of a wider pattern of investment that has developed across the entire hard commodities sector over the last two to three years, as investors seek portfolio diversification and higher returns than currently offered by equities and bonds. The strength of the platinum price is representative of a wider bull market for commodities that has seen the price of most metals appreciate substantially

• ver the last two years.

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Palladium

• Demand to improve to 6.14 million oz

Demand to improve to 6.14 million oz

• US auto industry stocks falling, purchases rising

US auto industry stocks falling, purchases rising

• Chinese jewellers introduce palladium products

Chinese jewellers introduce palladium products

• Mine output rising and large sales from stocks

Mine output rising and large sales from stocks

• Market surplus to again exceed 1 million oz

Market surplus to again exceed 1 million oz

• Price subdued despite large investment by funds

Price subdued despite large investment by funds

Palladium demand is forecast to improve to 6.14 million oz in 2004, up from 5.41 million oz in 2003 – a rise of 13.5%. As US auto industry stocks of the metal are falling, so purchases by manufacturers are rising, and we expect overall growth in demand for palladium in autocatalysts. The main stimulus to demand for palladium this year is that Chinese jewellers began to manufacture palladium products in the first quarter. At the same time, however, mine output is rising and large sales are being made from stocks of Russian metal So although demand continues to recover from the slump of 2002, the market surplus will exceed 1 million oz for the second year running in 2004 Consequently the price has been subdued, even though funds have been substantially long palladium all year.

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Palladium Demand by Application Palladium Demand by Application

Autocatalyst: +5.5% Autocatalyst: +5.5%

500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 2003 2004

'000 oz

RoW Japan Europe N.America

3,460 3,650

Autocatalyst demand for palladium is projected to rise 5.5% this year to 3.65 million oz. Increased purchases of metal by US auto companies will be responsible for most

• f the growth, rising by 15% to 1.39 million oz. As in 2003, the rise in US

demand this year is due primarily to lower use of metal from palladium inventories, which have been run down very substantially over the past four years. Purchases of palladium by the European auto industry are forecast to drop to less than 1.13 million oz in 2004, in line with falling gasoline vehicle production as diesel cars take a greater share of the market. Increased light vehicle output combined with tightening emissions regulations will result in solid growth in demand for palladium in Japan and the Rest of the World.

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Palladium Demand by Application Palladium Demand by Application

Industrial & other: +28% Industrial & other: +28%

500 1,000 1,500 2,000 2,500 3,000 3,500 2003 2004

'000 oz

Other Jewellery Dental Electronics

2,360 3,015

Industrial and other applications for palladium will jump to just over 3 million oz in 2004 – largely because palladium has established a position as a third white precious metal in the Chinese jewellery market, joining platinum and white gold. As a result of Chinese manufacturers adding palladium to their product lines, world jewellery demand for the metal is forecast to surge from 250,000 oz in 2003 (most of which was used in white gold alloys) to 740,000 oz this year.

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Palladium Demand Palladium Demand

Jewellery fabrication Jewellery fabrication

Strong purchasing of metal in March/April as trade stocked up Large scale production of palladium jewellery began in Q1 Mixed reception at retail level Chinese jewellery demand to climb from 25k oz to 510k oz this year

Some of the larger Chinese manufacturers began mass producing palladium jewellery during the first quarter of 2004 – a response to the rapidly rising platinum price and falling profit margins on platinum jewellery. There was a rapid acceleration in buying of palladium during March and April as pipeline stocks of palladium jewellery were built up throughout the trade. Palladium jewellery has so far had a mixed reception from consumers. It has not been a great success in Shanghai or Beijing, where platinum has established a strong position and where many retail chains have decided not to stock palladium

• products. In second and third tier cities, palladium jewellery is more widely
• ffered and is competing with white gold and plain platinum jewellery in the non-

bridal sectors of the market. After the initial burst of palladium purchasing, demand for the metal from jewellery manufacturers declined to more closely reflect the underlying level of retail sales. Overall, we forecast Chinese demand to climb from just 25,000 oz in 2003 to a little over half a million oz this year.

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Palladium Demand Palladium Demand

Electronics: +2% Electronics: +2%

MLCC sales up but thrifting & miniaturisation continue Strong demand from HIC and plating markets

Demand for palladium from the electronics industry is expected to grow slowly this year, rising by just 2% to 915,000 oz. Growth in global sales of electronic goods and equipment has resulted in increased shipments of hybrid integrated circuits and connectors, which has fed back into greater demand for palladium. However, use of the metal in its largest electronics application, multi-layer ceramic capacitors (MLCC), is expected to fall this year. Although sales of MLCC are rising, the ongoing thrifting of palladium and miniaturisation of capacitors will reduce demand.

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Palladium Demand Palladium Demand

Dental and Other Dental and Other

Dental +2% - modest increase in Japan, little change elsewhere Significant investment demand for small bars in the USA

Use of palladium in dental alloys is forecast to rise 2% to 840,000 oz – the lower piece of palladium has stimulated demand a little in Japan and the USA. This year has seen a substantial rise in purchases of 1 oz bars of palladium by private investors in the USA. They have been attracted by the perception that, having been over $1,000 per oz just three years ago, the palladium price, at sub- $200 levels, had the potential to make large gains. Most of the buying so far has occurred in the first quarter of 2004. In total we forecast that 150,000 oz of palladium bars and coins will be bought by investors this year.

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Palladium Demand by Application Palladium Demand by Application

% change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz 43 43 2,100 2,100 1,465 1,465 Dental and Other Dental and Other 5 5 3,650 3,650 3,460 3,460 Autocatalyst: gross Autocatalyst: gross 28 28 (525) (525) (410) (410) recovery recovery 2 2 915 915 895 895 Electronics Electronics 13 13 6,140 6,140 5,410 5,410 TOTAL DEMAND TOTAL DEMAND

In summary, total palladium demand is forecast to rise by 13% this year to 6.14 million oz.

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Palladium Supply by Region Palladium Supply by Region

Total supply: +11% Total supply: +11%

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 2003 2004

'000 oz

Other North America South Africa Russia

6,460 7,160

Palladium supply is projected to rise 11% in 2004 to 7.16 million oz, with sales of Russian metal and production in South Africa set to record significant increases.

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Palladium Supply by Region Palladium Supply by Region

South Africa – output rising in line with increased platinum production Russia – mine production plus sales of 376,000 oz of inventory by Stillwater USA – Inco, NAPd output up

Sales of Russian palladium are projected to climb to 3.3 million oz, an increase of 350,000 oz on 2003. The Russian number comprises:

• mine production by Norilsk Nickel
• Some sales of stock by the government
• 376,000 oz of metal that will be sold by Stillwater Mining out of the 877,000 oz

received from Norilsk as part payment for taking a majority shareholding in Stillwater. Although this metal was exported from Russia on completion of the deal with Stillwater last year, it does not appear in our supply figures for 2003 because none of the palladium was delivered to end users until the first quarter of 2004. South African output of palladium is projected to climb to 2.57 million oz, up 250,000 oz from 2003, in line with expanding platinum production. North American supplies of palladium are also forecast to rise, climbing to just

• ver 1 million oz on the back of a recovery in output from Inco and increased

production by North American Palladium.

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Palladium Supply by Region Palladium Supply by Region

% change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz 12 12 3,300 3,300 2,950 2,950 Russia Russia 11 11 2,570 2,570 2,320 2,320 South Africa South Africa 8 8 265 265 245 245 Others Others 11 11 7,160 7,160 6,460 6,460 TOTAL SUPPLY TOTAL SUPPLY 8 8 1,025 1,025 945 945 North America North America

So with sales of palladium increasing from all regions, total supply is forecast to climb 11% to 7.16 million oz.

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Palladium Supply and Demand Palladium Supply and Demand

% change % change 2004 2004 2003 2003 ‘ ‘000 oz 000 oz 13 13 6,140 6,140 5,410 5,410 Demand Demand 11 11 7,160 7,160 6,460 6,460 Supply Supply 1,020 1,020 1,050 1,050 Movements in Stocks Movements in Stocks

The improvement in palladium demand this year will be almost matched by the increase in production, leaving the market oversupplied for the fourth year in a row.

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Palladium – NYMEX net speculative position versus price

January – October 2004

100 150 200 250 300 350 J F M A M J J A S O

$ per oz

Average Price

Not surprisingly, apart from a fund-driven spike to $333 in early April, the palladium price has been very subdued to date in 2004.

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Palladium – NYMEX net speculative position versus price

January – October 2004

100 150 200 250 300 350 J F M A M J J A S O

S per oz

200 400 600 800 1000 1200

'000 oz

Total Net Spec. Average Price

This is despite the substantial net long position still held by funds, both on NYMEX, as shown here, and via over-the-counter deals.

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Conclusion - Platinum

• Market to move into surplus

Market to move into surplus

• Return to growth in jewellery possible

Return to growth in jewellery possible but price dependent but price dependent

• Auto / industrial demand to stay firm

Auto / industrial demand to stay firm

• Supplies to rise more rapidly in 2005

Supplies to rise more rapidly in 2005

In conclusion: For platinum, we believe that auto and industrial demand is likely to stay firm in 2005, and that a return to growth in the jewellery sector is possible. This, however, will be dependant to a large extent on how the Chinese market reacts to changes in the price of the metal. Supplies of platinum are likely to rise more rapidly next year than this, as expansion projects in South Africa deliver greater volumes of metal. And so we expect the platinum market to move into a position of surplus for the first time in 7 years.

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Forecast Platinum Price For The Forecast Platinum Price For The Next 6 Months Next 6 Months

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700 750 800 850 900 950 1,000 J F M A M J J A S O N D J F M A

$ per oz

$760 – $880

We are, therefore, expecting the platinum price to be a little softer during the next six months, trading in a range of $760 to $880.

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Conclusion - Palladium

• Substantial surplus to persist

Substantial surplus to persist

• Chinese jewellery demand likely to

Chinese jewellery demand likely to ease back ease back

• Recovery to continue in auto /

Recovery to continue in auto / electronics markets electronics markets

• Supplies to climb further as stock sales

Supplies to climb further as stock sales continue continue

As for palladium: Demand from the autocatalyst market is expected to continue to recover into 2005 as switching to greater use of palladium-based catalysts on gasoline cars continues in Japan and North America. With use of stocks no longer likely to be significant, purchases of metal should closely reflect the underlying level of consumption. Based on current demand levels it seems that purchases of palladium in 2005 by Chinese jewellers are unlikely to match this year’s figure, which was boosted by the initial establishment of stock throughout the trade. Supplies of palladium are forecast to climb further in 2005, with South African

• utput on course to rise again and Stillwater Mining scheduled to deliver an

increased volume of Russian metal from stock to customers. As a result, the palladium market will remain very much in surplus.

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Forecast Palladium Price For The Forecast Palladium Price For The Next 6 Months Next 6 Months

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100 150 200 250 300 350 400 J F M A M J J A S O N D J F M A

$ per oz

$160 – $250

Consequently, we see little upside to the price and forecast a trading range of $160 to $250 for the next six months.

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