"Forget the impact of safety concerns on the gold miners - look at how it could affect the price of platinum!" This note landed in my inbox this morning from a mining analyst contact in South Africa. I quickly forwarded it on to Erin.
"Certainly worth investigating! Got my favourite platinum necklace on today," came her response.
Platinum doesn’t only polish to a brilliant shine as a substitute for gold in jewellery. It has also been awarded ‘strategic metal’ status by the US military machine. Perhaps not the greatest accolade, says Erin!
The platinum group of metals are pretty c lever. They act as catalysts and alloys, and they’re highly resistant to heat and corrosion. Platinum group metals (PGM) are said to be present in some 20% of consumer products. At the very least they are used in the production line, even if they don’t feature in the final product.
Aside from jewellery, demand comes from the automotive sector, chemical processing and glass production. Platinum is also used in the electrical and electronics industry, in petrol refining and in dental and medical equipment and construction. Then there is investment coins and bars, not to mention the rising popularity in exchange traded funds. Bottom line — demand for platinum is there and it is rising daily.
Platinum, another precious metal that is running out...fast!
Now, only a few days ago we’d agreed that we should give the South African theme a break. There has been quite enough hype and emotion charging around about the run in the gold price (and the rugby)!
However, in all the excitement we had forgotten to look a bit more closely at how some of the other precious metals companies are faring in that neck of the woods. South Africa is, after all, the world’s biggest platinum producer!
What the guys are saying now is that all the current mining safety concerns could have a material impact on the platinum price. In fact, the reduction in platinum output in South Africa is being blamed directly for the 33% rise in the spot price of the white metal since the beginning of the year.
Between September and October alone the platinum price has moved from $1,360 to a high of over $1,460. Some are even saying that platinum could go to $1,500 a troy ounce before the end of the year. To put it in perspective, in 2005 the price of platinum averaged $897 per once, and $1,142 in 2006.
In May this year the platinum market was in balance. There was a nominal surplus of around 10,000 ounces. This was the first time without a recorded deficit in seven years! But with all the bad news on production coming out of South Africa this has been turned on its head. Now it seems a deficit is a dead-cert.
Another reason for a potential further rise in the price is that there are limited above ground stocks.
Earlier this year, it was predicted that platinum production in South Africa would rise by 7%. But that forecast has been hacked back to 1 or 2%. So the 7.4 million ounces previously expected will now be more around the 6.7 million ounce mark. Quite a drop!
Safety concerns a sobering reality
So it would seem that South Africa’s gold and platinum miners are singing from the same hymn sheet. Production has suffered as a result of the worries about deep mine operations, accidents, power failures and the risk of strike action. The National Union of Mineworkers there is threatening a one-day strike over mine safety.
Aside from the safety audit, the South African government is now calling for a ‘no-accident’ mining policy. That puts huge cost pressure on companies. Certainly, safety infrastructure will need to be looked at very closely. All things considered it is a rather sombre tune.
And if things continue in this vein it could get even worse! Disciplinary closures, it would appear, are the new reality of South African mining. In the past, the government might force the closure of an area in the mine that had been directly affected. Now they seem keen to close up the entire operation!
While the spotlight maybe on South Africa, action there is having a global impact. Johnson Matthey PLC, the global speciality chemical company and platinum fabricator, is THE font of platinum wisdom. In an interview with one of the newswires they said the protracted closures were a real concern for their business.
Swings and roundabouts
It is certainly a concern for the platinum miners, too.
Look at some of the companies which have been hit. In recent months, miners from Impala Platinum Holdings (Implats), Anglo Platinum (AngloPlat) and Northham Platinum have died. The most recent incident happened at Implats’ Marula mine where two mine workers died. Marula produces some 6,000 ounces of platinum a month. The shaft that needed to be shut at Marula is responsible for 3,000 ounces a month. So until that is up and running again production at Marula is down 50%! Not good news!
At AngloPlat, where the government forced a mine closure, 9,100 ounces have been lost. Meanwhile, Northam said the closure of its mine would reduce its PGM output by 6,500 ounces.
A high platinum price might be good news for investors. But there is a flipside to this coin. You can’t get platinum out the ground if the mine is shut! Safety measures cost a lot of money. But you wouldn’t find many who’d agree with skimping on them for the sake of the platinum price.
Keep digging...but do it safely,
Erin and Isabel
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