Platinum – protests cap output

Disruptions to production from safety stoppages and labour protests capped output from Implats, Lonmin, Anooraq and Eastplats in the past few months. It underscored predictions from metals firm Johnson Matthey of limited growth from SA platinum miners this year.

Johnson Matthey said in its latest Platinum 2011 Interim Review that supply of platinum from SA will rise only 3% this year to 4,78moz, in contrast to growing output from North America and Zimbabwe.

In the year to September Lonmin sold 721000oz of platinum, in line with its revised guidance of 720000oz. Its previous forecast of 750000oz was cut after May’s strike, and subsequent firing and re- hiring, involving 9000 workers at its Marikana operations because of internal NUM leadership struggles.

Eastplats, too, was hit by labour disruption earlier in the year. After an illegal sit- in by workers in May, production resumed only slowly and its sales for the September quarter were 29% lower than a year ago.

Lonmin is currently engaged in wage negotiations, on which the National Union of Mineworkers (NUM) has threatened to strike even though it is likely the settlement will be in line with the 8%-10% agreed with unions by other major platinum companies.

The group experienced 27 production stoppages by mine health and safety officials during the year, reflecting the regulators’ clamp-down on safety transgressions throughout the industry.

Mineral resources minister Susan Shabangu told a mine safety summit last week that the Mine Health & Safety Act is being reviewed to strengthen enforcement. Inspections by officials had highlighted “a worrying culture of non compliance with minimum standards. In this regard my department will continue to take action against mines that do not comply with the expected standards,” she promised.

Lower production meant higher costs, with Lonmin’s costs rising 10% for the year or 8% if the labour and safety disruptions were excluded. At Eastplats, lower volumes meant a 49% increase in unit costs to US$1059/oz, since a large proportion of mining costs are fixed.

Lonmin CEO Ian Farmer says the issues underlying labour unrest are youth unemployment and poverty, and because mining companies work closely with communities, they are often the focal point of this frustration.

“I believe SA companies need to be more sensitive to the environment in which they operate and ensure that the good they do is visible. We have to balance being good corporate citizens with the returns that shareholders expect.”

Lonmin is targeting sales of 750000oz of platinum this year, allowing some room for labour unrest and safety stoppages. But previously announced plans to ramp up to 950000oz by 2015 will depend on market conditions.

After trading between $1700 and $1900/oz for most of the year, platinum prices weakened sharply in the past few weeks to below $1500/oz on fears that industrial demand will stutter on global recessionary conditions. Johnson Matthey forecasts platinum will trade on average at $1650/oz in the next six months, possibly reaching as high as $1800 but with a floor of around $1450/oz.

Farmer generally agrees with Johnson Matthey that there could be a small surplus of platinum this year. Though the near-term outlook is difficult to predict, the medium to longer-term prospects for platinum group metals are positive, as environmental concerns create more stringent requirements for autocatalytic converters.

Lonmin’s shares, at around R135, are down from this year’s peak of R220. Eastplats has fared even worse, currently trading at R5,10 from R13 in February, a similar performance to Anooraq, now at R4,50 from R11,50.

“Investors are struggling to value assets in general and in the PGM sector costs are rising and margins are being squeezed,” Farmer says. “Until that dynamic changes positively, our share prices will be soft. The timing of the market’s move from oversupply to deficit is what investors are trying to predict.” – Source: fm.co.za

Tags: platinum, platinum price, platinum prices

Posted by admin on Nov 24 2011. Filed under Platinum. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry