[miningmx.com] – THE growing interest in Absa Capital’s platinum-backed exchange traded product – known somewhat confusingly as NewGold’s Platinum Debenture (NewPlat) – is something of a double-edged sword.
On the one hand, it is a remarkable bit of opportunism for Absa to have spotted the potential in a platinum exchange traded fund (ETF). So far, just over 70.4 million debentures have been issued referencing about 702,725 ounces of platinum. That is equal to 17% of South African platinum production last year, of about 4.1 million oz. So well done to Absa.
The bad part of the success of the debenture is that it also recognises the deep-seated concerns investors have for the South African mining industry.
While demand for platinum is expected to trend promisingly upwards in the latter half of 2014, it’s the supply side of the equation that is the bigger influence on the popularity of the debenture.
South African controls the market for newly mined platinum, with recycling and investment inventories also having a major bearing on where the price of the metal is heading. The expectation is that platinum production from South Africa will continue to be unpredictable; and most probably downwards.
The strike at Anglo American Platinum (Amplats) was a case in point with the Association of Mineworkers & Construction Union (AMCU) determined not to back off from demands that Amplats revisit its much revisited restructuring plans for its Rustenburg mines.
Wage negotiations between platinum employers and unions have also started to stall. Again, AMCU has issued demands for 60% plus increases whereas the platinum producers say they can’t digest any increase above 9%, at the most.
Industrial action is, therefore, likely to give the platinum price a push. There has been a rally recently in platinum equities, but Justin Froneman, an analyst for Standard Bank Group Equities considers the recovery as “a concern’. He is, however, positive on the long-term prospects for platinum and its sister metals.
“Despite our larger-than-consensus estimate of likely platinum and palladium stockpiles, we retain a long-term bullish outlook in relation to the PGM commodities and fundamentals,’ he said in a note.
“This underlies our continued belief of significant structural challenges in the delivery of PGM supply to the market.’
