[miningmx.com] – LONMIN is expected to produce no more than 700,000 oz in its current financial year assuming an expected loss of 25 days at its strike-affected Marikana mine in the North West.
Coupled with slugglish production at Impala Platinum’s Lease Area and the cutbacks elsewhere in the industry, such as at Aquarius Platinum, one can be forgiven for wondering how Anglo American Platinum (Amplats) will tackle its own optimisation plans, and whether it may see opportunity to minimise its own cutbacks.
“Amplats always acted as a shock absorber to the benefit of its rivals,’ says one platinum industry source. “This time, it may take the attitude of not being the first mover,’ he adds. The implication is that Amplats may delay its optimisation of its mines, especially if labour relations remain so combustible. So goes the theory.
But is that entirely true? Much could change in the remaining four months of the year, the time Amplats has left to complete its self-imposed deadline on its restructuring plans. It could just work on cutting head office and central services costs, but other analysts think this will do little for its own long-term prospects.
“The question in front of Amplats (and the industry) is how do you restructure an industry. Amplats has been given a footprint as a 2.5 million oz to 3 million oz producer in order to achieve decent returns,’ says another analyst.
“However, about 40% to 50% of industry production is under water when you factor in sustaining and expansionary capital. Currently, these are large scale operations that need to operate at a high rate to be economic,’ he says.
What’s likely to follow from Amplats is a long-term strategy that could take two to three years to implement in which it will reduce head office costs, but almost certainly have to reduce platinum ounces on the ground. The possibility that a large portion of the estimated 500,000 oz supply surplus has been taken out of the market must be seen as only a temporary reprieve for companies still producing platinum.
A quick scan of the relative performance of platinum and palladium against rhodium perhaps illustrates the point that the 10% rise in the basket price some platinum group metal producers are receiving is only a temporary uplift driven by speculators.
The rhodium price has barely moved over the last 30 days; in fact, it’s currently trading on a spot basis at $1,150/oz against $1,170/oz compared to platinum which is 10% higher at $1,540/oz in the last 30 days. The palladium price is 9.6% higher.
But it’s the rhodium price which is more tightly correlated to the autocatalysis market. Its exchange traded products only hold some 37,000 ounces of material whereas the four main platinum ETFs added $133.2m of investment in the last two weeks, equal to about 88,821 ounces, according to a Reuters report last week.
“What’s probably happened is that investors who went short on platinum and palladium got caught on the wrong side and so the ETFs provided a bit of short covering,’ an analyst says.
Like it or not, Amplats will still be required to conduct some major surgery to its production base when December rolls along.
