Platinum starts a week on the upside

By Leia Michele Toovey- Exclusive to Platinum Investing News

Gold and platinum prices advanced further on Tuesday after surging oil prices boosted the precious metals’ appeal as a hedge against inflation.

Platinum was trading at US$1035.00 ounce, up US$56.50 from New York’s close. Overall, weakness in the dollar, the recovery in equities and fresh optimism over the economic outlook sparked buying of commodities in earlier trade, with oil and industrial metals all trading higher after heavy losses last week. The rise in the metals gave relief to some mining stocks after last week’s market flop. African Rainbow Minerals rose 6.2 per cent AngloGold Ashanti jumped 9.79 per cent and Anglo Platinum hopped up 9.42 per cent.

Last week was a tough go for most of the commodities, as they took price hits almost each day. On Friday alone, January platinum was down US$36.70 to US$1,007 an ounce at the New York Mercantile Exchange, while December palladium was US$9.80 weaker at US$194.90 an ounce.

During 2008, platinum prices have plummeted, but this may be working out to the metals advantage. When the metal last spiked, researchers jumped on the development of a substitution for platinum group metals with gold in diesel on-road vehicles, and with silver in diesel off-road vehicles. These advancements would require a great deal of research and development, which in turn would require a great deal of capital. With platinum hovering not too far over gold prices, is it really worth it?

Company news

World No. 3 platinum producer Lonmin has some much needed time to improve its operations in an effort to fight off a takeover by Xstrata. Xstrata’s decision to walk away from a formal US$10 billion bid on October 1 gives Lonmin at least six months of breathing space before the miner can issue another hostile bid.

Lonmin’s profits have been eroded by missed production targets and depressed prices. Analysts predict Lonmin’s shares will at best bump along at low levels after they lost speculative froth when Xstrata virtually shut out rival bidders by increasing its stake on the day it walked away from a formal bid. Xstrata boosted its stake to 24.9 per cent, setting the scene for a future offer lower than the bid of 33 pounds per share it proposed in August. Under U.K. takeover rules, Xstrata must wait at least six months before it can launch a lower offer.

Lonmin shares, which have shed nearly half their value this year, were up 9.3 per cent at 16.44 pounds on Monday morning amid optimism over a plan to recapitalize banks. Many analysts had welcomed the bid from Xstrata, which has a good track record of turning around underperforming firms, such as Canada’s Falconbridge and Australia’s MIM. Lonmin has repeatedly disappointed investors over the past two years as refined platinum sales have slid from 939,654 ounces in 2006 to a forecast of 725,000 during the 2008 fiscal year to end September. Xstrata said it walked away from a formal bid due to unfavorable loan terms amid the credit crisis, but many analysts are determined that Xstrata will be back, and this time they will be able to wage a lower bid given Lonmin’s profit turning struggles.