Platinum’s future eludes analysts

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum showed extreme volatility in 2008, rising to an all-time high of $2,290 an ounce in March on the back of a power shortage in major producer South Africa, before falling to a five-year low of $732.50 in October.

When surveyed, only a handful of analysts were willing to voice their predictions for the platinum market in 2009.  Those who were willing to give their forecast had a wide range of opinion. At the high end of the scale, on analyst estimated a surplus of more than half a million ounces, whereas another calculated a deficit of 140,000 ounces. Analysts also disagree on how much demand will drop this year; however they all agreed that that it will be tied directly to the auto market’s performance.  Carmakers account for more than 50 percent of global platinum consumption.

In 2008 we saw a new phenomenon- gold exceeded platinum in value. According to the Royal Bank of Canada, South African gold shares are poised to outperform platinum shares in the first half of 2009.  There will be more downside risk to platinum earnings than to gold earnings. They expect South African platinum stocks to reflect the decline of the platinum price basket well into 2009. The bank also predicted that most, if not all, of the major platinum producers will post losses in 2009.

Company news

South African-focused Aquarius Platinum Ltd expects a first-half after-tax loss of $75-$85 million due to weak metals prices. The expected loss for the six months to end December includes a $20 million write down for the temporary closure of its South African Everest mine. Aquarius posted a 26 percent rise in net profit to $236 million in the year to end June 2008. Aquarius said cash costs at all of its operations in South Africa have fallen, mainly due to higher volumes, but declining prices of mine inputs such as steel, fuel and explosives were expected to result in lower future costs.  

Impala Platinum Holdings Ltd. said it was walking away from its US$2.1 billion bid for smaller producer Northam Platinum Ltd. “Due to the current global economic climate as well as the ongoing volatility in commodity and equity prices, the parties have not been able to agree on exchange ratios,” the companies said. Talks between Impala Platinum, Northam and investment concern Mvelaphanda Resources Ltd. were announced in September, following March’s record-high platinum prices.

While most mines are cutting outputs and shuttering operations, Platinum Australia has just brought a new mine into production.  On Friday the company produced the first flotation concentrates at its Smokey Hills platinum mine. It is anticipated that the first shipment of concentrates to the Impala Platinum smelter would take place within the next week. The Smokey Hill mine, in Limpopo province, started out as an open cut operation, and will continue as such until June this year. The development of the underground mine has already started, and production from this would replace that from the open pit, over the next 12 months. The company’s most recent cost analysis confirmed that Smokey Hills would be among the lowest cost producers in the industry. At the current rand to US dollar exchange rate, the average on-site production costs are estimated to be less than $200/oz for the Platinum Group Metals- platinum, palladium, rhodium and gold. This provides the company with a significant margin, despite the metals’ current prices.