Platinum Sales Drop, SA Miners Hurt
Email this article By Kishori Krishnan Exclusive To Platinum Investing News
Platinum miners in South Africa are in a quandry. Production reports on Thursday from two of SA’s biggest platinum miners for the September quarter, showed management continuing to battle with labour and restructuring issues.
Though reports from diamond and iron-ore producers were more positive, the strong rand has maintained pressure on margins for platinum miners.
The platinum price has near doubled to 1350/oz this week from a low of 732/oz last October. But for the miners in SA, it is still an uphill task.
What is adding salt to injury is that some politicians have called repeatedly for the government to take ownership of mines, a move that could potentially scare off investors.
Biggest producer
SA is the world’s biggest producer of the metal. IMF reports indicate that its economy is set to contract 2 per cent this year following the global financial crisis. In that scenario, the `formidable impact’ on platinum miners cannot be ruled out.
“South Africa is expected to face continued challenges in 2010,” said Lonmin Plc’s chief executive Ian Farmer. Lonmin is the world’s third-largest platinum producer.
“There are wage increases at well above inflation rates, which makes managing costs difficult in a highly labour intensive environment. A higher number of safety stoppages enforced by the ministry of mines is also resulting in a loss of production,” he said, in an interview with Reuters.
The company posted a 25 per cent drop in fourth-quarter platinum sales. Shares in the FTSE 100 miner were down 3.1 per cent in London on Thursday, underperforming a 2.8 per cent dip in the UK mining index.
Lonmin said platinum sales for the full year declined 6 per cent to 682,955 ounces, within its revised target, and that it expected 2010 sales of around 700,000 platinum ounces.
Farmer said that a large part of the industry was not making any money and noted that about 50 per cent of South Africa’s precious metal miners were operating at a loss.
Ministry intervention
A higher number of safety stoppages enforced by the ministry of mines is also resulting in a loss of production. Moreover, there is also talk of state ownership of the mining industry, which has rattled corporates and traders.
Stanlib economist Kevin Lings has said that nationalising anything, whether it was mines, banks or any large private business, would hurt much-needed offshore and local investment in South Africa.
“Credit-rating agencies would view nationalisation as a negative effect in terms of attracting foreign investors,” said Lings.
“Not only would such a move scare off investors who are already in the country but any future investors who would be coming in to build capacity and create jobs.”
Ling said businesses in other sectors would also be nervous about undertaking expansion if it would possibly lead to their being nationalised.
Dismiss claims
Outgoing Reserve Bank governor Tito Mboweni, however, dismissed the `rumours’. He stated that mines would not be nationalised despite `noises’ from politicians.
“I don’t think that argument is going to gain traction, I don’t think it is going to get support,” he said.
Mboweni, who leaves his post next month, said the government had only recently taken over mining rights from companies, and would not want to start another “difficult process”.
That said, he added that the central bank was becoming increasingly concerned about imbalances that might result from current trading levels.
Job cuts
South Africa is not just the biggest producer of platinum, but also one of the top producers of gold, although the influence of mining on gross domestic product has declined, particularly as gold reserves have been exhausted.
Some mines have been forced to shut down, resulting in significant job losses. The SA economy shed 267,000 jobs in the second quarter, according to the statistics office.
Simmer & Jack Mines Ltd, which mines gold in South Africa, said it may cut as many as 2,500 jobs, or almost half of workers at its biggest mine.
Anglo Platinum Ltd, the world’s largest producer of the metal, said it would continue to fire workers.
Businesses have been cutting back aggressively on the jobs front. Real income has been under pressure for a while. This year’s contraction is expected to be the first since 1992, when the gross domestic product shrank 2.1 per cent.
Tough times
Meanwhile, Anglo Platinum has put two more shafts on care and maintenance in August, bringing the number of shafts suspended in the past six months to three. It said it had eliminated 11,715 jobs in the nine months to September, above its original target of 10,000 jobs for the full year, and 714 more corporate posts would be cut.
Angloplat ’s attributable platinum production for the quarter was 616500oz, down 2 per cent on the June quarter and 10 per cent lower than a year ago.
Lonmin said it had ceased opencast platinum mining at Marikana and Pandora. About 5,00,000 tons of mined production was lost because of safety related stoppages.
Gold Rally
Though gold has rallied 20 per cent this year to $1,059.20 an ounce, the price when converted to rand has retreated 5.5 per cent. Platinum’s 45 per cent surge to $1,366.75 an ounce falls to a 15 percent gain in rand terms.
Raw-material producers account for 27 per cent of the MSCI South Africa index.
AngloGold shares have gained 30 per cent this year, while Impala, the world’s second-biggest platinum producer, has climbed 29 per cent.
The strong rand is however, slowing economic recovery and making the nation’s equities the least attractive in emerging markets.
Tags: africa, angloplat, gold, iron ore, job cuts, jobs, labour, lonmin plc, miners, platinum investing, platinum news, platinum price, platinum producer, platinum sales, shares, wage increases
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October 26th, 2009 at 1:50 pm
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