Chief executive of Anglo Platinum, Neville Nicolau is quoted saying:

“We have had as a strategy for some time now to introduce some flexibility in terms of production, which means that we would like to be able to ramp up our production and ramp it down… when the market requires this.”

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The sharp retreat of the stock market, combined with a higher US dollar has triggered a broad sell-off in the precious metals.

Spot platinum slipped to a session low of $794.50 an ounce, down 8.8 per cent from $871.50 an ounce late on Friday. Gold and silver took a big hit; both metals are at 10-day lows. Platinum is trading at its lowest price relative to gold in about 11 years.  

Moving forward, there is some optimism that with everyone cutting their output and work force, shrinking supply may rebound prices. Poor economic conditions for platinum were cemented by weak auto sales data coming out of Asia and Europe. The metal dived as figures from Japan, South Korea and Europe showed another plunge in car sales in November.

Platinum producer Lonmin, down 18 per cent, is in uncharted waters.  On the back of years of high platinum prices, the company had a few years in which it struggled with production problems.  Now, Lonmin needs to repay a $230 million debt towards the end of next year, but at the present spot price of platinum the miner will be loss-making and cash flow will be negative. The hope that Xstrata, the former predator, which has built a 25 per cent stake in Lonmin, might bid again when its lockout expires in March is rapidly diminishing. Xstrata is faced with bringing down its own debt, and worried that Glencore, its main shareholder, may be forced to sell down its stake.

Platinum junior Wesizwe Platinum has amended the project structure and financing for its core PGM Frischgewaagd-Ledig project. The company’s board of directors has split its R5, 6-billion capital expenditure plans to turn the platinum prospector into a platinum producer into a series of smaller contracts. This is part of Resize’s strategic imperative to technically and financially lower the risk of the project in terms of current market conditions and the long-term viability of the project. Wesizwe wants the market to understand that the company has not cut corners and has not underestimated its capital expenditure, “Wesizwe’s original plan has changed very little. All it has done is shuffle a few options around to mitigate shareholder losses and survive the current economic situation.

The project will be completed in phases or modules, which will give the project the flexibility it needs to, proceed with as few delays as possible.  The Frischgewaagd-Ledig project has been split into three phases: shaft sinking, site preparation, and ramp-up to full production. Total capital expenditure remains the same, but the money will be needed in phases. Over ten years, the total amount will be spent, and therefore it is not necessary for the entire amount to be raised at this point. The company currently has R340-million in cash, which it will use to begin the construction of its critical path items. Sequential tranches of capital will be raised as needed to fund the phases of the project, which will prevent the underlying value of the shares from decreasing. The completion of the first phase will lower the project’s debt risk, enabling the company to plot its financial course and raise further capital for the next phases.  Capital expenditure on the second and third phases is undetermined; however it will amount to about R3, 8-billion. The mine will begin producing in 2013 and will build up to a steady production of 350 000 ounces per year in 2016, at which time platinum demand is forecast to peak.

Struggling economies push platinum lower

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum has been on a steady downgrade, falling since trading at a record $2,301.50 an ounce in March.

The metal was at $821 an ounce in London on Tuesday, platinum futures for January delivery tumbled $24.50, or 2.7 per cent, to $820.60 an ounce on the Nymex. Palladium, often a mirror for platinum on the markets rose $1.05, or 0.5 per cent, to $217.70 an ounce. A poor economic outlook eroding demand for jewelry and cars is causing the metal to flop.  Miners who banked on high platinum prices are struggling to adjust business operations in light of the new lows.

Platinum refiner Johnson Matthey expects the price of platinum to range between $700/oz and $1,400/oz in the next six months, with the outlook for the market more uncertain than it has been for many years. “The dramatic fall in the platinum price in the third quarter of the year could yet pose significant challenges to the primary producers and make expansion less attractive,” Johnson Matthey said. Looking forward, Matthey said it expected that most major national economies would suffer a recession, or slowdown in growth, and this would impact industrial demand for the metal.

Company news

Lonmin Plc, the world’s lowest cost PGM producer, will cut at least 50,000 ounces of annual output, halt expansion and eliminate a third of jobs at its London headquarters due to the metal’s plunge. Lonmin will suspend open-pit mining at Marikana in South Africa by December 31 and may close its only other fully owned mine, Limpopo. All Development projects have also been put on hold. Due to the shedding of 73 per cent of share value in 2008, the company is currently valued at US $2 billion. Lonmin is not holding its breath for a price revival of the metal; in fact the company does not anticipate any comeback in the metal’s price until 2010. For now, the company is operating in “survival mode”. Lonmin will move its business development and exploration activities to South Africa from London, where the headcount will drop to 22 from 35.

Zimbabwe is forecasted to lift platinum output this year, despite regional political crisis and global economic malaise. The country holds the second largest reserves of platinum after South Africa, and is expected to lift platinum production by 5.9 per cent this year to 180,000 ounces, outperforming its earlier predictions.

Platinum demand by jewelry makers in China is forecast to fall 22 per cent to 610,000 ounces in 2008. Even though platinum is currently trading at lows, high prices in the first quarter of 2008 dented demand. China is the world’s main consumer of platinum and palladium jewellery; Chinese jewellery manufacturers are forecast to purchase 610,000 ounces of new platinum metal in 2008, a fall of 21.8 per cent from the previous year. The high prices witnessed in the first quarter have driven the use of large amounts of recycled metal and have also impacted upon manufacturing volumes. Very large amounts of old, second hand jewelry have been returned by consumers for recycling, offsetting manufacturers’ purchases of new metal. The flow of scrap material peaked in the first half of 2008 and has since decreased due to lower prices. Therefore, demand is likely to rise in the future despite the fact that for the end of 2008  demand from the Japanese jewelry industry for the whole year was predicted to fall to 40,000 ounces in 2008 from 180,000 ounces in 2007.

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.

Analysts believe platinum is soon to rebound

By Leia Michele Toovey- Exclusive to Platinum Investing News

Platinum plunged to a new low on Tuesday, dropping below US$1000 an ounce for the first time since 2006.

Platinum dropped US$96.00, or 8.8 per cent, to hit US$994 on the London Metal Exchange (LME). At its current price, platinum is down 57 per cent from its record high of US$2301.50 it hit on March 4. Analysts are optimistic about the future of this metal, predicting that it will rally to US$1448.20 an ounce in the near future. 

A surplus in the platinum market is anticipated this year as falling car sales and growing global economic uncertainty hit demand. But the surplus will not be as large as initially anticipated as an unclear supply outlook stemming from a skills shortage, inflation and promotion of employee safety, is expected to curb production in primary producing South Africa. The platinum market has been in the deficit for the last seven years, helping spot prices surge to a record high in March, before dropping to US$1,042/oz earlier this month.  

Platinum’s primary use as an auto catalyst is adding negative sentiment – carmakers like Toyota Motor Corp have been reducing production plans on demand slowing in the U.S. and other major markets. High fuel costs means that there has been a shift in demand in the auto sector to smaller vehicles; which require less platinum in their construction. Active platinum selling by investment funds has also undermined prices, but while prices will stay under pressure for the next six to nine months, falls will be limited due to concerns over supplies

The most active Tokyo platinum contract dropped by the daily Y300 (approx US$2.83) limit on Tuesday on fears of weakening demand from automakers, with a stronger yen also hitting the market. The benchmark contract for August 2009 delivery JPLc6 on the Tokyo Commodity Exchange fell to as low as 3,457 yen (approx US$32), it’s weakest since November 2005.

Japan’s Toyota Motor Corp said it started cutting production in China as sales growth in the region fails to meet expectations. A number of other car-makers have already said they are cutting production or sales targets due to slowing U.S. economy.

Company news

The surprise exit of Lonmin’s (TSX:LMI) chief executive has left questions surrounding the proposed takeover of the platinum miner by Xstrata. Brad Mills is to step down with immediate effect, just days before Xstrata (XTA:L) must decide whether it is to launch a £5 billion takeover bid. Ian Farmer, Chief Strategic Officer, replaces Brad Mills, who analysts have blamed for Lonmin’s recent problems. The change of the chief executive at such a crucial stage in Lonmin’s bid to stay independent is a sign that the world’s third largest platinum miner has in effect resigned itself to a takeover by Xstrata. Lonmin’s board was confident about the new chief executive, stating that the “board has an ongoing duty to manage Lonmin in the best interests of shareholders. We have decided the time is right to appoint a new chief executive officer and we believe Ian is the right person to lead the group.”

Xstrata unveiled a proposed takeover offer of £33(approx US$59) per share worth US$10 billion in August, but has been set a deadline by the Takeover panel that it must say by Thursday whether it will make a formal bid. Under takeover rules Xstrata cannot offer less than its existing outline offer.  So far, Lonmin had rejected the Xstrata approach, claiming that the £5 billion offer undervalues its platinum mines in South Africa.

Xstrata has reportedly approached 22 banks to make commitments for a US$15 bl loan to both fund the Lonmin takeover and refinance existing debt. Xstrata theorized to be pausing due to the collapse in the platinum price, platinum is down 30 per cent since Xstrata proposed the offer. Shares in Lonmin closed down 14.62 per cent at £21.08 (approx US$38) while Xstrata’s stock was down by 17.47 per cent at £15.78 (approx US$28.6).

Platinum Group Metals (TSX.PTM) declared on September 26 the non brokered private placement of 4,910,470 common shares at a price of CD$1.55 (approx US$1.49) per share to raise gross proceeds of CD$7.61ml. The net proceeds of the placement will fund items included in the feasibility study on the Western Bushveld Joint Venture and general working capital.

Weak demand is still pulling down platinum prices

By Leia Michele Toovey- Exclusive to Platinum Investing News

It was a quiet day on the markets as everyone’s attention was on Capitol Hill where Henry Paulson and Ben Bernanke sounded off on the proposed US$700 billion bailout. Perhaps the relief was welcome after last week’s frenzy of market activity.

Platinum started the week on a good note; prices rose more than 3 per cent as the greenback weakened and a renewed optimism on platinum’s future market returned among analysts.

Although attention today was focused on the bailout package, platinum still took a slight hit. Platinum for immediate delivery dropped US$48.60, or 3.9 per cent, to US$1,207.40 an ounce, joining gold in the precious metals downswing. Despite last weeks market flops, gold was a relatively high performer as purchases increased as a ‘safe haven’ for investors. Platinum futures for December fell US$9 or 1 per cent to US$900 an ounce in electronic trading on the Comex division of the New York Mercantile Exchange. Palladium, a metal that generally mirrors platinum’s activity, in London retreated US$2.25 or 0.9 per cent to US$255.25 an ounce for immediate delivery. Spot platinum was at US$1,178.50/1,198.50 an ounce at 0737 GMT against US$1,134.50 an ounce at New York’s Friday close. Earlier it touched a session high of US$1,181.50.

Platinum, although a precious metal, tends to behave more in unison with industrial metals. This is because the primary use of platinum is in the auto sector. Like the other industrial metals, demand is correlated to the health of the economy. Listed platinum stocks were sold down again on Tuesday, in line with declining dollar prices for platinum group metals, and ongoing broker downgrades. The dollar platinum price is now nearly 50 per cent off its high, seen in early March, compared to gold bullion, down 14 per cent, and silver, down 38 per cent.

As the auto sector has taken a big hit in 2008, so have platinum market prices The selling of platinum stocks contrasts with firm recent buying of listed gold and silver stocks, underpinned by generally rising gold and silver bullion prices riding higher on a dollar that has been softening since September 11.

The nickel market has also been suffering this year. Nickel investing news posts current commentaries on all the mergers and acquisitions currently ongoing to keep companies afloat. By visiting this website and reading through the commentaries it is very apparent how active companies have been in developing new business strategies. Platinum companies are currently witnessing the same trend. On August 6, Xstrata, said it would offer £33 a share in cash for Lonmin, making the purchase target worth US$10 billion.

On September 12, Impala said it was in talks with Mvela Resources and Northam, with a view to a possible tripartite merger. Mvela Resources holds 66 per cent of Northam. If Impala were to acquire Mvelaphanda Resources and Northam, the combined group would hold 535m ounces of platinum group metals in the ground, second only to the 725m held by Anglo Platinum. Northam is a crucial target as in is the only platinum group metals miner with smelters, outside of the Big Three Anglo Platinum, Impala and Lonmin. Cumulatively, the big three producers account for nearly 80 per cent of global PGM production.