RUSTENBURG (miningweekly.com) – The world's leading platinum producer Anglo Platinum (Angloplat), which said that it would produce 2,5-million ounces of platinum in 2010, indicated on Tuesday that it might beat that target as platinum demand rises and prices firm up.

It is now possible that the company may produce between 2,65-million ounces and 2,7-million ounces this year – 150 000 oz to 200 000 oz more than guidance – but Angloplat CEO Neville Nicolau was cautious in confirming the new potential figures during a mine visit.

However, he did indicate that demand is recovering along with prices, with the dollar price of platinum standing at above $1 700/oz and, more importantly, the rand basket price currently exceeding the R19 000/oz level.

"The price puts us in quite a nice space," Nicolau told Mining Weekly Online during a visit to the Thembelani underground mine and the Waterval smelter, both near Rustenburg.

The company wants to build some flexibility into its forecast so that it can move up or down depending on the market circumstances and has been selecting the mining assets that give it the best production profile from a relatively wide choice.

London-listed Anglo American owns 80% of the JSE-listed Angloplat, which has 20% of its shares in free float. Angloplat this year raised R12,5-billion in an over-subscribed rights issue.

"We think that we will be able to produce a bit more this year than the 2,5-million ounces, but it's still early in the year, and I'd prefer to make a concrete comment at the midyear mark.

"We are stress testing to see whether there will be enough electricity, water and capital. We want to guard against the over promising and under delivering of the past," Nicolau added.

But demand is receptive to additional production and it is understood that Angloplat's output so far this year is exceeding the official 2010 target.

"The world has changed as far as the platinum market is concerned," Nicolau said.

He also indicated that the group's capital expenditure for the year might exceed the R8-billion budgeted in tandem with possible higher production, but would be well below the R14-billion level outlined ahead of the 2009 recession.

Some analysts remarked that Angloplat had done well to lower its cost base and that they expected the JSE-listed group to lift production to some 2,9-million ounces a year over the next five years.

A recent graph published by mining analyst JP Morgan suggests that Angloplat has already moved into the lower half of the cost curve.

The company slightly exceeded its promise of 2,4-million platinum ounces in 2009, producing 2,45-million ounces, and actually sold 2,6-million ounces of platinum owing to an overhang of extra supplies locked up in the production process.

Angloplat expects platinum demand to grow in 2010, which could result in a supply deficit.

The platinum group metals (PGM) market, which is about one tenth of the size of the gold market, is, like gold, a store of value in difficult economic times in the form of jewellery and investment.

When prices tend down, PGM jewellery sales normally rise, as took place during last year's downturn when substantial volumes of the metal were sold into the jewellery market.

Investment in PGMs also takes place during difficult economic times, through the purchase of investment bars and exchange-traded funds (ETFs).

How PGMs differ from gold in the good economic times is that the PGMs have a real industrial use in the form of autocatalytic conversion and in the glass industry, where it is used in forming items like flat television screens.

"Your TV screen is flat becasue there is a PGM mould that actually makes it flat," Nicolau said.

The company expects vehicle production rates to be higher and for the supply-chain lag of 2009 to reverse and for the demand for metal in autocatalysts to be "much stronger".

The demand for diesel vehicles in Europe is expected to return in 2010 as fleet purchases restart.

The company also believes that the launch of the US ETFs could provide additional demand in 2010 and expects an element of rebound in industrial demand owing to restocking.

In the past ten years PGMs have returned 32% to investors, followed by iron-ore at 20% and coal at between 10% and 15%.

Angloplat has mines with 50-year to 100-year lifespans, but the chances are that PGMs uses are going to change during that period.

Autocatalysts are likely to change during that time, which makes Angloplat's efforts to redevelop the market.

Platinum came into its own as a jewellery metal only ten to 15 years ago and Angloplat is now keen to facilitate appropriate fuel-cell development.

Angloplat produces 40% of the world's platinum and currently tailors its production profile to the market.

At one stage in the past, Angloplat said that it was going to produce 3,5-million onces but that level of production even today, Nicolau said, would result in a flooding of the market.

"Having establishd what the world needs, we have put together a profile that is appropriate," Nicolau told jounrnalists during the mine visit.

Angloplat has drawn up a 35-year asset profile that selects the most efficient ounces first.

An example of this took place during last year. When the company was in difficulty, it shut down inefficient mining assets.

"We select the assets that have the most potential, put that into our profile and set up our cost base accordingly," said Nicolau.

At one stage, Angloplat's cost base increased excessively, but the company has been able to keep its unit costs flat over the past two years and it expects to keep its unit costs flat in 2010 and into 2011, unless extraordinary economic events arise.

It believes that it will be able to maintain costs at the same level even with the 25% electricity increase every year for the next three years and wage increases above inflation.

If it succeeds in keeping costs flat again this year, then Angloplat's cost base will be competitive.

The large mega-mine structure Angloplat possessed in the past in the likes of Amandelbult are seen as no longer appropriate.

"We now have mines that are of appropriate size for today's more stringent safety regulations. They have been brought down to bite-size chunks," Nicolau said.

In an 18-month period beginning in late 2008, Angloplat reduced its workforce by 19 000 people to 59 000 without a single compulsory retrenchment or industrial action.

The restructuring flowed through to head office, which has been substantially streamlined into a team that works in a matrix formation across Angloplat rather than the previous hierarchical formation.

"We have taken out huge layers of the head office team and we now have direct contact between myself and the operational managers and it is unlikely that the costs are going to creep back in. But just to be sure, we have a monthly exco where we look at the figures thoroughly to make sure that they don't come back," Nicolau told journalists.

Some analysts see Angloplat as being well on the road to recovery and in line for a possible rerating going forward.

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