CAPE TOWN (miningweekly.com) – The risk of a disruption of the supply of platinum from South Africa had heightened, Lonmin CEO Ian Farmer said on Wednesday.
Farmer told the Investing in Africa Mining Indaba conference in Cape Town that, while supply disruption would have a marked impact because of platinum’s use in hitech consumer goods, there was currently a heightened risk of such supply disruption occurring.
Government safety stoppages, labour management difficulties, skills shortages, transformation and equity ownership challenges, rising community expectations, resource nationalism and high electricity prices were making operating in South Africa increasingly difficult, he said.
Moreover, the risk of business disruption from industrial unrest remained high.
Analysts supply forecasts had been consistently lowered in recent years, with platinum analyst SFA Oxford taking two-million platinum ounces out of its long-term supply estimate since 2006.
SFA Oxford was now, for the first time, including a “supply shock scenario” in its analyses.
While the outlook for platinum-group metals (PGMs) was bright in the medium to long-term, the industry was faced with navigating its way through global economic challenges and South Africa’s economic environment.
While revenues were covering operating costs, they were not covering capital investment, putting the company into negative cash-flow territory.
PGMs prices were currently depressed because of European uncertainties and investor price setting, which was expected to continue in the short term.
However, when industrial demand did reassert itself as the price setter, PGM price reaction could be acute and the rewards for the company to exploit the supply shortage could be considerable
Meanwhile, Lonmin’s investment in three new-generation cost-cutting shafts was having to be considered along with the company’s need to maintain a strong balance sheet.