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400 000 oz platinum supply deficit expected, owing to South African labour disruptions, mine closures
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23rd November 2012
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The global platinum market will move from a surplus of 430 000 oz in 2011 to a deficit of 400 000 oz in 2012, as supplies are expected to drop by 10% to 5.84-million ounces, owing to labour disruptions and mine closures in South Africa and a lower recycling of platinum as a result of a decrease in platinum-group metals prices in general, predicts platinum researcher Johnson Matthey in its Platinum 2012 Interim Review.

Gross demand is expected to remain firm at 8.07-million ounces for 2012, with falling vehicle production in Europe and a slight decline in diesel cars in the European region to be largely offset by higher purchasing by Japanese manu- facturers, causing gross platinum demand in autocatalysts to soften only by 1% to 3.07-million ounces.

Demand for platinum in the jewellery sector was expected to reach a three-year high of 2.73-million ounces, while industrial demand for platinum was expected to subside by 13% to 1.79-million ounces in 2012, Johnson Matthey publications manager Jonathan Butler said at a media briefing in Johannesburg last week.

“Physical investment demand for platinum is expected to remain positive at 490 000 oz and platinum recycling is forecast to fall by 11% to 1.83-million ounces,” he added.

Platinum supplies from South Africa were forecast to fall by 12% year-on-year to 4.25-million ounces, reaching their lowest level since 2001, with production losses estimated to be at least 300 000 oz during the first three quarters of the year, Butler said.

He added that the closure of marginal operations by junior producers and below-par performance at other mines would also lead to some reduction in supply this year.

Butler pointed out that the industrial action and stoppages in the fourth quarter were not taken into account in the company’s predictions; however, it became apparent that stoppages had run at a fairly high level into the fourth quarter and the eventual supply level for 2012 could be lower than forecast.

“It is clear that the operating environment for South African producers has deteriorated during 2012, with the six-week illegal strike at JSE-listed Impala Platinum (Implats) in the first half of this year, the ongoing disruption at platinum miner Anglo American Platinum (Amplats) over the last few months and the violent strike at platinum producer Lonmin’s Marikana operations in August,” he stated.

Butler added that the strikes would impact on platinum prices.

“Operational challenges in the sector had contributed to the higher platinum price forecast of between $1 400/oz and $1 800/oz for the next six months,” Johnson Matthey principal analyst Alison Cowley said at the media briefing.

Meanwhile, Implats also expected the platinum market to be in deficit for the next few years, news agency Reuters reported earlier this month.

Impala group executive for marketing Derek Engelbrecht said he expected lower output and job cuts over the coming years as a result of rising costs and a drop in platinum productivity.

Mining Weekly reported earlier this month that the latest Statistics South Africa Quarterly Labour Force Survey indicated a loss of 8 000 jobs in the mining industry in the three months ending September.

Considering that many of the mining companies affected by the industrial action only started dismissals last month, it is likely that the full impact of the dismissals related to the wildcat strikes will only be seen in the fourth-quarter report.

There could also be more job losses because of possible downsizing at several platinum operations.

Impala Platinum
In August, Implats reported a 37% fall in profit during the year ended June, as lower production and a weakening macroeconomic environment weighed on the group.

Implats CEO Terence Goodlace, in August, said that the company, which experienced a “difficult year” on the back of changing labour dynamics, recorded a net profit of R4.3-billion during the year, compared with the R6.8-billion achieved in the comparative period last year.

He added that group revenues fell from R33-billion in 2011 to R27.6-billion during the period under review, owing to, besides others factors, reduced production and associated lower sales, stock build-up, safety stoppages and other group reductions in production.

A six-week strike in February at the group’s Rustenburg operations cost the company 150 000 oz of platinum, 77 000 oz of palladium, 19 000 oz of rhodium and 900 t of nickel production.

In September, an interim workers committee demanded a second wage increase. The company agreed to implement a wage adjustment for its employees, adding 4.8% to its wage bill.

The adjustment, which came into effect in October, was made after the platinum producer undertook a full benchmarking review, with a strong focus on lower-level employees, to deal with identified wage issues in the company.

Goodlace declared in a statement to shareholders that the wage adjustment supported the group’s long-term strategy of establishing new multi-union industrial relations, while pursuing a centralised wage engagement process for the platinum mining industry.

“It also supported the assurance of peace, stability and order at the operations, which would create an environment for safe production,” he added.

Anglo American Platinum
While gold mining companies and some platinum producers were ramping up production, the country’s biggest platinum miner, Amplats, until recently, still struggled to get its workers to return to work.

Amplats CEO Chris Griffith said during a radio interview earlier this month that the platinum industry was in “severe financial distress” and that high wage settlements to get wildcat strikers back to work could lead to job cuts.

“This is completely the wrong time to be offering unsustainable wage increases,” stated Griffith, adding that it could lead to more job losses.

Griffith stated last week that the R4 500 a month increase that striking workers were demanding from Amplats would cost the company R2.6-billion, which was “clearly not affordable”.

However, Amplats did offer workers a R4 500 incentive, which comprised a R2 000 loyalty or hardship allowance and a R2 500 safe start-up allowance to be paid two weeks after employees had returned and started actual work by November 14; however, Amplats spokesperson Mpumi Sithole told Mining Weekly that management had presented a revised offer to the strike committee and recognised unions on November 13.

She said the revised offer included the previously announced one-off allowance of R4 500 and either a monthly gross, pretax standalone allowance of R600 or a pretax salary increase of R400 a month.

Striking Amplats miners accepted the company’s pay offer on November 15 and returned to work, which subsequently ended two months of labour unrest.

The company has lost 3 613 oz of platinum production a day since the strike started more than eight weeks ago.

Amplats last week warned that earnings would fall by at least 20% as a result of lower sales volumes, the impact of the strike, higher mining inflation and lower metal prices.

Lonmin
Lonmin gave unions notice of potential restructuring in October, with a down- sizing of its 25 000-strong workforce to be implemented in early 2013.

The platinum producer, which lost about 110 000 oz of production after a violent six-week strike at its Marikana mine, announced an $817-million rights issue in an attempt to get back on its feet.

The company told shareholders last week that achieving financial certainty was conditional upon a majority vote in favour of the cash call.

“The board firmly believes that if the rights issue is not approved, it will jeopardise the substantial inherent value of Lonmin’s well-vested assets to the detriment of all stakeholders,” Lonmin said in a statement.

Lonmin acting CEO Simon Scott announced details of the discounted rights issue earlier this month, aimed at reducing the company’s debt, and said it had rejected a reverse takeover offer from its 25% shareholder, Xstrata.

The platinum producer also rejected a proposal from Xstrata, which stated it was prepared to support the rights issue, provided that the Lonmin board publicly committed to ceding management control.

Lonmin reminded shareholders that it had negotiated amended facilities agreements with its lending banks, following the Marikana tragedy, which, together with the fully underwritten rights issue, would restructure the balance sheet to place the group on a sound financial footing.

The amended facilities agreements were conditional on completion of the rights issue and receipt of at least $700-million of net proceeds by December 31.

The directors warned earlier this month that, without the amended facilities agreements, Lonmin might breach its banking covenants, which could result in the platinum producer defaulting on certain events, causing the group’s borrowings to become repayable on demand.

As at October 31, the group’s net debt was about $550-million and was forecast to rise further in the coming months as the ramp-up to normalised production levels continued.

Additional Factors
Butler pointed out at the Johnson Matthey media briefing that the strikes were not solely to blame for the platinum market moving into a deficit.

“It is worth considering the lowered production from a longer-term view,” he said.

“Even before the unprecedented disruption in the second half of the year, producers were already considering restructuring their low-margin operations in the light of weak commodity prices and high costs. And some of the wage settlements that we have seen have subsequently only added to the cost pressures,” Butler said.

Currently, several operations are continuing to operate at a loss and generating insufficient revenue to support long-term investment in capital expenditure. It seems highly likely that some of the operations in South Africa will come under close scrutiny during the coming months, with the possibility of further closure and consolidation.

This and strike action led to the view that supplies in 2013 were unlikely to grow from the 4.25-million ounces that Johnson Matthey forecast for this year, Butler said.

“Going forward, supplies for 2013 in platinum and palladium would be relatively barraged because in South Africa, even if the current strikes have been resolved, the mining industry is in a difficult situation and has been for some time. We don’t see any prospect of platinum or palladium supplies from South Africa increasing next year,” Cowley told Mining Weekly.

Edited by: Martin Zhuwakinyu

 

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Johnson Matthey
11-YEAR LOW Platinum supplies from South Africa were forecast to fall by 12% year-on-year to 4.25-million ounces, reaching its lowest level since 2001, with production losses estimated to be at least 300 000 oz during the first three quarters of the year
 

Johnson Matthey 11-YEAR LOW Platinum supplies from South Africa were forecast to fall by 12% year-on-year to 4.25-million ounces, reaching its lowest level since 2001, with production losses estimated to be at least 300 000 oz during the first three quarters of the year
 
TERENCE GOODLACE Implats, which experienced a difficult year on the back of changing labour dynamics, recorded a net profit of R4.3-billion during the year
 
Picture by: Duane Daws
TERENCE GOODLACE Implats, which experienced a difficult year on the back of changing labour dynamics, recorded a net profit of R4.3-billion during the year
 
CHRIS GRIFFITH The platinum industry is in severe financial distress and high wage settlements to get wildcat strikers back to work can lead to job cuts
 
Picture by: Duane Daws
CHRIS GRIFFITH The platinum industry is in severe financial distress and high wage settlements to get wildcat strikers back to work can lead to job cuts
 
SIMON SCOTT Announced details of a discounted rights issue earlier this month, aimed at reducing the company’s debt
 

SIMON SCOTT Announced details of a discounted rights issue earlier this month, aimed at reducing the company’s debt
 
 
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