JOHANNESBURG (miningweekly.com) – The lower platinum price is scaring platinum-mining companies into self-preservation mode.

Liberum Capital analyst Dominic O’Kane says in a note that the platinum-mining sector has become the first mining sector to fall below the marginal cost of production, against the background of the eurozone’s economic woes.

While most commodities are largely China-dependent, this is not so in the case of platinum, which is seen as the most European-dependent of all commodities, because of its strong link to the European passenger car industry, which is currently in decline. European car manufactures are also said to be well stocked with platinum.

Given platinum’s strong contribution to South Africa’s foreign exchange position, a platinum slump would deliver a major blow to the already-contracting South African economy.

“We’re increasingly nervous about the immediate outlook for platinum prices,” says O’Kane, who fingers platinum exchange traded funds (ETFs) as the high-risk culprit.

With platinum-group metals prices in rands having fallen 25% since September 21, Liberum recommends that shares in the LSE- and JSE-listed Lonmin be sold.

Headed by CEO Ian Farmer, Lonmin is said by Liberum to be close to loss-making, along with platinum giant Anglo American Platinum, which began pulling in its horns earlier this year.

Liberum has also stripped LSE- and JSE-listed Aquarius Platinum of its former “buy” accolade.

While platinum’s number-two, Impala Platinum, is halfway through the deep-level Shaft 17 replacement project, it has avoided announcing the go-ahead to other deeper projects, which are also replacement rather than growth projects.

In contrast, physical platinum held in ETF form remains at a nigh historic high, Liberum says.

While over-stocked car manufacturers sold their platinum into the ETF market during the 2008 economic meltdown, a repeat of that this time around is seen as unlikely as a result of a weakening near-term outlook for physical demand.

Six major platinum projects, collectively worth some R46-billion, are under project management on the western limb of South Africa’s Bushveld Complex, in the Rustenburg area, but only two of them are growth projects and the rest replacement projects.
 

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