I have been wrong in my timing, supporting this old horse, but eventually I will get it right...I know i did before when I sent in all my reserves at .98 &.99...the splitting of this company is nothing but good news as the 18 percent ownership of Camafuca and the Klip mine will support the diamond exploration..Not many diamond juniors..with a chance for cash flow, and many are trading north of a buck without it.No one seems to be interested , it is good for a contrarian and so in again for anouther dollup.
gg
miningweekly.co.za
Assure platinum supply or risk collapse – analyst
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One of South Africa’s most experienced platinum analysts forecasts a sombre outcome if platinum demand continues to outstrip supply.
René Hochreiter, of Nedcor Securities, who has been studying the platinum industry with unbroken intensity for the last 17 years, tells Mining Weekly in an exclusive interview that the platinum price could spike to as high as $3 000/oz if demand is anywhere near what he estimates and if supply does not meet his estimate.
Should that happen, he warns of a doomsday scenario for platinum to the advantage of pal- ladium, nickel or whatever else can replace it as a substitute.
He believes the platinum price would then plunge to $300/oz and $400/oz and mirror the rhodium collapse of the 1980s.
To avoid a platinum apocalypse, he recommends that every effort be made now to lay the foundation for the production of more platinum in the future.
He recommends that South Africa’s and the world’s largest platinum producer – Anglo Platinum – should reverse the project-slowdown programme that it introduced last year.
“I think Anglo Platinum, in not growing faster, is playing a dangerous game because if the company does not increase production to higher levels quicker than planned, world supply may not come out at 7,9-million ounces by 2006, which will have an immense impact on the platinum price,” he forecasts.
He believes that, ideally, Anglo Platinum should reverse its project cutback, raise double the money that it did in last month’s R4-billion rights issue and reinstate its original 3,4-million-ounce-a-year target that it adjusted down to 2,9-million ounces last November.
Hochreiter warns that Anglo Platinum’s project review is fuelling perceptions that the platinum industry is unable to manage down its perennial platinum supply deficits.
The industry’s only consolation is that the only known viable alternatives to platinum are all in the platinum-group metals (PGMs) basket.
“If the rand doesn’t weaken, I can guarantee that the platinum price will go through $1 000/oz,” says Hochreiter, whose nigh-two-decade forecasting record is unblemished.
He concedes that the platinum industry has managed to work its way through prolonged periods of platinum deficit in the past, recalling that production shortfalls endured for eight consecutive years when the US catalysed in the 1980s.
But he points to an abundance of Russian stocks coming to the rescue, stocks that have since been depleted and that are thus no longer available to save the day.
He emphasises that unless hidden stocks emerge or the market for platinum jewellery falls away at $900/oz – which he doubts in view of strong Chinese jewellery demand continuing during the most-recent high-price period – there will be relentless and dangerous upward pressure on the platinum price.
Despite the platinum industry generally regarding the jewellery market as a safety valve that protects platinum against price runaways, he points to Johnson Matthey’s most recent growth projections as now indicating that jewellery demand is an insufficient shock-absorber within the future high-demand scenario. (Ironically, as the price of platinum rises, the desire for platinum jewellery may rise commensurately.) This is what he believes Anglo Platinum should do on the basis that the platinum market is going to see continued deficits and that production should be stepped up to prevent the platinum price from “destroying itself”:
n Increase production over and above this year’s 2,3-million ounces in order to ensure that the world has a sufficient supply of platinum.
n Hold down costs by reducing labour numbers, thereby increasing efficiencies owing to people costs being 50% of overall costs.
n Mechanise wherever possible, as the currently strong rand makes mechanised equipment cheap.
n Improve metallurgical recoveries in smelting and refining; the platinum industry’s areas of greatest return.
n Raise enough money from whatever source to ensure that a sufficient number of new mines are built.
n Carry on building into the future to ensure an output of 4-million ounces by 2015.
By solely cutting costs, he fears that an outcome will be reached where the cost-cutting operation is a success but the patient dies.
Hochreiter is in the credible position of having been accurate on demand and supply forecasts and other forecasts for a large number of data points over many years (as analysed by a large South African financial institution).
As a consequence, he prefers to trust his own figures and he is looking at a 2,5-million-ounce deficit in 2015 that he forecasts may ramp the platinum price to $3 000/oz.
What concerns him is that an independent forecast of which he is aware, which takes into account unannounced new mines, reaches a deficit position that is even worse than his own over a shorter horizon.
In the last seven years, there was only one year when supply and demand were balanced; the consecutive deficit years totalling 2,5-million ounces.
He has pushed production in his forecasts to maximise the potential contribution from recycling, pushing recovery from 30% a year up to 45% a year in the short term.
But this is against the background of North America, which has been responsible for most of the catalysation for the past 30 years, managing to recover only 30% of platinum used in autocats, Europe providing another third and South East Asia-Japan yet another third.
Recycling is expected to recover some 1,5-million ounces a year by 2013, but this will still not be enough and heavy reliance on mining will remain.
He finds that many appear to be trying to talk the platinum market down out of price-spike fears “because industry participants know that a spike will kill the industry”.
He estimates that, in 2006, global demand for platinum will be 8,10-million ounces and calculates that supply will be 250 000 oz short of that demand at 7,85-million ounces.
“If demand is anywhere near what I estimate and supply doesn’t come up to what I estimate, the impact on the platinum price will be immense.
“Let’s say it goes to $2 000/oz or $3 000/oz, which is what is being bandied about. If that happens, there will be a stampede out of platinum (for industrial or jewellery purposes) like nobody’s business and the scales will probably be tipped in favour of palladium, nickel or whatever else can replace platinum at those high prices and the platinum price will then collapse down to a low level of probably between $300/oz and $400/oz and all those new black economically empowered (BEE) operations that are supposed to be helping to transform South Africa’s economy will have to be stopped and the industry will suffer a setback that will take a very long time to restore.
“If the reaction to the price going too high results in the price falling back to that extent, the entire platinum industry will collapse in a heap,” he warns.
“Remember rhodium in 1988. It had been ticking along for years at prices of $1 200/oz to $2 000/oz when Anglo Platinum’s then newly-opened refinery had difficulties producing rhodium and its price rocketed from $1 200/oz to $7 000/oz, only to collapse in the next three years down to $150/oz and it has never recovered much beyond the current $830/oz since. Heaven forbid that the same thing happens to platinum.”
But there are similarities.
In rand terms, the platinum price has also been ticking along sideways for more than two years; costs are in rands and revenue in dollars, but those dollars are converted to rands and the rand price of platinum, which was R120 000/kg at the time of going to press, has been in the R115 000/kg to R120 000/kg band for 30 months. “Even if platinum is $1 000/oz, it’s the basket price that will still be flat because the rand and the platinum price are almost exactly correlated,” Hochreiter observes.
He sees last month’s R4-billion Anglo Platinum rights issue as proof that the shareholders of the company are perfectly happy to follow their rights; he would like them to support even more fundraising in order to capitalise the industry sufficiently.
He is pleased that the issue improved Anglo Platinum’s balance sheet and reduced debt to R2-billion from R6-billion.
He regards the entire exercise as the correct course of action in that it has made Anglo Platinum’s cashflow position far better than what it was it was two months ago.
But he believes the R4-billion is insufficient to capitalise the projects that are needed to satisfy future demand and he reckons that Anglo Platinum raises another R4-billion so that production can be ramped up to achieve the original 3,4-million ounces a year, despite the current tough macroeconomic parameters.
He sees demand as being even higher than that stated by specialist Johnson Matthey, which he regards as being exceedingly authoritative on autocatalytic converter information.
He concedes that there is a reluctance to commit more capital expenditure to the construction of new mines because of the high current cost of building mines and the lower rand-constrained revenues.
He estimates that, to build a new 100 000-ounce-a-year mine today costs a round billion rands, which correlates with the R1,5-billion cost of building of the 160 000 ounce-a-year Modikwa, the Anglo Platinum-African Rainbow Minerals operation on the eastern bushveld.
With platinum’s rand price at R120 000/kg and cash costs at between R60 000/kg and R80 000/kg, directors of platinum companies regard the margin of profit as being too low to commit investment in new mines.
But for longer-term supply, he sees going ahead with such projects as being essential and believes projects should go ahead and measures taken simultaneously to lift mining performance.
For instance, new eastern-bushveld mines like Modikwa and Marula could become profitable by adopting a Harmony-style of lower-cost higher-volume mining.
Modikwa has scope to sink more decline shafts, which he cites as Amandelbult’s secret of success.
Amandelbult, with 20 declines, closed some of them as the platinum price fell and reopened others as it rose.
By contrast, Modikwa has two large decline shafts and Hochreiter believes that it would do better to have several single-level declines as well as an entrée into upper group two (UG2) reef.
Disadvantaged by low grades and wrong PGM ratios, Hochreiter sees Modikwa as having no option but to take the high-tonnage route, conceding, of course, that tonnage needs more declines, declines need capital expenditure and directors are not tolerating high capex in current economic circumstances.
For Marula, the 20% BEE, he advocates the sinking of new shafts into the Merensky reef to complement its two existing shafts into the 7 km strike length of UG2 reef.
He finds that some BEE platinum prospects have orebodies that are 2 000 m deep and fears that these will have similar start-up pains to that suffered by Northam Platinum, which took 11 years to make a profit and 12 years to pay its first dividend.
He believes work on Twickenham has been stopped because it is not profitable after capex.
There is also Mvelaphanda-Northam with Booysendal and Anglo Platinum with Der Brochen and Impala-Arm with Two Rivers and Barplats, which he believes is not economic at the current rand:dollar exchange rate.
Anglo Platinum’s answer to current economic circumstances is to cut costs, but squeezing down costs to 5,5% this year is a big task, especially since 30% of Anglo Platinum operations are in ramp-up phase. (AngloPlats has since indicated that it is on track to achieve this target).
He calculates that Anglo Platinum is running at R300/t, Impala at R275/t and Aquarius at R180/t.
Given that Anglo American takes a 50-year view on mining, Hochreiter believes that it would be appropriate for Anglo American, as its 75% shareholder, to support a move by Anglo Platinum CEO Ralph Havenstein, 12 months into the job this month, to restore the 3,4-million-ounce programme on the basis that there will not be a platinum industry if it does not.
“If I can foresee a deficit on the horizon, a shareholder as big as Anglo American will undoubtedly see it even clearer, which is why Anglo American should not countenance Anglo Platinum having to live from day to day, but should rather support funding that will enable the company to attain the 3,4-million-ounce target,” Hochreiter advocates. |
