Actually, I prefer Rick Rule comments, he is onboard for all the right reasons, IMO...
For supply-side reasons, Rule is increasingly attracted to the platinum business. More than 80% of platinum and palladium-PGM metals-come from three countries: South Africa, Zimbabwe and Russia. He cites local political turmoil as a limiting factor in the continued production in these areas. "Increasingly, South African governments are calling for more social rent-higher taxes, government participation in wage negotiations and, in some cases, outright nationalization. This will absolutely constrain the industry from making the investments in increasing production and sustaining their existing production over the five to seven years. Given that South Africa is the most important platinum producer in the world and it's highly likely that the South African platinum producers will continue to constrain working capital investments, I would suspect that on a five-year going forward basis platinum production will falter."
Moving north to Zimbabwe, Rule is no more optimistic. "President Robert Mugabe and his associates stole everything in the country that had any value. Now they have decided that about 150 people should control 51% ownership of the platinum mines in Zimbabwe. If you look at the track record of the black political elite in Zimbabwe managing the assets they have stolen over the last 20 years, you will see that the potential impact on platinum supplies as a consequence of their stealing productive capacity will be catastrophic."
Rule sees Russia as a bright spot. "Russia gets slowly better over time. Yes, there are problems. The place is corrupt. They tend to attempt to mediate commercial disputes by shooting each other. There are problems with alcoholism. But, gradually things are improving in Russia. The difficulty isn't Russian politics, but the fact that the big platinum and palladium producer there is running into lower and lower grades and having to go farther and farther down in the mines. Its production problems are organic as opposed to political."
The bottom line for Rule is that there are going to be supply-side challenges in the platinum business at the same time that demand for platinum both as a precious metal for investment purposes and as an industrial metal for auto catalysts continues to increase. Rule acknowledges that a slowdown in the economy in Western Europe and North America will constrain vehicle demand there, but cites exploding vehicle demand in emerging markets, particularly China and India. Western air quality standards being imposed in both of these countries means that auto catalysts using platinum and palladium have kept pace with vehicle sales in those markets. "Strong demand and declining supplies point to very, very, very interesting opportunities in platinum markets," he concludes |
