Australia Stock Exchange-listed Platinum Australia is set to become the fourth company in less than two months to halt construction or suspend operations at platinum mines in South Africa - citing rising costs and a poor outlook for prices. It's unlikely to be the last.
Earlier this month, Aquarius Platinum – the world's fourth-largest primary platinum producer – placed its Everest mine on care and maintenance, arguing that "the platinum market is in an abiding surplus, with the industry generating nearly half a million ounces of unneeded platinum each year". It said the only defensible strategy for any platinum producer is to cut all non-essential capital expenditure and place any assets that are not contributing to profits on care and maintenance. The move came just weeks after Aquarius and joint venture partner Anglo American Platinum suspended operations at their Marikana joint venture and a month after Eastern Platinum put development of its Mareesburg mine on hold after nine months of construction.
Three-quarters of the world's platinum is mined in South Africa, but the mining industry there. is beset with problems: unreliable power sources, soaring electricity and water prices, double-digit wage inflation, labour strikes, community unrest, dangerous working conditions, government-ordered work stoppages caused by safety concerns, and adverse exchange rates have all pushed operating costs up, and are likely to continue doing so.
The mine shutdowns should mitigate some of the excess production – but not enough. Demand also looks set to fall, with lower than expected jewellery demand, lower investment demand and an improving, but still weak, European automobile market (a major consumer of platinum through catalytic converters). Research advisory firm Thomson Reuters GFMS highlights the European debt crisis as a major downside risk for the market, while more moderate purchasing in industrial applications has led catalytic converter maker Johnson Matthey to forecast a fall in worldwide gross demand for platinum in 2012.
