By Stuart Burns
We recently wrote about platinum and its relationship to the gold price, predicting it could overtake gold sometime early this year. Well, barely a few days later it has done so, jumping 2.3 percent to $1,693 per ounce following an announcement by Amplats [subsidiary of Anglo Platinum (OTCPK:AGPPF)] that it is to lay off 14,000 workers at its South African mines as part of a major restructuring. The firm’s problems are symptomatic of the wider South African precious metals mining industry, dogged by rising power costs, militant workers demanding and achieving higher wages, and falling ore grades, all combining to drive up costs and reduce margins.
Indeed, the rest of the industry is probably hoping Amplats succeeds in overcoming government and union opposition, as they will then implement similar programs once the dust has settled. Amplats production cuts would involve the shutting of two mines, the sale of a third and the shedding of some 14,000 workers. As a result, production would drop by some 15 percent, or about 400,000 ounces, to between 2.1 million and 2.3 million ounces in 2013.
The loss of production would reduce global output by almost 7 percent and see about 3 percent of South Africa’s miners laid off. The job losses would mostly hit in the Rustenburg region, adding to unemployment levels of 25% or more. If the Anglo American subsidiary can push through the re-structuring successfully – by no means a certainty looking at the opposition lined up against them – at least the firm’s finances will be in a better position to ride out the slack market until demand returns.
Much of the blame for poor demand is laid at the door of the European auto industry, whose fall in production in the most platinum-intensive auto sector has exacerbated the fall in metal demand. One issue is clear: the cuts will not be readily accepted, and the likelihood is for widespread strikes possibly impacting more than just Amplats mines. Platinum production has considerable scope for disruption this first quarter of 2013, and that will be supportive of further price rises above $1,700/oz.