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  • Anglo American Looking To Rid Itself Of High Cost Platinum Operations



    the recent takeover of union negotiating rights on the platinum mines by the fledgling, highly aggressive, AMCU, and the subsequent now 13 week-long strike which has closed the Rustenburg mining operations, appears, according to media reports, to have focused Anglo's mind on how to rid itself of this troublesome part of its operations, which requires a significantly higher platinum price to make it decently profitable. According to a report in the Financial Times the Rustenburg mines Anglo is looking at divesting, or perhaps closing down, only provide around 20% of its total platinum output and gold miner spinoff from Gold Fields, Sibanye Gold has already expressed an interest in acquiring platinum assets.

    But what the strike, with its initial demands to double the miners' basic wage, has done is enable Anglo to present an ever-stronger case to government to rationalise its Rustenburg operations by closing down unprofitable sections and heavily reduce its highly labour intensive workforce - a move which when it was first promulgated back in 2012 met with considerable official government opposition. The other option is, of course, to sell the operations off assuming it can find a willing buyer and agree tp terms. Cutting thousands of jobs in a country where unemployment within the black majority runs at a very high level is, to say the least, politically problematical, so selling the mines off and let someone else take these difficult decisions may be the easy way out!

    There is no easy way out except to close down shafts that do not make money at current platinum prices. This will constrict supply and eventually result in a higher platinum price. However, as in most places on earth everything is political so the companies have to justify why they will want to lay off thousands of workers and close mines. Of course it is irrelevant in the long run what the government or the unions want. You cannot mine a metal at a loss indefinitely as eventually you go bankrupt no matter how many laws or proclamations are issued by some ridiculous government minister. In previous articles I have said that eventually pgm prices would be heading higher due to constrained supply and the closing of high cost mines in South Africa. It seems the first shot has been fired by Anglo.

    Disclosure: I am long SAPLF.

    Tags: SAPLF
    Apr 22 7:37 PM | Link | Comment!
  • Platnium Deficit To Last Four Years


    A labor dispute that all but shut platinum mines in South Africa since January is extending the longest shortfall in global production since 2005, which Morgan Stanley predicts will take at least four years to fix.

    For a third straight year, makers of auto parts and jewelry will use more of the metal than is mined. Credit Suisse Group AG on March 31 raised its deficit forecast for this year by 25 percent to 836,000 ounces, after concluding the strike in South Africa, the world's top producer, will prevent more than 1 million ounces from being retrieved in 2014.


    Lonmin Chief Executive Officer Ben Magara said earlier this month it would buy metal on the open market "as a last resort." The company runs operations from Johannesburg. Impala, the second-biggest producer, said it is losing 2,800 ounces a day after work was halted at the Rustenburg Lease mines, which accounted for 58 percent of mined output.

    "We are getting to the stage where we will not be able to meet the normal requirements of our customers," Johan Theron, a spokesman for Impala, said yesterday from Johannesburg. "We have been supplementing deliveries from the inventory, but soon that may not be possible if the strike continues.

    The problem is that if the companies agree to the unions demands than the mines will not be profitable and will have to be shut. The price would rise in that situation but the companies would be hesitant to reopen the mines until a long period of high prices ensued. Long story short platinum group metals will be going higher.

    Disclosure: I am long SAPLF.

    Tags: SAPLF, Platnium
    Apr 19 11:06 AM | Link | Comment!
  • Mongolian Prime Minister Writes Letter To Rio Tinto Regarding Oyu Tolgoi Mine


    Dear Mr. Walsh,

    I, as Prime Minister of Mongolia, would like to note that the Government of Mongolia is making solid endeavors to move our joint Oyu Tolgoi project to next stage with the introduction of new team and new approaches for the last one and half years. Even though we are making progresses through our mutual efforts, there are further accomplishments still needed for a successful Oyu Tolgoi.

    Thus I am addressing you directly as we are reaching a significant stage to strengthen the relationship between your company and Mongolia. While the start of production of Oyu Tolgoi in 2013 was a great achievement and an important milestone, it is of the utmost importance for my Government and for Mongolian people that Oyu Tolgoi proceed as soon as possible with the underground mine development. We are thus most supportive of the Project Financing needed for next stage of this most important project.

    Through the both parties' constructive discussions, there are only a very limited number of issues that remain outstanding between the Rio Tinto (RT) and Erdenes Oyu Tolgoi (EOT). We are confident that these issues can be readily solved in accordance with normal international business practices as was stated in the EOT letter to RT of 19 February, 2014.

    We stressed the importance of RT maintaining positive stance in addressing public, but instead of that we have received a press release proposal from Mr. Jean Sebastian Jacques, which was insisting for request to extend lenders' commitment to 31st December 2014. It is unfortunate that we are acknowledged the doubtful approach for finalizing the project financing in such extended period of time.

    Even though the updated Feasibility study will be delivered in Q2 2014, we are willing to complete the discussions immediately in Ulaanbaatar or London, with the full mandate to finalize the project financing before the lenders' commitment deadline of March 31, 2014.

    The Government of Mongolia remains fully committed to the continued and successful operation of the open pit mine, the financing and development of the underground mine.

    The Oyu Tolgoi project is of utmost importance to Mongolia and so is our partnership with Rio Tinto. I believe that now is the time to open a new chapter in our relationship and work in harmony to develop the Oyu Tolgoi project for the benefit of all stakeholders and of the Mongolian people.

    It appears that the government of Mongolia is beginning to get a bit desperate as they are now almost pleading with Rio Tinto to re-start the phase 2 construction on the OT mine. They need this issue resolved so that it will send a message that Mongolia is not adverse to foreign investment. In addition pressure is mounting on the central bank and the currency. FDI has to pick up or the Mongolian economy is going to suffer later this year.

    Disclosure: I am long MNGGF.

    Tags: MNGGF, RIO, Mongolia
    Apr 18 5:47 PM | Link | Comment!
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