Platinum price muted as firms uphold output to retain jobs

The platinum price is likely to remain subdued until there is a reduction of primary supply from SA, the world’s largest source of the metal, but given the reluctance of the government and unions to agree to cutting jobs entailed in stopping unprofitable shafts, this has kept production relatively high.

Bank of America Merrill Lynch said on Monday that the concentration of ownership in the sector had diminished in time as Sibanye Gold bought the large Rustenburg mining complex from Anglo American Platinum as well as the whole of Aquarius. This had added a layer of complexity by quickly reducing the supply of the industrial and precious metal from SA.

Sibanye CEO Neal Froneman has said repeatedly since February that the company would not produce unprofitable platinum and it could cut between 200,000oz and 300,000oz if it could not return a number of shafts to profitability before the end of 2017 as the new owner of the Rustenburg mines.

Amplats CEO Chris Griffith said recently that 60% of SA’s platinum mines were unprofitable at the rand price for the metals they produce. The 80%held Anglo American subsidiary has restructured its portfolio extensively to focus on shallow, highly mechanised operations.

The problem is that strategy has brought new players into the market.

“Usually, a reduction of industry concentration is positive, because competition increases. Yet, in the case of platinum, it has, in our view, prevented a rebalancing of the global market for various reasons,” Bank of America analysts said, singling out the Sibanye transaction. “This meant that especially the marginal Rustenburg operations, whose performance Anglo Platinum had been discontent with for years, have been sustained for now.”

The inability of mining companies to shut unprofitable production because of fierce opposition from the government and unions has meant “miners have sustained production to spread fixed labour costs over as large an output base as possible”.

Impala Platinum was shutting unprofitable mining areas at its older shafts and replacing those ounces with low-cost production from its two new shafts, said company spokesman Johan Theron.