South Africa’s PGM Output Falls

Platinum group metals mining production in the top producing country dropped by 10.8 percent in November.

South Africa PGM

In November, South Africa’s platinum group metals (PGM) output fell by 10.8 percent with total mining production for the country falling by 4.2 percent compared to the previous year, according to Statistics South Africa.

Last year, platinum prices, which finish almost neutral, failed to join a rally in other commodities, underperforming other precious metals.

Despite this, platinum has gained year-to-date with prices surging last week, reaching $980 an ounce on Friday and currently sitting at $977.50.

According to the WPIC, the platinum market will shrink to its narrowest since 2011 this year, due to a drop in investment interest and a declining share of diesel vehicles in the European car market.

The global demand for platinum, that is used in catalytic converters, laboratory equipment and jewellery, is forecast to decrease by 3 percent year-on-year to 8.04 million oz.

Production Threats

South Africa holds the largest-known reserves of platinum group metals globally and accounts for 70 percent of the world production. But a supply crunch may be just around the corner, as production continues to be threatened by mine stoppages, potential strikes and lack of long-term investments.

On Thursday, Lonmin PLC (LON:LMI) reported weaker than expected output and faced demands for compensation following the shooting of 34 miners at Marikana in South Africa’s platinum belt.

“We remain committed to delivering sustained productivity improvements at our operations to ensure the long-term viability of the business,” Lonmin said in a statement.

Most recently, Anglo American (LON:AAL) announced that its full year production of platinum concentrate rose by 2 percent in 2016 but refined production was 15 percent lower.

“A supply cliff is approaching so we see substantial deficits in the years ahead, and much higher platinum-group prices as a result,” John Biccard, a Cape Town-based fund manager at Investec, told Bloomberg.

Despite this, in a vote of confidence for the PGM market South Africa’s Sibanye Gold (NYSE:SBGL), that recently announced it may cut up to 330 jobs in platinum operations, is buying Stillwater Mining (NYSE:SWC), the only US platinum and palladium producer, at a premium.

The transaction will make Sibanye the world’s fourth-largest producer of platinum-group metals behind Anglo American Platinum, MMC Norilsk Nickel PJSC (MCX:GMKN) and Impala Platinum Holdings Ltd (JSE:IMP).

Mining Fatalities

Another major factor impacting production are health and safety stoppages. However, statistics released by the South African Mineral Resource Minister Mosebenzi Zwane, show that it was the ninth consecutive year that fatalities fell in the country.

Yet platinum miners killed increased from 21 in 2015 to 27 last year and Unions in South Africa say the death toll is still too high.

“Our goal must be zero harm.We cannot and will not accept that deaths in mining are inevitable,” said Chamber of Mines President Michael Teke.

Despite this, mining firms, major employers in an economy with a 25 percent jobless rate, have complained that a safety drive introduced by the ministry in recent years has cost it billions of rand in lost output annually. Entire operations have been shut for what the companies consider minor infractions.

“If companies cannot mine safely, they should not be mining at all, and should allow other potential holders,” Zwane said in the statement. “It is unacceptable that these companies are choosing to cheapen the lives of mineworkers in this manner.”

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.

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