Tearing Off the Dial on Platinum Costs

We all know that exhortation from radio DJs, “Turn it to this station, and tear off the dial.”

A similar phenomenon is happening in today in the critical South African platinum mining sector. Where producers are being forced to “tear off the dial” on high mining costs–abandoning any hope of lowering them.

Witness news late last week about striking workers at mines operated by platinum major Anglo American Platinum (Amplats). Workers returned to their jobs on Friday, but only after the company agreed to end layoffs for 3,100 of their union members.

Such pressure from labor groups has gutted any plans Amplats had to deal with rising costs. In January, the company announced it would cut 14,000 jobs, to try and bring its operations back into the black. But government objections soon forced them to lower the number of layoffs to 6,000. After further pressure, Amplats dropped the number of cuts to 4,000 in August.

Now after last week’s strike, it appears the number will end up being closer to zero.

This is a very worrisome development for South African mining companies. Not to mention the platinum market in general.

It appears that the dial has indeed been torn off on costs. Miners simply aren’t able to make the cuts they need to bring operations back to profitability at today’s platinum prices. (Even at higher prices, miners might still be losing money under their current obligations.)

That puts mine supply at risk. Political pressure only trumps cash flow for so long. The end game is that money dries up, and things close on a more-permanent basis.

In the case of South African platinum, that could mean over 70% of global supply is at risk. A tough place to be locked into.

Here’s to changing the station once and a while,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

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