Aquarius Platinum Ltd. (AQP), the weakest performer among 610 stocks on London’s FTSE All-Share Index in 2012, challenged rivals to cut production and end a supply glut that means as much as half of industry output is unprofitable.
“We seem to be one of the few companies in the platinum industry that is willing pro-actively to take the required tough decisions,” Chief Executive Officer Stuart Murray said. “I would hope that the other industry players follow suit and cut the unneeded production that is depressing the industry.”
The company idled its South African Everest and Blue Ridge mines, and Marikana venture with Anglo American Platinum Ltd. (AMS) That hasn’t stopped it falling 70 percent in London as platinum slid 14 percent from the year’s high in February and wage and power costs rose faster than inflation in South Africa. The country contributes more than three-quarters of world output.
Anglo American Plc (AAL), based in London, is reviewing assets of its platinum unit, which along with Impala Platinum Holdings Ltd. (IMP), contributes more than two-thirds of the world’s supply of the metal used in jewelry and pollution-cutting auto-catalysts.
“Around half of production is under water at current price levels after accounting for sustaining capex,” Suki Cooper, a commodity analyst at Barclays Plc in New York, said yesterday in a note. “Although the rand weakness offers a temporary respite, our forex strategists expect it to strengthen modestly over the next six months, bringing the cost floor back into focus.”
Cost of Production
The metal, today at $1,488 an ounce, may average $1,523 in the fourth quarter, New York-based CPM Group said July 2.
Platinum costs an average $1,437 an ounce to extract, said Thorsten Proettel, a Landesbank Baden-Wuerttemberg analyst in Germany, who was the third-most accurate forecaster of platinum prices in Bloomberg Rankings in the two years through December.
Aquarius fell 1.6 percent to 47.47 pence by 9:38 a.m. in London, and has lost 85 percent of its value in the past year. Anglo American Platinum has fallen 30 percent in Johannesburg trading in the period and Impala declined by 29 percent. The rand has weakened by 10 percent since the end of February.
“Clearly there is excess capacity,” Kobus Nell, a fund manager at Stanlib Collective Investments Ltd., said by phone from Johannesburg, estimating at least 500,000 ounces of surplus metal. “It’s not as simple as just taking metal out and just closing mines. In some cases, towns were built around these mines, so if you pull out you’re going to leave a ghost town.”
South Africa, concerned about job losses in a country where one in four are without work, set up a team to study how to help the industry, Mines Minister Susan Shabangu said last month. At the same time safety stoppages enforced by the government after mining deaths to try to reduce fatalities has hurt operations.
“South African mining legislation is strangling the platinum industry as mines struggle to operate in tough ground conditions,” said John Meyer, a mining analyst at Fairfax IS Plc. in London. “Mines have expanded into deeper areas raising the risk of fatal incidents as well as the cost of production.”
Companies are also wary of cutting output in case prices recover. Lonmin Plc (LMI) said in May it would increase capacity amid soft demand as the market in the mid-term is “sound, and this strategy will benefit our shareholders as the market improves.”
Platinum may rise to $1,615 next quarter and $1,690 in the final three months of the year, Barclays said on June 13.
“The board and management of Aquarius are acutely aware of the difficulties facing the industry at present,” Murray said yesterday in a statement from Perth, Australia-based Aquarius.
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