St. LOUIS (ResourceInvestor.com) -- Platinum and gold saw solid gains today following a one-day strike in South Africa. Approximately a quarter of a million workers representing 60 companies across the country's mining sector downed their tools for 24 hours to protest mine safety regulations - causing some of the world's biggest platinum and gold producers to lose output.
The strike, called by South Africa's National Union of Mineworkers, brought production to a standstill in the world's top supplier of platinum and gold. The labourers were protesting the deaths of at least 201 fellow miners in mining accidents this year so far, that figure erasing progress the mining industry had made to reduce fatalities in the past decade. Mining-related deaths totalled 199 in 2006 and 202 in 2005, but the industry had hoped to reduce the number of deaths by 20% by 2013.
The workers were demanding the government provide better pay and training for mining inspectors and prosecute companies found guilty of negligent practices. They also wanted mining companies to take full responsibility for accidents and fatalities.
The strike - and the resulting increased safety measures that it is likely to bring - are expected to affect output notably in the county that produces three-quarters of the world's platinum and more than a tenth of its gold, and today's metals prices reflected this accordingly.
Platinum futures added $10.90 to close at $1,472.30 per ounce, while gold for February delivery jumped $12.90 to finish at $807.60 on the New York Mercantile Exchange.
Platinum Output to Fall by Nearly 19,000 Ounces
According to media reports, platinum output could fall by nearly 19,000 ounces due to the work stoppage, aggravating a market where supply is already in deficit to demand.
Johnson Matthey's "" predicted that platinum demand this year will outweigh supply by some 4%, with demand projected at 6.92 million ounces and supply expected at 6.66 million ounces.
The report already took into account strikes, safety-related stoppages and technical problems, noting that supply in 2007 had fallen considerably below target when the study was completed. The firm predicted South African output this year would fall 7% below previous expectations at 5.22 million ounces. Production in 2006 totalled 5.29 million ounces.
The world's three biggest platinum producers, Anglo Platinum [JSE:AMS], Impala Platinum [JSE:IMP] and Lonmin [LSE:LMI; JSE:LON], along with Northam Platinum [JSE:NHM], are forecast to lose a combined 16,900 ounces of gold.
Top miner AngloPlat said that it will lose 9,000 ounces of platinum due to the strike, but the losses were already factored into its updated 2007 forecast. The company amended its outlook in November to reflect the strike, as well as additional stoppages and increased safety regulations. It projected total output for the year to be between 2.45 million and 2.5 million ounces, down 13%-11% from last year's production of 2.82 million ounces.
Anglo American [Nasdaq:AAUK; LSE:AAL], majority owner of AngloPlat, fell 1.92% today on Nasdaq, losing 63 cents to $32.17. The company touched a 52-week high of $38.75 on 8 November. AngloPlat accounts for 40% of the world's platinum production.
Implats, the world's second biggest platinum miner, said it would lose 3,500 ounces of output because of the strike. Implats produced 2.026 million ounces of platinum in the year ended 30 June 2007. Implats called its safety performance in F2007 "extremely disappointing" in its annual report. The company recorded 13 deaths in accidents at its mining operations, compared to seven in 2006.
Shares in Implats fell 2.06% today to 23,800 South African cents on the Johannesburg Stock Exchange.
Dwindling Gold Production Finds No Relief
Gold production in South Africa has already been declining as mines mature, and the safety strike will further exacerbate the problem. Gold production fell 7% in the first half of 2007, according to precious metals consultancy GFMS' "". Production in 2006 totalled 8.845 million ounces, down from approximately 9.5 million ounces in 2005.
South Africa's top gold producers AngloGold Ashanti [NYSE:AU; JSE:ANG], Gold Fields [NYSE:GFI; JSE:GFI] and Harmony [NYSE:HMY; JSE:HAR] have not yet reported how much production will be affected, though a decline of nearly 29,000 ounces sector-wide is expected. Gold Fields reported that about two-thirds of its workers participated in the strike, and Harmony said no workers showed up at six of its 22 mines.
at Harmony's Elandsrand mine on 4 October made worldwide headlines when more than 3,000 workers were trapped in the mine after a 15-metre compressed-air pipe broke off and fell to the bottom of the main shaft, severing the electrical connections and causing other damage. Some of the workers were stuck underground for more than 30 hours.
The accident prompted South African President Thabo Mbeki to ask Minerals and Energy Minister Buyelwa Sonjica to commission an audit of all of South Africa's mines. The audit is scheduled to begin this month.
South Africa houses some of the world's deepest mines, with AngloGold's Savuka mine measuring 2.35 miles underground. As metals prices rise, platinum and gold companies are digging deeper to replace decreasing reserves, but increasing depths result in more earth tremors and rock falls.
The audit is likely to result in improved safety standards for mining companies, but the new measures are expected to boost operational costs while cutting production - a consequence that will not sit well with gold producers as current operational costs are already increasing.
However, the drop in supply will continue to support the bullish sentiment in the platinum and gold markets, with platinum forecast to trade as high as $1,575 per ounce in the next six months and gold expected to breach levels of $850 per ounce and beyond.
AngloGold lost 51 cents to trade at $47.88 on the New York Stock Exchange today, a 1.05% drop, while Harmony fell 20 cents to $10.40, a 1.89% decline. Gold Fields added 15 cents to trade at $16.67, a 0.91% gain.