Platinum looking at a bright future?

Northam Platinum Ltd. plans to position itself as one of the world’s largest producers as it forecasts an increase in prices of the metal by 2018.

Northam, owner of the deepest platinum mine, targets production of more than 1 million ounces of platinum-group metals by 2020 through acquisitions and expansion, the Johannesburg-based company said in a statement today. It sold 396,417 ounces in the year through June. The average basket price Northam received for platinum-group metals, which include palladium and rhodium, declined 6.1% to $1,198 an ounce from a year earlier, it said.

“Above-ground stocks have comfortably satisfied demand since the 2008 financial crisis,” it said. Prices probably won’t see “a more marked and sustained recovery until 2018 and beyond” when “significant deficits in platinum supply will start manifesting,” it said.

The average price of platinum has dropped 5% this year from 12 months earlier even as a five-month strike at the South African operations of the world’s largest producers is expected to curtail supply by more than 1 million ounces. Anglo American Platinum Ltd., the biggest miner, is selling four operations and possibly two stakes in joint ventures as it seeks to improve profitability.

Northam, where Paul Dunne took over as chief executive officer from Glyn Lewis in March, will consider buying mines and assets of other producers in South Africa and elsewhere to reach its 1 million-ounce production target, it said.
 

Zondereinde Expansion
 

“We will look towards capitalizing on any restructuring in the sector,” Northam said. The company will also seek to expand its Zondereinde and newly built Booysendal mines.

Lonmin Plc, the third-largest producer, achieved output of 1.3 million ounces of platinum-group metals in the year ended September.

Labor relations in South Africa remain “fraught,” Northam said. The National Union of Mineworkers, the largest labor group at Zondereinde, crippled output through an 11-week strike from November to January. “Any further industrial action in the near to medium term will have a severely damaging impact on the company” and “will further harm South Africa’s rankings as an investment destination,” Northam said.

While the Association of Mineworkers and Construction Union, a rival of the NUM, has gained a foothold at Northam it hasn’t yet attained recognition, Dunne said on a conference call.

The cost of sales rose 38% to 5.3 billion rand ($501 million) in the year ended June 30 after operating expenses, purchased metal concentrates and refining costs increased, Northam said. Earnings excluding one-time items fell 98% during the period to 2.2 cents a share, it said.

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