Along with Russia, South Africa is one of the world's main sources of Platinum Group Metals (PGMs)—namely, platinum and palladium. In terms of the proportion of the annual global supply of these metals that South African mining provides, the totals are 40% for palladium and a staggering 70% for platinum.
Nonetheless, it's been a trying several years for the country's platinum and palladium mining industry. What can we expect going forward?
One of the main factors that have made things more difficult for South Africa's platinum miners has been repeated labor strife in the form of union-led workers' strikes. Several of the country's biggest miners have suffered from multi-month work stoppages that have severely impeded normal mine operation.
Moreover, a steep decline in platinum prices from their mid-2014 levels (about $1,500/oz) to around $900 per ounce today has likewise contributed to the struggles for firms that mine these metals. Unlike gold, which tends to respond positively to turmoil in the financial markets and general economic uncertainty, platinum behaves far more like an industrial metal despite its status as a precious metal. For this reason, platinum's fate is closely tied to the general welfare of the commodities and resource extraction sectors.
With this in mind, there are mixed signs for the platinum industry. (Since the PGMs frequently co-occur in deposits, I'm including palladium under this umbrella.) On the one end, depressed price levels and rising demand for environmentally-friendly automobiles should continue to drive demand for platinum. (The metal is a key component in catalytic converter devices in car exhausts that reduce pollution emissions.)
On the other hand, however, platinum producers are not in a particularly strong financial position. The resolution of recurring labor disputes has forced companies like Implats (IMP) and Amplats (AMS) to spend more money on compensating its workers. Further, the fact that mines must dig increasingly deeper underground to extract high-grade ore has raised the miners' cost of operation.
Luckily, the news isn't all bad for the platinum industry. The combination of consistent demand and somewhat limited supply has the potential to support higher prices in 2017. According to Blue Quadrant Capital Management, writing for the popular investment news site Seeking Alpha, "As a result of stagnant mine production growth in the context of continuing demand growth, the platinum market has been in deficit and is expected to remain in deficit again in 2016."
This ongoing situation has encouraged miners like South Africa's Sibanye Gold (SBGL) to look at new assets. Sibanye is primarily a gold mining company, but the firm has now expanded its interests into platinum mining. However, it acquired a platinum and palladium producer located in the U.S., not South Africa. Whether or not the latter nation will see its PGM mining sector rebound or decline further depends on the willingness of the big players to bring new projects online, which in turn hinges on feasibility projections.
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.