South Africa is consistently among the world's top platinum producers each year. It is a country endowed with a wealth of natural resources—especially the precious metals gold and platinum. In fact, South Africa is probably the most resource-rich region anywhere in the world.
Not surprisingly, the South African economy is reliant upon its mining industries. Platinum undoubtedly fits into this equation: South Africa boasts the largest platinum reserves on the planet. Unfortunately, the country's platinum mining industry has been beset by a variety of struggles lately.
Lingering Labor Disputes
Dating back more than a year, work stoppages at the country's platinum mines due to strikes have been a regular fixture in the news. The two largest platinum workers unions in South Africa have been pressing big mining firms like Impala Platinum (IMP) and Anglo American Platinum (AMS) for higher wages. The Association for Mineworkers and Construction Union (AMCU), the largest such labor organization, is pushing for wage hikes between 15% and 50%, far above the 6% inflation rate since the last negotiations. (The other major trade union, the National Union of Mineworkers, reportedly was seeking a 20% pay raise.)
After striking for five months during 2014, the AMCU has been deadlocked in its joint discussions with the biggest miners—Impala, Anglo American (better known as Amplats), and Lonmin (LMI)—for several months. This week, the AMCU announced that it was breaking off the negotiations after having reached an impasse. The case could now be referred to a government mediator if separate talks between the union and the respective mining companies fall apart next week.
It is estimated that the labor unrest has cost the platinum industry billions in lost output. This has resulted in mines being shut down, jobs being cut, and financing drying up. The lack of platinum production (and resulting supply shortfall) from one of the world leaders in that category could place some upward pressure on prices. Not only does this strengthen the union's argument in negotiations, but also marks the fifth straight year of a supply deficit for global platinum mining. Spot platinum was more than 2.5% higher during trading on Tuesday afternoon.
Given the abundance of platinum in South Africa and the hard times that have befallen the mining industry, it's not terribly surprising that people would attempt to get the precious metal through illegal means. This type of criminal behavior isn't limited to platinum, either: Just recently, an attempted gold smuggling operation was thwarted when state police seized gold bars from a man hiding them beneath the hood of his car.
In one particularly grotesque example, a local police constable was caught using his home as a makeshift platinum smelting operation last week. In addition to lab equipment like pots and gas bottles, a raid of the residence by the state authorities turned up some 250,000 rand (about $18,000) worth of platinum concentrate. (One rand, or ZAR, is worth about 7 cents in USD.)
Amateur smelting jobs such as this are a more common feature of rural areas in gold-rich places like Papua New Guinea and the Amazon. The incentive to illegally produce platinum may be even higher than that of gold with the strong rebound in platinum prices; after bottoming around $825 per ounce at the beginning of 2016, spot platinum is now trading back above $1,100/oz—a rally of roughly 33%.
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.