Harare – When Sibanye Gold [JSE:SGL] tabled an offer for Aquarius Platinum [JSE:AQP] and unveiled a plan to buy even more platinum assets, some mining executives and analysts were left wondering what was driving this strategy.
The offer, which has now been approved by Aquarius Platinum shareholders, came at a time when the South African platinum mining industry was facing turbulence.
Prices were lower and the global economy was grappling with talk of a recession while dynamics in China - the second-largest global economy and a big consumer of commodities - pointed to a slowdown.
Now, there is improving sentiment that platinum prices are rebounding and will start increasing by the end of this year. This could pay off for Sibanye Gold, which is keen to have a heavy presence in platinum mining after also setting its sights on three of Anglo American Platinum’s (Amplats') [JSE:AMS] mines in Rustenburg.
Ricardo Aceves, senior economist at FocusEconomics, said on Wednesday that “commodity prices will rise this year, although the recovery is expected to be gradual” because of persistently weaker global economic fundamentals.
“FocusEconomics see prices averaging $981 per troy ounce in Q4 2016. The panel sees prices rising to $1 092 per troy ounce in Q4 2017. Nonetheless, risks to the outlook remain tilted to the downside,” said Aceves.
South Africa has the world’s biggest platinum reserves, followed by Zimbabwe and Russia. However, producers of the precious metal have been grappling with weakening demand while costs have also risen, forcing them to institute cost-cutting measures.
According to Aquarius Platinum, these have started to pay off at some of its operations such as the Mimosa mine in Zimbabwe.
Sibanye Gold chief executive officer Neal Froneman was quoted this month as saying that his company aims to be a top producer of platinum and other commodities. The company has adopted a long-term view of a rebound in platinum prices, hence its decision to buy assets in the industry at a time when other producers are struggling in the sector.
“We have a vision to grow into the top five in commodities that we’re involved in,” Bloomberg quoted Froneman saying.
Analysts surveyed by FocusEconomics for its Commodities Consensus Forecast released on Wednesday cited projections of between a maximum forecast of $1 200 per troy ounce and a minimum of $875 per troy ounce of platinum.
Johan Theron, spokesperson for Impala Platinum (Implats) [JSE:IMP], the world’s second-largest platinum producer after Amplats, said automobile sales have started to improve and highlighted that this could lead to a raise in platinum prices starting in 2017.
“We continue to see strong fundamentals for all our metals supported by growing automotive sales across all the major geographical areas and the adoption of much stricter emission standards globally - the consensus view is that we should see US$ metal prices starting to rise again from 2017,” Theron said in an emailed statement.
In Zimbabwe, whereImplats, Aquarius Platinum and Amplats have operations, unions are demanding a 10% salary hike and this could exert pressure on costs.
Producers in South Africa also frequently battle pressure from labour unions, although commodities analysts believe 2016 could be less turbulent compared to previous years.