Do not underestimate SA platinum - expert | Fin24

Do not underestimate SA platinum - expert

Sep 14 2016 18:05
Carin Smith

Cape Town - Do not underestimate the potential of South Africa's platinum industry, Tim Acker, investment analyst at Allan Gray, told Fin24.
He explained that the demand for platinum has been higher than supply for the next three years. Allan Gray is seeing more low-risk opportunity in platinum and palladium metals, rather than the miners.
He says he holds this view despite experts recently having warned that the SA platinum industry is in dire straits.
"We think the SA platinum industry needs to take note of this trend. SA produces nearly 70% of the world’s platinum supply, but with very little to no investment in the industry suppliers have been under investing in capital expenditure needed the past number of years due to the lower platinum price," said Acker.
That raises concerns about a pending shortage in the metal, which will severely impact the mining industry and the SA economy at large.
"We expect over the next five to ten years supply will grow at a slower pace - even decline - and demand is expected to grow in low single digits. So a gap is building up over time and the result has to be that prices will go up," said Acker.
He said that will be good for the SA platinum industry, which is struggling at the moment. Around a third of platinum mines in the country are not breaking even at current prices, he estimates.
"We are just saying to the platinum industry 'hang in there'. We think platinum is still an attractive investment for our clients and we are happy to wait as it is fairly now risk compared to alternatives," said Acker.
“We don’t know exactly when supply will fall a lot, but we do know it will take long for it to recover. New platinum mines or shafts can take 5 to 10 years to bring into production. In addition to this, mining costs have been increasing by at least 10% per year. This increases the platinum price that miners need in order to break even and to justify building new mines.”

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