Showing posts with label Platinum. Show all posts
Showing posts with label Platinum. Show all posts

Tuesday, December 18, 2012

Platinum Australia and Jubilee mull merger

Embattled platinum miner Platinum Australia was in merger discussions with fellow South African miner Jubilee Platinum regarding a possible merger.

Under the proposed merger, Jubilee would acquire all the ordinary shares on issue in Platinum Australia in a share exchange.

The parties have now executed a heads of agreement outlining the key elements of the proposed transaction, which would be used to guide the preparation of binding transaction documents, which were in the process of being negotiated.

In a joint statement, Jubilee and Platinum Australia said that the merged entity, which had the potential to create a top 5 platinum producer in the world, would be seeking a financing package for project finance, working capital and for the partial settlement of Platinum Australia’s debts.

The financing package was currently being negotiated.

Under the proposed transaction, the Smokey Hills mine, which was fully capitalized and ready for production, would be reopened to provide the combined group with significant platinum group metal product.

It was expected that the mine would be brought into production during the second half of 2013.

Furthermore, Jubilee recently concluded an agreement with Platinum Australia for the toll processing of Dilokong chrome mine platinum-bearing tailings using the concentrator at the Smokey Hills operation. The agreement accelerated the processing of Dilokong tailings by some 14 months, to start during the first half of 2013.

The two companies said on Monday that the combined group would have access to the ConRoast process for its future concentrate production, and with the exception of the Tjate platinum projects, the other projects in the combined group were near-term, with relatively low capital requirements.

“We believe that Jubilee’s diverse platinum portfolio and cash flow potential, together with our Smokey Hills mine and development projects, will result in a balanced group well able to take the benefits of the anticipated improvement in the fortunes of the platinum industry,” said Platinum Australia director John Lewins.

Jubilee’s CEO Leon Coetzer added that the proposed transaction would materially enhance Jubilee’s mine-to-metals strategy, and added that the company was looking forward to developing the respective assets in best interest of shareholders.

It was believed that the development of Platinum Australia’s openpit Rooderand project would complement the Smokey Hills mine, and a mining right application was submitted for the project late in 2012, with a definitive feasibility study due for completion shortly.

The group would also look to develop Platinum Australia’s openpit Kalahari platinum project, on which a mining right application would likely be submitted in the first half of 2013.

Edited by: Creamer Media Reporter

Thursday, November 29, 2012

Global platinum mining capacity to increase 38,000 kg by 2015—U.S. Geological Survey

While the United States will continue to be highly dependent on foreign PGM exports through 2020, the nation could ease its dependence through recycling, the U.S. Geological Survey suggests.

Author: Dorothy Kosich

A U.S. Geological Survey scientific investigations report forecasts that South Africa, Russia, Canada, and Zimbabwe will continue to be the principal sources of PGM for at least the next decade.

Global platinum mining capacity is expected to increase by 24,000 kg in South Africa, 9,000 kg in Russia, 3,000 kg in Russia and 2,000 kg in Zimbabwe from 2011 to 2015, according to the report authored by David R. Wilburn.

Palladium capacity worldwide is expected to increase an additional 16,000 kg in Russia, 14,000 kg in South Africa, 4,000 kg in Zimbabwe, and 1,000 kg in Canada “if new or expanded mine and associated processing capacity comes into production as planned,” said Wilburn.

“It is likely that the magnitude of these changes in PGM capacity has been influenced by such factors as the global economy, electrical capacity shortages and mine safety concerns in South Africa and geopolitical conditions in the major PGM producing countries,” he observed.

Of the 52 sites or regional operations reviewed for the USGS analysis, 16 sites were producing PGMs before 1995, 28 sites commenced production from 1995 through 2010, and eight sites were expected to begin production from 2011 to 2015 if development plans come to fruition.

In his analysis, Wilburn noted feed sources of PGM are changing in South Africa and Russia which combined accounted for 89% of platinum production and 82% of palladium output in 2009.

The Geological Survey estimates that global production capacity for platinum is expected to increase by 16% to 310,000 kg/yr. between 2010 and 2016. Global production capacity for palladium is expected to increase by about 14% to 277,000 kg/yr. during the same period.

“A greater amount of South African PGM capacity is likely to come from deeper, higher cost Upper Group Reef seam 2 deposits and deposits in the Eastern Bushveld capacity,” said the USGS. “Future Russian PGM capacity is likely to come from ore zones with generally lower PGM content and different platinum-to-palladium ratios than the nickel-rich ore that dominated PGM supply in the 1990s.”

The USGS estimated that about 13% of the global platinum production and 42% of global palladium production came from Russian in 2010.

“Although deposits containing PGMs are widespread, those mined for PGMs because the PGMs are economically recoverable at 2010 prices are limited,” the U.S. Geological Survey suggested.

Meanwhile, recycled PGMs from catalytic converters, electrical components, and jewelry has increased so that recycled PGMs accounted for about 30% of worldwide platinum supply and about 29% of global palladium supply in 2010, according to the report.

In 2010, the United States imported about 94% of the platinum and 58% of the palladium consumed. Virtually all the PGM in the United States comes from the Stillwater Complex in Montana.

However, PGMs are also present in the Duluth ultramafic complex in Minnesota, said the report. The most advanced project is the PolyMet Mining’s NorthMet copper-nickel project.

“In 2020, the United States will continue to be highly dependent on PGMs from South Africa, Russia, Canada and Zimbabwe,” the USGS predicted. “The United States, however, may reduce its dependence of foreign primary PGMs if the recycling rate for PGMs increases.”

In his analysis, Wilburn suggested the growth of the fuel cell industry is expected to increase demand for PGMs during the next decade.

“The amounts of mineral exploration and PGM recycling are also likely to increase during the next decade because PGM demand is expected to remain strong and existing sources of primary supply to become more expensive,” he advised.

Sunday, November 18, 2012

Implats reports higher Q1 output, but Rustenburg behind ramp-up curve

The world's No 2 platinum producer Impala Platinum (Implats) on Friday reported a 17% increase in gross platinum production across the group.

The JSE-listed company produced 454 000 oz of platinum during the three months to September 2012, compared with 388 000 oz in the corresponding quarter the year before.

In its 2013 financial year first-quarter production report, Implats attributed this to a once-off toll material processing and an inventory release, which offset the lower production at its Rustenburg operations owing to a prolonged ramp-up.

Impala Rustenburg’s operational performance remained “well below” planned levels as an uncertain labour climate continued to impact the operation.

Production at Impala Rustenburg fell 22% from 249 000 oz in the first quarter of last year, to 193 000 oz in the quarter under review, as throughput and grade declined.

The company further noted that the ramp-up to full production, after experiencing an unprotected strike at the operation earlier this year, had not yet been achieved as expected.

The mine was operating at between 80% and 85% of the 2011 financial year production level, Implats commented in a statement on Friday.

The company’s Marula operations recorded an unchanged year-on-year output of 18 000 oz for the first quarter, while a planned shutdown of the smelter during August and September for routine maintenance at the Zimplats operations resulted in platinum production falling 5 000 oz to 40 000 oz.

At Mimosa, an increase in the tons milled and the grade pushed platinum production in concentrate to 28 000 oz. This was up 1 000 oz from the 27 000 oz reported in the prior corresponding quarter.

However, the unit cost per platinum ounce rose 35% to R15 326 on the back of inflation and lower volumes, and the combination of wage pressures in South Africa and a weaker rand in Zimbabwe accounted for the bulk of the 15% increase in cash costs, while the balance was primarily due to lower volumes.

Shares in the company traded 2.5% higher at R143.28 apiece on the JSE.

Edited by: Mariaan Webb

Sunday, October 28, 2012

Platinum needs fundamental change, says Anglo’s Carroll in step-down media meet

South Africa’s platinum sector needed fundamental change to the way it did business in order to give it a chance to thrive, outgoing Anglo American CEO Cynthia Carroll told Mining Weekly Online during a media conference in which she announced her intention to step down once the company found a successor.

Carroll, who is also resigning as chairperson of the board of the JSE-listed Anglo American Platinum, which meets this week, said that the platinum sector needed to “come together as an industry” and commit to “doing things differently and working towards world-class standards”.

“I have no doubt that we can do that,” she said in response to Mining Weekly Online.

Fundamental change would have to be brought about in order to ensure a sustainable, competitive industry for the long term.

“We are not competitive today and it’s not an industry that will thrive in any sense if we don’t make some fundamental changes in the way we do business,” said Carroll, whose bombshell resignation announcement comes as she enters her seventh year of service at the helm of the diversified South African mining company, which is due to celebrate its 100th anniversary in five years’ time.

Trade union Solidarity described Carroll’s resignation as “a huge loss for both the company and the South African mining industry”.
Solidarity general-secretary Gideon du Plessis praised Carroll for continually championing South Africa’s mining industry abroad and focusing on the importance of occupational health and safety.

Du Plessis said that Carroll had succeeded in establishing a formal alliance between government, management and trade unions.

The labour union described her as fearless in taking the right decisions, whether these were popular or not.

Pressed by a British journalist on the issue of growing South African mining risk, the outgoing head of the London-listed Anglo American expressed full confidence that South Africa would emerge from its difficult current period.

“There is clear evidence that South Africa can be at the absolute cutting edge of performance and value creation for shareholders,” she said, drawing attention to Anglo American Kumba Iron Ore's five-months-ahead-of-schedule Kolomela mine, which was currently producing at levels that far exceeded projections.

Through its increased 85% ownership of De Beers, Anglo American was in fact investing more in South Africa, Botswana, Namibia and other African countries where diamond exploration was under way.

The company had also taken up a position in Mozambique.

Anglo American chairperson Sir John Parker, in fending off journalist suggestions that Carroll had succumbed to pressure from disgruntled shareholders, reiterated that Carroll’s resignation had been driven by the CEO herself deciding that the time had come to step down from what was a “very gruelling and very demanding role”.

Parker described Carroll’s resignation decision “as a stand-alone decision on her part” and praised her for agreeing to stay on in her post until a successor had been appointed.

Carroll in turn promised to be around for “quite some time into next year”.

The search for a successor has begun with immediate effect, with Parker making the point that the aim would be to secure a candidate with some of the characteristics that Carroll had brought to the job.

Asked to comment on speculation that former BHP Billiton CFO Alex Vanselow and South African-born Xstrata CEO Mick Davis were possible candidates for the CEO job, Parker said he would not want to comment on any individual, except to say that “we couldn’t really afford Mick Davis”.

Pressed on potential strategy changes that could follow Carroll’s departure, Parker said that the board and not the CEO "owned" the strategy.

VSA Capital Group CEO Andrew Monk told Bloomberg News in an audio interview that there had been pressure from investors for Carroll to step down.

While Monk conceded that the platinum strikes in South Africa were not Carroll’s fault, he accused her of taking gambles in South America that had not come off.

Monk said that he expected shares of Anglo American to rise on the basis of the company being a potential takeover target.

The Anglo American share price had risen by 2.9% in Johannesburg at the close of JSE business on Friday.

On the difficulties that would confront her successor, Carroll cited the real challenge for anyone moving into a major mining company as the problems around the delivery of projects in new and even existing mining jurisdictions, where governments and communities had far greater expectations.

The situation in South Africa was evidence enough that a proactive job had to be done to ensure continual alignment with communities.

Parker described the interface with governments, mining communities and labour unions around the world as a “hugely important part of the leadership of a complex company like Anglo American”.

On the state of the company’s platinum review, Carroll said that Anglo American Platinum was attempting to position itself ahead of its peer group through the current review process.

“We’ve been working at it. It’s very complex. We have 12 mining operations, 12 concentrators, seven joint ventures and 58 000 people. I told the market that it required engagement with many stakeholders and that we would only be ready to make an announcement at the end of the year.

“We’re having a board meeting next week on platinum and we’re aiming to deliver some key messages on taking the business forward towards the end of the year, exactly in line with what I committed.

“We’re looking for a fundamental shift in performance to create and sustain a competitive business for the long term and creating much more shareholder value."

On Minas Rio in Brazil, Carroll said that the board had visited the project and travelled along the pipeline and she urged the media and analysts to go and see for themselves, because the project was “really something to behold”.

However, London-based mining analysts Liberum Capital described Minas Rio as “a terrible acquisition”.

Liberum was also critical of Carroll’s forced sale of 50% of the Los Broncos Chilean copper asset.

The firm was also unhappy with the buy-in of De Beers' minorities at full price and what it described as “inaction on Anglo Platinum – an asset most had hoped would be unbundled on her watch”.

Liberum was pleased, however, that Carroll had seen off what it described as “the bear hug approach from Xstrata”, a reference to Xstrata’s merger-of-equals proposition.

“To sum up then, the history books won't be kind on Carroll’s tenure,” Liberum said.

Edited by: Creamer Media Reporter

Thursday, October 11, 2012

South African platinum and gold mine mechanisation - no simple path

South Africa's platinum and gold mining companies are being told to cut their workforces and introduce more mechanisation - but this is not as easy as it sounds.

With the focus over the past couple of months first on South Africa's platinum mines, and subsequently its gold mines as labour problems have appeared to intensify we find the international mining community, for the most part, totally baffled by the sizes of the huge labour workforces working at some of these properties.

As an example - although this is going back a bit - after working on a South African gold mine where perhaps you would find a gang of 20-30 miners working on a single 3m x 3m development tunnel, the writer went to work on a Canadian underground mine where a similar sized development drive would be staffed by a gang of just two people.

The part answer to this, of course, was mechanisation, whereby the drilling itself would be undertaken by an early stage single boom drill jumbo rather than by four or five rock drill operators plus their attendants, working off and under a drill platform in the South African case. But it went far further than this and much would be down to the exemplary clean-up and track laying standards demanded in South Africa's case - and while these were deemed totally necessary in the South African context, with study crews measuring the distance between each rail track tie, and penalising the miner overseer if these were as much as a centimetre or two out of place, in Canada the regime was far less strict. If it worked it was OK. The high standards in South Africa could be seen all across the mine. Main haulageways were painted white up to the red grade lines, you could almost eat off the floor at the shaft stations - OK that's perhaps a slight exaggeration, but it makes the point.

Now those days are indeed gone even at the South African mines. Development headings are now largely trackless with drilling with drill jumbos, loading with LHDs, and white paint consumption will have died, although the working gangs are still far larger than those of their Canadian counterparts. Why? In South Africa labour is relatively plentiful and for years has been cheap (although the mining companies will tell you labour is one of the most expensive parts of their costs - which isn't surprising if you employ 20,000 people on your mine!). But the biggest problem in this particular case will have been paring down numbers from what would have been seen as the acceptable norm for work in a development heading involving not only drilling, blasting and mucking out, but also hanging water and compressed air lines, electrical cables and ventilation ducting etc. In Canada the miners did it all. In South Africa there was a hierarchical work gang social and cultural structure to take into account.

However, development drives are the easy part of the mechanisation process. It is the narrow reef mining necessary at many of the platinum and gold mines which really creates mechanisation difficulties and so far virtually none of the mines have been able to control this problem. Again, for example in the days, many years ago when I was a shift boss at Rustenburg Platinum Mines (then run by JCI) the miners I had under my supervision were mining at a stoping width of around 28 inches - around 70 cm. - even narrower in some cases - as the Merensky reef being mined was itself only a matter of centimetres wide and the mine wanted as little dilution as possible. With the reef dipping at a consistent 90 and faces perhaps 30 m in length, the rock drill operators would drill lying on their backs with their feet applying the pressure to push the drill forward. After blasting, mucking out was by workers with shovels, working in this narrow 28 inch stope width moving the blasted rock into the path of the 'mechanised' cleaning system - a winch driven scraper -down to a strike gulley where it was again either shovelled into small cars and pushed to a central dip gulley, where it was tipped into the path of another scraper which handled it down to the ore pass and thence to the main haulage system below, or delivered by another scraper to the central dip gulley - a process which was described as mechanised. Because the platinum group metals are relatively heavy, the areas back from the face were swept and washed clean with the sweepings and the washings ending up in the gulleys for delivery, along with the rest of the ore, to the orepasses and main haulages. As you can tell an extremely labour intensive system.

Now this has changed - but only to a relatively small extent as far as the stoping is concerned and much today will be worked as it was thirty to forty years ago. The biggest problem faced by miners working the very narrow Merensky reef horizons is dilution - both in terms of mining the working face and drilling the strike gulleys. Amplats has undertaken considerable work with eXtra Low Profile (XLP) equipment but no-one has succeeded in developing this to operate in widths below 1.2m, which is substantially wider than the mining widths that can be achieved by conventional mining and thus dilutive. And even where it has been implemented it has not generally proved to be as efficient cost-wise as the traditional methods. With the platinum mines operating on very tight margins, this loss in cost efficiency, coupled with the high capital costs of the special equipment, just hasn't been economic. As labour costs increase these methods will be revisited, but far higher platinum prices may yet be needed to make even partially more mechanised mining viable.

On the wider UG2 reef horizons, mechanised room and pillar methods have been, and are being, used much more successfully, but still work gangs tend to be larger than those in say North American or European operations, although this may be as much a factor of management and worker culture and prior experience as of actual necessity. Some mines too have, even so, opted for more traditional and labour intensive mining methods even in these wider reef horizons, but this is likely the first area which will change as true mechanisation is at least a proven technical option.

Many of the factors present in the platinum mines are mirrored in the gold mines where narrow tabular reefs are also mined. Again there has been very limited success with mechanisation achievable in sub 1m wide workings for similar reasons to those noted above for the Merensky miners on the Bushveld Complex, while again mechanisation has been able to be implemented more successfully where wider reef horizons are able to be worked.

Overall there have been substantial workforce reductions and productivity improvements over the years. When I worked at Rustenburg there were some 24,000 employees on the operation whereas now the number appears to be more like 14,000 managing higher production levels. Even so, more needs to be done to bring workforce sizes down in order for the more marginal operations to survive in a higher labour cost environment barring big upwards movements in gold and platinum prices. However whether this is socially acceptable in a country with such high unemployment levels is perhaps another point which needs to be taken into account by the mine operators, their workforces, the unions and politicians alike. There is no easy path to mechanisation and workforce reduction either technically, socially or politically.

Source: Mineweb

Tuesday, October 9, 2012

Aquarius Platinum CEO latest to resign as sector feels heat

His resignation comes at a time of unprecedented trouble in South Africa's platinum industry, where violent strikes for higher wages have left almost 50 people dead.

The chief executive of miner Aquarius Platinum, industry veteran Stuart Murray, has resigned with immediate effect after a decade at the helm, becoming the third boss of a major platinum producer to step down so far this year.

Aquarius, which announced the departure in a statement on Monday, gave no reason for Murray's resignation. But the move comes at a time of unprecedented trouble in South Africa's platinum industry, where strikes for higher wages have left almost 50 people dead, as the country experiences its worst social unrest since the end of apartheid in 1994.

Murray, a chemical engineer who began his career with number two player Impala Platinum, was well-known in the industry for his frank and sometimes controversial public comments, and his departure hit Aquarius shares, as investors fretted it could signal more bad news to come.

During his time at the helm, Murray oversaw the growth of the company from a single mine to number four player, and steered it through tough times. Those times included a mine accident in 2010 that killed five employees and Zimbabwean efforts to claim a larger slice of mining revenue via "indigenisation" policies that threatened its Mimosa venture.

More recently, along with other executives in the sector, he battled low platinum prices, safety stoppages and squeezed margins that dragged Aquarius to a full-year loss.

Aquarius, which gets most of its production from South Africa but also has the Mimosa mine in Zimbabwe, was one of the first major platinum miners to scale back activities because of low prices, suspending operations at its Marikana joint venture with Anglo American Platinum in June.

"Stuart Murray has pretty much been the face of Aquarius Platinum," Nomura analysts said in a morning note.

"After an extremely difficult last three years for the company there will be plenty of speculation surrounding whether or not there is more bad news to come."

News of the resignation sent London-listed shares in Aquarius down 10.5 percent to 42.99 pence at 0900 GMT, underperforming a 1.2 percent drop in the broader UK mining sector. Australian-listed shares closed down 6 percent, while its Johannesburg stock fell almost 8 percent.

But Nomura analysts also saw positives, including a potential "fresh start" with new leadership for a miner that has evolved since Murray took the chief executive role in 2001.

A replacement for Murray - also chairman of the miner's principal, South African subsidiary - will be considered "in due course", Aquarius said, adding that he will continue at the miner until the end of March, for an "orderly handover".

Murray is the latest platinum boss to leave this year.

David Brown left the helm of Impala Platinum at the end of June, to be replaced by former Metorex boss Terence Goodlace, while Anglo American Platinum (Amplats) replaced veteran Neville Nicolau with iron ore executive Chris Griffith in July.

The third-largest platinum producer, Lonmin, has appointed an acting chief executive as boss Ian Farmer pursues treatment for an unspecified illness.

Aquarius, which in August reported a full-year loss for the 12 months ended June 30, said that Jean Nel, formerly commercial director, would become its chief operating officer.

Zwelakhe Mankazana, a non-executive board member since 2007, has been appointed interim non-executive chairman of Aquarius' principal subsidiary, Aquarius Platinum South Africa.

Source: Reuters

Thursday, October 4, 2012

Platinum expected to bounce back in 2013, metals stocks in surplus

Platinum and palladium were expected to regain some of its lustre in 2013 as rising production costs in South Africa, which produces about 70% of the global supply of platinum, looked set to push prices higher, French bank Natixis said in its latest quarterly metals review.

The ongoing labour unrest in the South African mining sector, which had disrupted platinum-group metals production and was spreading to other areas of the industry, had come at the worst possible time for producers who were this year struggling to cover their operating costs, the bank said.

Platinum, which in 2012 was at a two-year low at $1 550/oz, was expected to regain some of its sheen in 2013 to $1 700/oz, just under its 2011 price. Pushed higher by production constraints, palladium was expected to increase 15.6% in value to $740/oz, its highest price in two years, as palladium is increasingly finding new uses in high-technology end uses.

Natixis expected the rising costs at South Africa’s platinum mines to remain a significant feature of the platinum market in years to come, and the bank expected palladium prices to be significantly pushed up on the back of South African mining outages. South Africa produces about 35% of the global palladium supply.

After the gold price drifted lower in the early part of the year, dampened by a strengthening of the dollar and weak demand from India, gold had regained some ground in recent months as speculation about a third round of quantitave easing (QE3) by the US federal government was confirmed this summer, resulting in a strong rally.
However, with the federal government choosing to buy mortgage-backed securities, rather than treasuries, Natixis pointed out that it was not clear how the implementation of QE3 would benefit the gold price.

“Instead, the gold market must focus upon the imminent US fiscal cliff and subsequent need to raise the US debt ceiling as the two major events likely to drive gold prices in 2013. If the US follows Europe into its own fiscal crisis, gold prices would have substantial upside, but in our central scenario, in which the fiscal cliff can be avoided, we would expect gold prices to drift lower over 2013, averaging $1 640/oz,” Natixis said.

Further, the price of silver, which generally keeps in-step with gold trends, had recovered about a quarter of its value in August and September, after falling by almost 30% between February and June. The market analyst said the silver price’s behaviour suggested no changes in the commodity’s fundamentals, but rather its price movements were strongly influenced by generic market sentiment and investor behaviour.

Natixis expected the price of silver to ease off into 2013 to average $30/oz, if the US managed to avoid the imminent fiscal cliff.

INVENTORY CONCERN

Natixis said one of the repercussions of the long delay in China’s economic recovery this year was an unanticipated accumulation of inventories, particularly evident in the base-metals market.

As a result of this heavy stock accumulation, the bank said Chinese metals users were unlikely to be squeezed into paying markedly higher prices over the coming year, even if the Chinese economy did begin to improve, as the new cadre of political leaders who took charge this year begin to accelerate the implementation of a wide range of already planned stimulus measures.

The bank found that copper prices had been better supported this year than that of other base metals. The copper market was expected to remain in deficit throughout much of 2013; however, prices were expected to struggle to push past 2011-highs, as China was seen shifting its focus from restocking to destocking, and the country anticipated added production from new projects such as Turquoise Hill Resources’ Oyu Tolgoi copper/gold project, in Mongolia.

The price of copper was expected to rise about 5.5% to average at about $8 500/t in 2013.

The price of lead was expected to rise by 17.5% to $2 450/t, driven higher by rapidly expanding demand from developing countries, where car fleets were ageing and demand for electronic bikes was growing fast.

The price of nickel was expected to rise by 5.1% to $18 750/t, as price growth remained constrained, owing to high stocks of both ore and the finished metal.

The aluminium price was expected to rise 7.4% to $2 190/t in 2013, with the market also seen suffering from chronic oversupply.

Zinc was expected to grow by a modest 6.1% to $2 090/t, the market also seen to suffer from excessive stockpile accumulation.

Edited by: Creamer Media Reporter

Thursday, September 27, 2012

Atlatsa says has restructure plan to lower cost of borrowing

Junior platinum miner Atlatsa said on Thursday it had agreed the first phase of its restructuring, recapitalisation and refinance plan with Anglo American Platinum (Amplats), which would significantly lower its cost of borrowing.

Under the first phase of the restructuring plan, Atlatsa and its subsidiaries Plateau Resources and the Bokoni group of companies would consolidate outstanding debt and preference shares into its existing senior term loan facility with Amplats.

This would result in the repayment of preference shares through the redemption of all preference shares outstanding in the share capital of Plateau and the Bokoni group, together with repayment of the operating cash shortfall facility loan within the Plateau and Bokoni group structures, while debt and preference shares would be consolidated into the senior loan going forward.

The senior loan, as consolidated, would bear a yearly effective interest rate of 6.23% as opposed to the yearly effective interest rate of 12.31% currently charged on the various Atlatsa and Bokoni group debt owing to Amplats.

JSE- and TSX-listed Atlatsa said the implementation of the first phase, which was expected to occur on September 28, would simplify its balance sheet structure and materially reduce its effective cost of borrowing.

The company added that its debt would be further reduced on implementation of the second phase of the restructure plan, which was still subject to finalisation of definitive agreements, as well as obtaining the regulatory approvals.

Edited by: Mariaan Webb

Friday, September 21, 2012

South Africa's platinum industry seeks bargaining model

Executive manager of human capital at Lonmin, Abey Kgotle, says it is important that a centralised bargaining structure be well thought out and as inclusive as possible.

The platinum industry is considering a centralised collective bargaining model, Lonmin acting chief executive Simon Scott said on Thursday.

"There are industry discussions taking place, within the context of the Chamber of Mines," he told reporters in Johannesburg.

"Surely if you get involved in some sort of centralised [negotiations], this could be a way forward."

Executive manager of human capital at Lonmin, Abey Kgotle, said it was important that a centralised bargaining structure be well thought out and as inclusive as possible.

"There is not a silver bullet for how that is going to be."

The National Union of Mineworkers [NUM] and many other parties had called for centralised bargaining.

At present, the mine was trying to get operations back to normal after the wildcat strike, which was marked by violence.

On Thursday around 80 percent of workers returned to their jobs. The first three days would focus on induction, with blasting expected to resume next week.

Scott said workers received an increase of between 11 and 22 percent in terms of the deal, reached on Tuesday night. The deal was an addendum to an existing wage agreement.

The deal meant that the lowest underground worker would now earn R9611 (up from R8164), a winch operator would earn R9883 (up from R8931), a rock drill operator would earn R11,078 (up from R9063) and a production team leader would earn R13,022 (up from R11,818).

Asked how much the wage increases would cost Lonmin, Scott said he could not provide an answer.

"We can't say immediately how much this will cost the company."

It was not simple to work out as expenses such as overtime and bonuses needed to be taken into account, he said.

The unprotected strike had incurred significant cost for the company and the economy.

"Loss of revenue is not an insurable event."

Scott said Lonmin was sure that, in time, it could rebuild confidence in its operations.

"[During the strike] there was a lot of concern from shareholders, especially international shareholders who find it difficult to contextualise."

In the short-term, however, the industry was in a "very tough" situation because of industry pressures, including weakness in the platinum price. It was within this context that the wage negotiations took place.

Despite the difficulties the industry faced, Scott said he believed it had a future in South Africa.

"The platinum industry can get investors to believe in the industry again, [but] we need to navigate the short-term, while markets are tight, very carefully."

The miners went on strike on August 10, demanding a monthly salary of R12,500.

Kgotle dismissed reports that the strike was related to tensions between the NUM and the Association of Mineworkers and Construction Union, saying it was only motivated by the wage demand.

Forty-six people have been killed since August 10 in violence associated with the strike, including 34 shot by police on August 16.

Wednesday, September 19, 2012

Platinum up 22% since mid-August

What a difference a black swan can make.

Spot platinum is up 22% from mid-August after the Lonmin massacre and fears that South Africa, responsible for over 80% of the world's platinum production, would be slowed.

Bernanke QE3 announcement late last week added another lift to the metal.

Before last month's tragic news, the metal was trading at $1,393/oz. Currently it trading over $1,700/oz, , a price level not seen since late February.

As Bloomberg noted, this is platinum's biggest rally in 25 years.

Work has stopped at six platinum mines and one gold mine in South Africa. The government considers the mining sector critical and the police are cracking down on striking miners.

Platinum communities must tell us, not us tell them – Griffith

The expectations of near-mine communities needed to be better understood to minimise operational disruptions and the fragmented platinum industry and government needed to collaborate across a broad front to achieve platinum’s full potential, new Anglo American Platinum CEO Chris Griffith said on Tuesday.

Delivering the keynote address at the Southern African Institute of Mining and Metallurgy’s (SAIMM’s) fifth international platinum conference after observing a minute’s silence for the 45 deaths in the Marikana violence, Griffith – in his eighteenth day as head of the world’s largest platinum company – said the communities themselves must identify their needs.

"We must stop telling them what we think their needs are,” the former Kumba Iron Ore CEO said.

There would also have to be far stronger collaboration between mining companies, labour and government for growth to be sustained.

The lack of collaboration among platinum mining companies had led to duplication of research and development, particularly in the area of safety.

A more collaborative approach would also improve miner training programmes and community development.

His comments followed those of SAIMM president Dr Gordon Smith, who remarked in his opening address that the conference would serve as a venue for debate around positioning the platinum industry on a new trajectory towards sustainability, and preceded the comments of independent strategy consultant Jack Koolen, who said that the Marikana tragedy would serve as a textbook example of how economics would drive future South African politics.

Koolen added that mine managers would have to become involved in the kind of near-mine community processes normally reserved for government officials.

Collaboration was particularly important, Griffith said, against the backdrop of regulatory and property rights uncertainties, electricity and water shortages, the skills gap and compulsory safety stoppages, with zero harm becoming a key strategic objective.

He also advocated that greater consideration be given to the introduction of mine mechanisation and the use of technology to improve productivity and safety and to reduce production costs.

Although investment in processing technology had improved concentrating, smelting and refining recoveries, more could be done.

“Improving our mining technology is a great opportunity. Technology could make uneconomic mineral resources viable,” Griffith added.

Technology also had the potential to make production more flexible and enable mining companies to respond swiftly to changes in fundamental demand and thus reduce price volatility.

Platinum mining should adopt the best practices of the gold-mining sector, which was managing cash costs better than the platinum sector, and also take the best points out of the coal-mining sector.

Platinum miners could also collaborate on the use of shaft and processing infrastructure and even on new capital projects.

Platinum miners had also not explored the option of moving the mine boundaries, that were dictated by farm fences on surface, in order to improve capital efficiency and infrastructure utilization.

“We can learn a lot from our diversified mining peers. For example, Anglo American, BHP Billiton, Rio Tinto and Xstrata have jointly owned operations in copper, coal and iron-ore,” Griffith said.

More could be done to reduce reliance on European autocatalyst demand using the platinum fuel-cell product development initiative, the Platinum Guild International and the Platinum Group Metals Development Fund.

The platinum industry should work with government to develop local research, development and manufacturing, to promote local beneficiation.

The industry needed to ensure that it was benefiting from its scale and reserve dominance and should set out to generate superior returns, taking itds marketing and commercial strategy cue from iron-ore, coking coal and oil producers.

“We need to sustain core projects and repair balance sheets to ensure that we are in good shape for the next growth phase,” he added.

The 118-year-old SAIMM hosts the platinum conference every two years.

Edited by: Creamer Media Reporter

Sunday, September 16, 2012

Anglo American Platinum suspends its Rustenberg operations

Anglo American Platinum has announced the suspension of all operations at its Rustenberg mines with immediate effect.

It made this decision to protect the company and its staff from intimidation and violence from striking workers from other mines in the area.

Chris Griffith, CEO of Anglo American Platinum, said: “Our employees are not on strike. However, in light of the current volatile situation in the Rustenburg area, where our employees who want to go to work are being prevented from doing so and are being intimidated by the threat of violence, Anglo American Platinum has decided to suspend its operations in the Rustenburg area with immediate effect. The suspension will continue until such time as operations can be safely resumed.”

Cynthia Carroll, chairman of Anglo American Platinum, said: “We have taken this decision to suspend our operations in order to help ensure the safety of our employees – our absolute priority. Our people want to work and it is unacceptable that they are not able to go to work safely and instead are facing considerable intimidation. We are in touch with the authorities at the highest level to identify how we can work together with our tripartite partners – government and the recognised labour unions – to achieve a swift and peaceful resolution to these illegal actions.”

Protesting miners dismissed claims from the company that its miners were not on strike and that the company suspended operations for safety reasons.

Protesting Anglo American Platinum miners said one of their demands they wanted was a monthly salary of R12 500 after deductions.

National Union of Mineworkers spokesperson Lesiba Seshoka said most staff members had been prevented from going to work due to intimidation by those who were now protesting outside the mine.

Sunday, August 26, 2012

Violent mining strikes could spread, says Implats

Impala Platinum today has warned that industrial action at South Africa's platinum mines could become more widespread.

A violent six-week strike at Implats' Rustenburg operations early this year sliced 21 percent off its full-year production

This combined with declining metals prices, led to a drastic cut in its dividend.

"The platinum industry is experiencing increased levels of industrial action, as witnessed at both Impala Rustenburg at the beginning of this year and more recently at Lonmin

These developments pose a significant risk to the industry," said Implats' newly installed chief executive Terence Goodlace.

Implats is confident that their operations are "relatively stable",

He also said the trade union rivalry that sparked the strike at both its operations and Lonmin's was still "fairly volatile".

A bitter turf war between the entrenched majority National Union of Mineworkers (NUM) and rival Association of Mineworkers and Construction Union (AMCU) has already spilled over to surrounding mines in the Rustenburg area and analysts are worried about a contagion hitting gold producers.

The platinum price has also jumped to a three-month high on the threat that South Africa, as supplier of 80 percent of the world's platinum, could be disrupted indefinitely.

Three lives were claimed during the strike at Implats in January and February. This cost the company, which produces 30 percent of the world's platinum, 120,000 ounces in lost production and translated into 2.8 billion rand ($336.57 million) in lost revenue.

Monday, August 20, 2012

South Africa's union war for platinum and how the miners got it wrong

Industry insiders, companies and unions know the sector has some very tough decisions to make, but it's not just platinum that is at risk.

South Africa's platinum promise of prosperity has turned into a heap of broken dreams for Vusimuzi Mathosi, one of 2,000 workers laid off by Aquarius Platinum at its Everest Mine.

"This place can only be sustained with platinum. What can we do now?," he told Reuters near the one-room box he and his family call home in a dilapidated township on the outskirts of Lydenburg, 300 km (180 miles) east of Johannesburg.

He belongs to the Association of Mineworkers and Construction Union (AMCU), whose b loody turf war for members with the dominant National Union of Mineworkers (NUM) was the backdrop to Thursday's killing of 34 striking platinum miners by police at the Marikana mine.

When Aquarius, the world's 4th largest producer of the precious metal, closed production at Everest, it cited worsening industrial relations stemming from the AMCU/NUM battle which has turned workers into warriors across the platinum sector.

The country's ruling African National Congress is in a governing alliance with the NUM-affiliated national union confederation COSATU, and a perception has filtered down the shafts that the rank and file are not getting a fair deal because NUM is in bed with companies and the ANC.

This has been a common refrain among several AMCU workers Reuters has interviewed in recent weeks, from Lydenburg to the main platinum belt where police on Thursday opened fire on striking workers employed by Lonmin at its Marikana operations northwest of Johannesburg.

"The NUM, they have shares in the companies," said Fannie Bhengu, an AMCU branch chairman in Lydenburg.

Past NUM leaders who are ANC heavyweights include Cyril Ramaphosa, a business tycoon who sits on Lonmin's board. In his labour days, he led a strike 25 years ago that saw 11 mineworkers gunned down by police.

The NUM denied it had shares in mining companies, or that it had too cosy a relationship with the management of those companies.

AMCU and other upstart unions have however been drilling into a growing seam of discontent and poaching NUM members or picking up the unorganised at Lonmin, Aquarius and at the world's largest platinum mine run by Impala Platinum, which shut for 6 weeks early this year amid labour blood-letting.

The groundswell of revolt against the NUM is tapping into the same popular anger with poor government delivery of services that is confronting the ANC, marked by frequent riots in poor townships and squatter camps.

"It is not incidental that the challenge to the historically dominant union NUM, affiliated with the ANC, is taking place within a context of growing grass-root contestation to the performance of government," said Claude Baissac, managing director of mining consultancy Eunomix.

More mine shafts across the industry may be forced to shut as it faces union militancy, soaring costs and low prices linked to the sluggish global auto industry as platinum is the key ingredient used for emissions-capping catalytic converters.

The gold sector also embarked on a painful process of restructuring over a decade ago as the price of bullion slumped, leading to tens of thousands of job losses and South Africa's fall from world No. 1 gold producer to 4th place.

"I think the platinum guys are just starting to work out what the gold industry has been through. So they have some hard decisions they have to make," Mark Cutifani, chief executive of AngloGold Ashanti, told Reuters.

WHEN PLATINUM WAS KING

But the path blazed by gold, which has made the South African industry lean, mean and profitable, will not be an easy one for platinum to follow in this highly charged new era of social discontent, union rivalry and global economic woes.

Geology is also an obstacle as big South African gold miners such as AngloGold and Gold Fields now get half or more of their output from outside the country. But about 80 percent of the world's known platinum reserves are in South Africa.

South African gold companies aggressively trimmed their payrolls while the pro-market Thabo Mbeki was president, giving them political space to cut a labour force that numbered 300,000 in 1996 but is now down to around 130,000.

Those were the heady days that followed the demise of white apartheid rule. Almost two decades after Nelson Mandela became South Africa's first black president, that optimism has faded into frustration as many miners still toil in harsh and dangerous conditions for as little as 4,000 rand ($480) a month.

Average gross monthly earnings in mining are around 14,000 rand, according to government data. This is slightly above average but the median figure for mining masks stark differences across the pay scale.

Social conditions for mining communities in the platinum belt have also not improved, according to a report released this week by the Bench Marks Foundation, an NGO backed by churches.

In harsh criticism of most of the principal mining companies, the report faulted Lonmin's operations for "high levels of fatalities, very poor living conditions for workers, community demands for employment opportunities and negative impacts of mining on commercial farming".

Platinum presents a tempting target for an upstart union on a recruiting drive like AMCU because much of its labour force lives in the communities around mines on the platinum belt.

By contrast the gold sector still houses much of its workforce in mine hostels and so can keep agitators at bay.

When platinum was king it also laid the groundwork for the current troubles by keeping out of the collective bargaining arrangements that define union talks in gold and coal.

Platinum sector companies felt no need for a unified front. In 1999 gold languished at a 20-year low just above $250 an ounce and platinum was trading $118 higher.

Gold is now trading between $150 and $200 above platinum and many platinum shafts are not making money.

MUSCLING IN

But the sector is exposed to unions like AMCU, which can go company-to-company and persuade workers they can achieve new deals for them. Pay disparities exist between companies for workers of similar jobs, fueling resentment.

In a recurring pattern, AMCU will recruit among rock drill operators who have one of the toughest and most dangerous jobs in mining, promising it can extract big pay hikes for them.

At Implats earlier this year and Lonmin now, these workers then launched a strike deemed illegal because they did not follow the lawful steps or because agreements remained in force.

In the case of Implats this led to dismissals and then a wave of violence but when the smoke cleared, AMCU had muscled in and now claims it represents half of the 30,000 strong labour force centered around the city of Rustenburg.

AMCU denies accusations by NUM and mine company managers that it is stirring up violence. AMCU President Joseph Mathunjwa said after the Marikana killings that his union had been "set up by management and the NUM to take the blame".

NUM General Secretary Frans Baleni repeated his union's accusation that militant unions like AMCU were using violence and intimidation as a tool of recruitment.

"There are trade unions desperate for power who mislead and use workers for cannon fodder," he said, speaking on Sunday on a national television show called "The Justice Factor".

Anger over the Marikana killings could worsen the union war and trigger "retaliatory violence against NUM members and police at other platinum mines, raising risk of violent and protracted strike action over the next month at platinum mines in South Africa," London-based Exclusive Analysis Ltd said in a note.

AMCU also has gold firmly on its radar screen.

AMCU's General Secretary Jeff Mphahlehle told Reuters it was recruiting at the Evander mine that Harmony Gold is in the process of selling to Pan African Resources.

Evander is a target because while Harmony bargains collectively, Pan African does not, so AMCU can go use the tactics it has deployed in the platinum sector. AMCU also has members in the country's coal mines that supply Europe and Asia.

HOSTILE HEADWINDS

Amid the volatile labour environment, the platinum sector already faces many obstacles.

The 3 biggest platinum producers - Anglo American Platinum , Implats and Lonmin - employ about 135,000 people among them in South Africa, which is grappling with an official jobless rate of close to 25 percent and glaring income disparities.

The mining sector has for years been dishing out above-inflation pay agreements but this has failed to quell wage demands because the lower-paid workers come off such a low base and often have many dependents.

Citigroup has estimated South Africa's platinum group metal reserves are worth over $2 trillion and the sector was supposed to replace gold as the jewel in the country's mining crown.

But high costs and low prices are squeezing it. Power and labour costs have been soaring and are far higher than they were a decade ago when the gold sector was slashing jobs on its path back to healthy profits.

Platinum's price spiked over 5 percent this week because of the unrest at Lonmin which accounts for 12 percent of global supply, but it has generally been wallowing near $1,400 or less an ounce, a level that makes many shafts unprofitable.

Platinum is heavily exposed to the diesel-focused sluggish European car market, whose vehicles use a higher loading of platinum than the petrol engines favoured elsewhere.

"We are forecasting a 122,000 ounce surplus this year," said Citigroup analyst David Wilson. "Lonmin do 60,000 ounces a month so if they were out for two months, that would bring the market back to a balance."

That might push the price up but would not help Lonmin.

AMCU members retrenched by Aquarius reject the link between global prices and their circumstances.

"There is no reason to close the mine, they are lying about the price of platinum. They did not retrench people in other mines. I think that it is part of capitalism," said Moses Malapane, 29, a fitting assistant.

Source:  Reuters

Friday, August 17, 2012

Potential impact of SA mine violence on platinum - and perhaps on gold too

The massacre at Lonmin's Marikana platinum mine has huge implications for the country's struggling platinum mining sector. Could it spread to the gold mines too?

Nearly 50 years ago when I worked there on the mines, Rustenburg in South Africa used to be a relatively sleepy small town some 160 km from Johannesburg where big city dwellers would repair for a quiet weekend at tourist resort Retief's Kloof and farmers grew oranges, despite it being the site of Rustenburg Platinum Mines (then run by JCI) then and now still the world's largest platinum mine. Nowadays, with the expansion of the platinum sector, first with Impala and then with Lonrho (now Lonmin), Aquarius and others, the sleepy town has changed out of all recognition as the platinum mining industry expanded, and expanded. Anglo American, which was a major shareholder in JCI, effectively decimated the latter company and absorbed Rustenburg Platinum into Anglo American Platinum (Amplats) and the town became even more the centre of the world for platinum mining and for exploration on the Bushveld Complex Western limb, which accounts for most of South Africa's platinum output.

Nowadays the orange groves have virtually all disappeared and it is doubtful if many tourists from Jo'burg would consider the relatively short drive to the Rustenburg town for a weekend's relaxation - at least not in the town itself - although the surrounding area - particularly the Magaliesburg and the Bushveld - remains a most attractive destination. But from now Rustenburg may also go down in history as the general location for the Marikana platinum mine (some 20 km away) massacre where an edgy police contingent opened fire on threatening, and armed, striking miners. Looking at this from 9,000 km away it seems that the miners themselves have been caught in a turf war between rival Unions with the new kid on the block agitating for enormous wage increases which the currently struggling platinum mines could not even contemplate.

At the heart of the problem appears to have been the Association of Mineworkers and Construction Union (AMCU) which has been targeting the platinum mines to extend its membership at the expense of the established mining unions, the NUM and Solidarity which are nowadays seen by some as part of the mining establishment. As part of the turf war, the AMCU appears to have targeted the mine rock drill operators (RDOs) - a key part of the workforce, which reckons to have a specific grievance, and who are reported to be demanding a more than doubling of their wages. The RDOs could be considered the elite of the mining workforce as without them there can be no production. The platinum mines, particularly those operating on the very narrow Merensky reef, are notoriously difficult to mechanise and thus employ large numbers of RDOs. There can be tribal influences at play here also, with the RDOs often drawn from specific tribal groups which can be played upon in the mine environment.

And the platinum mining sector really is struggling nowadays. As the mines have gone deeper and got hotter and hotter (there is an extremely high temperature gradient in the geologically young Bushveld Volcanic Complex rocks) and costs have risen dramatically, most of the operations are increasingly becoming marginal at current platinum prices. The accident rates have risen and there has been seemingly an ever-rising degree of unrest amongst the workforces at some of the operations stimulated by the inter-union rivalries.

What now has to be particularly worrying for platinum miners and investors is whether these union turf wars, and the associated internecine violence which had already led to a number of worker injuries and deaths in the union vs union disputes - and now the Marikana massacre where the latest death count is reported to have reached 40 - is likely to spread to the other mines in the area. Indeed it has already done so with the initial troubles having surfaced at Impala's operations. These may have died down but could easily flare up again. South African mine workforces can be very volatile and there is a growing suspicion here that there is also an underlying political agenda behind some of the union activities stirred up by dissident factions in the dominant ruling African National Congress political party.

So what does this all mean for the platinum miners and platinum prices? South Africa produces some 70% of the global platinum supply. Prices are weak because platinum is in surplus, but any major disruption spreading to the big Amplats and Impala mines around Rustenburg, and beyond, could very rapidly turn a surplus into a deficit - and also lead to major shutdowns in some of the more marginal operations - at least until prices pick up to the extent that they become worthwhile to reopen again. Lonmin's Marikana mine has already effectively been shut down by the violence. Prices are already beginning to rise with platinum up over 1.5% in early trading in Europe today before settling back a little and up 5% over the past three days. Should the threat of escalation develop then consumers will start to move into the market to secure supplies and the gap between the platinum and gold price could well narrow again.

But, the issues which have led to the platinum mining violence are potentially mirrored in South Africa's gold mines - an even bigger sector (just) - and the government will be hugely worried about the potential spread of mine unrest given the potentially huge impact on the South African economy of a mining meltdown. South Africa may no longer be the world's largest gold producer - a position it held for nigh on a century, but it still remains one of the world's biggest and disruption here could have a very negative impact on global mine supply - and again lead to the permanent closure of some of the more marginal operations, which are struggling to stay afloat even at current gold prices.

SOURCE:  REUTERS

Platinum prices finally rise but at what cost?

The South African sector has some very tough questions to ask itself as what exactly its platinum sector is going to look like.

It was going to take something truly awful to tear platinum traders' eyes away from the ever-changing patterns of the European crisis and the poor demand outlook for the metal it has engendered. But, not even the most ardent bulls, could have imagined the scenes at Lonmin's Marikana operation near Rustenburg or the ever increasing death toll.

But, while terrible, the violence has served to bring the supply issues currently facing the South African platinum sector into sharp relief. And, as a result, prices are finally moving. Platinum prices rose around $40 an ounce yesterday and have continued that move today. That is not to say that the problems facing the sector were being kept a secret. It is just that many people were too focused on the demand side of the equation to worry that much about supply.

One just has to look at the statements from Aquarius Platinum CEO, Stuart Murray, and Platfields CEO, Bongani Mbindwane to get a sense of how dire things are.

So much so that Aquarius Platinum has halted production at its Everest and Marikana operations; Anglo American Platinum CEO Neville Nicolau resigned "to pursue other interests" one day after the group said first-half profit fell 78%, while Lonmin, before the violence caused it to halt all of its platinum belt operations, announced that it had cut spending for the rest of the year by $20 million to $430 million. And, more importantly it had slashed capex plans for its 2013 and 2014 financial years to $250 million - just enough, effectively, to sustain current operations.

Indeed, Christy Filen, in these pages last month (see South Africa's platinum pain deepens) wrote that "of the country's 26 mines, eleven were found to be operating at a loss with a further four marginal at best.

In other words, this time courtesy of Standard Bank, from its Commodities Daily note out yesterday, "With a PGM basket price of ZAR8,990/PGM oz, we estimate that 14.6% of platinum production (690K oz) is at risk (based purely on negative margins), as well as 13.15% palladium production (353K oz) and 12.9% rhodium production (12.85% oz)."

The bank is quick to add that, given the structure of the South African sector, not all of these ounces will be lost. But, it says, "it is indicative of the price pressures platinum producers are experiencing."

How did it get so bad?

Over the past four years, or to put it another way, since the start of the global financial crisis, platinum prices have struggled to recover from a massive sell off that happened between March and November of 2008.

As can be seen from the graph above, platinum prices peaked around $2,133 in March of 2008 then fell as low as $840 an ounce before starting the long march back up. Much of the reason for this is that a large portion of platinum demand comes from the metals use as a catalyst in car exhausts. And, since 2008 the auto market in Europe in particular has been fairly weak. It is important to note here that the European car market is dominated by diesel-fuelled cars which still, in the main, use platinum auto catalysts. This is in comparison to gasoline-fuelled cars(which dominate the markets in countries such China and the US) that mainly use palladium auto catalysts .

The weakness in demand from Europe's car industry and other sectors, such as jewellery has weighed on prices, especially because there hasn't been, until recently a concomitant pullback in production.

As a result producers have been forced to take a hit, one made worse by dramatic increases in costs both in terms of labour and raw materials.

So what happens now?

According to UBS's analyst Edel Tully writing from 'London, " While lost platinum production so far does little to put a dent to our estimated surplus of 210koz, the risk is that the situation starts to infect other major operations in South Africa, thus softening the surplus balance effect."

She adds, "However, if the unrest becomes materially worse from here, there is also the potential of positive government intervention easing fears which would in turn dampen platinum's newly-found strength. But there are doubts as to whether the government will be able to respond quickly enough, particularly given the politics surrounding the ANC leadership elections in December."

Standard Bank, while still negative on the demand side of the equation, said in a note out yesterday, that because of where current prices still sit, it sees "little value in being short platinum" now.

"We maintain that SA platinum production will be 567K oz less in 2012 than in 2011 (we expect SA to produce 4,288K oz in 2012), resulting in an actual deficit market this year. However, we expect the market to have returned to a surplus in 2013," it says.

And it adds, "With lower production volumes because of strikes, the cost of producing an ounce of platinum is also rising, putting further pressures on producers."

All in all, while prices may have spiked briefly and could continue to rise if the unrest at Lonmin continues, it is unlikely to be as a net benefit for the country.

Longer term, the South African sector has some very tough questions to ask itself as what exactly its platinum sector is going to look like.

, the root causes of the dire straits in which the sector finds itself remain and, things are likely to get much tougher before they start to improve.

Sunday, August 5, 2012

Zimplats revenue slumps by 11%

Zimplats reported an 11% drop in the June quarter revenues from US$128,21 million to US$114,43 million in March. Performance was also 22% lower than the corresponding June quarter last year.

In a statement accompanying the company’s financial results, the group said its financial performance did not mirror a 13% increase in volume of metals sold due to depressed metal prices, with gross revenue per ounce of the group’s metals 21% lower than the previous quarter.

Mining production was 4% above the previous quarter. Head grade was, however, 2% lower than the prior quarter owing to poor ground conditions encountered in some sections of the mines, the company said.

Tonnage milled was 8% higher than the previous quarter due to improved plant availabilities in contrast to the previous quarter when plant running time was affected by major plant maintenance shutdowns.

Platinum Group Metals in matte production was 11% above the previous quarter in line with the higher milled tonnage, while the smelting of concentrates stockpiled in the previous quarter when the smelter was down for scheduled periodic maintenance.

Operating profit was down 52% in the period to US$24,884 million from the March’s US$51,855 million. The amount is also a 62% fall from the comparable June quarter in 2011.

Operating costs were 17% above the previous quarter in line with the higher sales volume.

In addition, the first tranche of US$3,3 million was paid to the Community Share Ownership Trust in terms of an undertaking to make US$10 million available to the trust over a three year period.

The group said royalties continued to be accounted for at higher rates set in terms of the Finance Act whilst the company awaits resolution of the dispute currently before the courts.

The company’s local spend (excluding payments to government and related institutions) was at US$65 million or 54% of total payments.

Zimplats’ US$23 million contribution to the fiscus, in direct and employee taxes, for the quarter was 25% lower than the previous one mainly due to lower royalties following the full payment of the disputed royalties in May 2012 as well as the weakening of metal prices.

Monday, July 30, 2012

Anglo cuts $1.5bn group capex, promises $200m platinum cut by year-end

Anglo American would deliver a cut of nearly $200-million out of the capital expenditure (capex) programme of Anglo American Platinum (Amplats) by year-end and lop $1.5-billion off 2012 group capex, Anglo CEO Cynthia Carroll said on Friday.

The downward revision of the previously guided capex would be from $7-billion to $5.5-billion and on platinum, Carroll said: “We’ll go beyond our capital reduction target for platinum and deliver a cut of almost $200-million by the end of the year.”

In addition to the $1.5-billion group cut for 2012, $200-million less would also be spent on exploration and early study development this year.

“For 2013, we’ve set a capex funding target of $6-billion and the 2013 funding target for exploration and early studies will be $600-million, down a further $300-million on 2012,” Carroll added.

There was “no silver bullet” as far as platinum was concerned and the group’s platinum review process would not be rushed.

Platinum’s current 11% profit margin, though in line with the current industry norm, was unacceptable for the medium to long term, and Amplats was working through the review to assess the optimal configuration of the portfolio.

This would take time and it would not be easy. In the light of the current volatile environment, discipline was paramount.

At a group level, Anglo would also be disciplined and strike the right balance in allocating capital.

The group would sequence investment in line with its funding capacity and focus on the most value-accretive options.

“We’re responding to tough times, but let there be no doubt in anyone’s mind that we’re well positioned to get through them in strong shape,” Carroll said, after announcing a 38% lower $3.7-billion group operating profit for the six months to June 30.

Macquarie First South Securities mining head Kieran Daly asked when and how Anglo would inform the market of the results of the platinum review - would it be at year-end, or during next year’s results presentation or at the end of the year.

A persistent Daly also wanted to know whether the company had taken decisions on any of the joint venture (JV) assets in view of platinum junior Atlatsa, formerly Anooraq, saying it was comfortable with its Bokoni mine in the Amplats stable, and whether government and labour were included in the review process, to give the review's decisions a realistic chance of implementation.

Carroll’s response was that Amplats platinum portfolio, with 12 operating mines, seven JVs, 58 000 employees and 580 000 dependents, was complex and massive and would not be done independently.

“We will look at the entire value chain, from resources to mining to processes sales and marketing and people, and no option is off the table, and we will retain platinum as a part of Anglo American as a starting point," Carroll reiterated.

New CEO Chris Griffith would implement the review decisions from September 1 and 60 000 oz of high-cost platinum had already been taken out of the system and the study into high-cost ounces was ongoing.

The key objective was to thoroughly access the options available to establish a long-term portfolio with sustainable competitive advantages that would maximise value.

There was no doubt that the global economic environment had deteriorated, driven by the commodity prices in the Eurozone and there was continuing uncertainty over the sustainability of the US economic recovery.

China’s slowdown in growth rate was also contributing to the contributing to the gradual short-term outlook.

But in the longer term, Anglo continued to see resilient commodity demand, driven by rising living standards in emerging countries like China and India and infrastructure replacement in developed countries.

If current trends were sustained, by 2025 cities around the world would build the equivalent of the landmass of Austria in residential and commercial floorspace and this would require cumulative investment totalling some $80-trillion.

As development in emerging countries shifted over time from investment to consumption, growth rates in steel demand should moderate and the expanding middle classes in many emerging countries should boost consumption of platinum and diamonds as that transition occurs.

One billion people were forecast to enter the consuming classes by 2025 and Anglo’s diversified and balanced portfolio positioned the company well to take advantage of the structural changes in the global economy.

What was happening on supply was just as important. Supply constraints as well as difficulties producers faced to deliver that supply would underpin prices.

Projects were facing significant delays as a result of increasingly complex planning and permitting regimes.

Developing and developed countries alike were seeking a larger slice of the mining cake, whether it was through JVs with mining companies, windfall taxes, increased royalties and in some cases mining-asset expropriation.

Remaining resources were located in places difficult to access and which had under-developed or non-existent infrastructure.

At the same time, mining itself was becoming more difficult, more challenging with existing operations facing grade declines and higher waste stripping.

In an industry that thought in decades rather than years, capital allocation and balance sheet management required discipline and sound judgement.

Anglo had invested in the right commodities and the right high-quality and low-cost assets at the right time and the company still had “the best pipeline of growth options in the industry”.

Anglo increased its dividend by 14% despite 46% lower earnings at $1.7-billion and the company was determined to maintain and build on that new base through the cycle.

The company recognised that future cash flows would be impacted by both economic uncertainty and higher operating and capital costs and to maintain its investment rating and dividend to shareholders, it would sequence investments to take advantage of all stages of development in emerging countries.

Source: Creamer Media Reporter

Friday, July 13, 2012

Gold miners should up dividends - pockets of value in platinum

*George Topping and **Michael Scoon discuss gold company dividends, how supply shortages are shaping the landscape for platinum group metals and their views on iron ore and zinc. Gold Report interview.

The Gold Report: George and Michael, we're here today to discuss platinum group metals (PGMs), as well as some bulk commodities. It's no surprise that each of the 15 commodities you follow has suffered double-digit price declines over the last year, except for potash, which was up about 9%, and gold, which was up a mere 3%. The hardest hit was nickel, down more than 27%. With commodity price performances like that, why should investors stay in the mine commodity sector?

George Topping: Investors are focused on the immediate economic conditions rather than seeing commodities as a store of value during times of currency debasement. Make no mistake about it; the only way out of the current predicament is the printing of money and the debasement of currencies. This short-term focus on European worries and investors reducing risk is putting pressure on most metal prices, but it won't last. As weak as the global economy is, it is interesting that commodities are still historically strong.

TGR: Is what's happening in the market a bit of an overreaction?

GT: Yes, it is. The market is too focused on the short term instead of the consequences of the solution to the economic woes.

TGR: George, you're on the record as saying that large gold companies need to materially boost their dividends in order to compete with gold exchange traded funds (ETFs), which are funneling away billions of investment dollars. How high do dividends need to be to staunch the bleeding?

GT: I'd aim for a 5% dividend yield to attract fund flows back into the sector.

TGR: Big mining companies have dividends that are much higher than the gold companies. Why haven't gold companies taken that approach?

GT: The gold companies have been trying to grow gold production at any price. We call it "GAAP," growth at any price. Circumstances have changed. Growth is now unaffordable due to inflation. Capital costs have doubled in the last four years. It's time for the gold mining companies to wake up, stop building these new $6 billion mining projects and pay more dividends to shareholders.

TGR: PGM-focused companies are also losing dollars to ETFs. Should they raise dividends, too?

GT: Unfortunately, it's a different situation for PGMs. PGM prices are not high enough for most of these companies to generate sufficient cash flow to pay a healthy dividend.

TGR: How do these companies lure investment dollars?

GT: They should take some free cash flow and invest it in operational improvements. Don't build new mines. Improve existing mines through capital injection, by updating equipment and providing incentives to the workforce. They need to bring about profits per ton rather than focusing on headline production.

TGR: The prices for platinum and palladium are both down more than 20% since June 2011. Is there any relief in sight?

GT: Yes, we're finally starting to see closures. The mining industry in South Africa, which produces 70% of the world's platinum and 35% of the world's palladium, has been disseminated. It won't be long before prices start to move higher.

TGR: The region has also had issues with electrical blackouts and whispers of nationalization. How are those issues affecting supply?

GT: I was in South Africa recently and I'm not impressed with the way the country is going. Corruption is rife. I must have taken about 15 taxi rides and all 15 taxi drivers told me corruption was endemic such that you couldn't move without paying a policeman or civil servant-jobs that they are meant to provide you for free. Safety inspections are another issue. The competence of inspectors is a problem. It affects the industry very negatively.

If I were a mine manager or a chief executive of a platinum company, I'd aim for the highest grade I can find now because I don't know what's going to happen next. I don't want to leave money in the ground for five years. I'd also be less likely to invest in the next generations of shafts. I wouldn't spend a couple of billion dollars when I wouldn't see the first cash flow for the next six years. I'd be looking outside of the country for growth. It's negative in the short term, but it's going to get even more negative as the consequences of that lack of investment become clear.

TGR: Are those problems creating a lot of value in the space or is it just too risky for investors?

GT: There are pockets of value. Companies that have shallow ore, are closer to cash flows and have large resources are the ones that are likely to get taken out. Rather than spending a couple of billion dollars on deep shafts, it's easier to buy any available assets with shallow ore next to an existing operation.

TGR: Are you more bullish on platinum or palladium?

GT: Platinum, mostly because production is challenged in South Africa. Platinum also has a major jewelry role, particularly in China. There's a tremendous amount of growth to come. Palladium will do well, but platinum is safer in the long term.

TGR: The biggest single use for both of these metals is in catalytic converters in automobiles. How far off is global economic growth for that application?

GT: The weightings of platinum, palladium and rhodium in catalytic converters are generally increasing. As countries become more developed, they become more environmentally conscious. There should be a tightening on auto catalytic converters in developing nations just as we have had here. There should be increased usage based on that. In fact, last year North American and European governments mandated that large and off-road trucks have to have catalytic converters.

TGR: Let's move to iron. Overall iron ore prices were down 8% in the second quarter, mostly on weak demand from Chinese steelmakers. Do you expect that price weakness to continue in the near term?

Michael Scoon: Yes. The summer is a seasonally weaker period for all industrial commodities. Low-volume trading activity in the spot market can result in price volatility on any given day, but year-to-date the price has averaged about $145/tonne. And, as you said, prices are down about 8% over the quarter. However, I saw a report this morning that the spread between bid and ask-on-the-spot exchange has narrowed substantially.

TGR: The iron ore market used to be governed by yearlong contracts, but Chinese steelmakers would default on those in order to take advantage of lower near-term prices. Do you think we'll get back to the point where the prices are set for a year or will the spot market continue to dominate as it is now?

MS: The spot market is here to stay for the foreseeable future. It was quite an undertaking to change the term of the contracts. Today, there's a substantial amount of iron ore transacted on either monthly or quarterly pricing. Shorter-term contracts are going to be the way of the future.

TGR: What's Stifel Nicolaus's forecast for iron ore prices through 2013?

MS: I forecast prices softening in the summer months in line with the 8% decline over the 2Q12. I see prices remaining soft in the third quarter, but recovering in the fourth quarter to average around $140/mt in 2012. Prices could fall in 2013 to $131/mt, but settle around $125-130/mt in the long term, based on the marginal cost of production.

Over the course of the next five years, new supply from the three major producers may push the high-cost producers off the cost curve into uneconomic territory. However, the Big Three will be incentivized to keep that marginal cost of production high as they sell more iron ore into shorter-term contracts.

TGR: The Big Three carry a reasonably high dividend-at least relative to the mining space. In 2009 and 2010, and even into 2011, steelmakers were going downstream and buying iron ore companies to control the cost of their raw materials. Does that trend have any momentum left?

MS: That trend does have some momentum left in it. The number of transactions has slowed as steelmakers aren't as active as they were. However, large new sources of iron ore supply are coming from risky jurisdictions, such as West Africa. Steel producers will continue to look for joint ventures or to own projects in safe jurisdictions to help control their supply. Steel producers want to avoid being caught in a supply squeeze. It's to their benefit to secure 30-50% of their iron ore requirement through joint venture partners and offtake agreements in order to derisk their businesses.

TGR: George, in June 2011 you told Reuters that you believed zinc would be a 2013 story. After reaching roughly $2,200/mt in January 2012, zinc prices have trended steadily lower to around $1,760/mt, or about $0.79/pound (lb). Meanwhile, the London Metals Exchange has almost 1Mmt of zinc in stockpiles that are at a historical high. What underpins your thesis that zinc prices will have climbed dramatically higher by this time next year?

GT: Two things: Nothing cures low prices like low prices. Second, the market is forward looking. In 2013, it will be looking at 2014 and reacting accordingly.

TGR: What's your price forecast for zinc into 2014?

GT: I forecast average prices of $0.90 this year going to $1.08 in 2013 and $1.15 in 2014.

TGR: What is its cost per pound?

GT: About $0.60.

TGR: How does that rank relative to the rest of the industry?

GT: It's in the lower half.

TGR: Do you have any parting thoughts for us today on the natural resources space and the mined commodity space that may allay some investor concerns?

GT: There's been a tremendous selloff in the equities, so much so that most of the commodity stocks are very cheap relative to metal prices. The past is the past. Investors should look forward to stimulus packages in China and Europe. There is a lot more debasement of currencies to come. The commodities will still have a role to play in protecting wealth. We'll continue to see a lot more M&A activity given that share prices have fallen. In the current environment, it's difficult to raise debt and equity financing, so juniors will be driven into the arms of seniors.

TGR: Thanks, gentlemen.

*George Topping joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Topping joined Thomas Weisel Partners in December 2009 as a senior mining analyst covering base metals. Topping brings 10 years of experience in the mining industry and 14 years as a sell-side analyst. Topping began his mining career in 1985 with a senior South African mining company and worked both in operations and mining strategy roles for the gold and coal sectors. In 1995, Topping became a sell-side analyst covering platinum, coal and base metals with Irish & Menell Rosenberg, a South Africa-based financial services firm. Topping moved to Canada in 1997, where he has continued as an analyst covering base metals, including a six-year tenure at Sprott Securities from 1999-2005, and most recently at Blackmont Capital since 2007. Topping earned his undergraduate degree in mining engineering from the University of Strathclyde in Glasgow, Scotland.

**Michael Scoon joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Scoon is a research analyst covering basic materials, exploration, development and production companies in the mining sector. He joined the firm in January 2008 and is based in Toronto. Scoon received a Bachelor of Science in accounting and international business from Miami University in Oxford, Ohio, and is a Level III candidate in the Chartered Financial Analyst program.

Article published courtesy of The Gold Report - www.theaureport.com

Thursday, July 12, 2012

Gold miners should up dividends - pockets of value in platinum

*George Topping and **Michael Scoon discuss gold company dividends, how supply shortages are shaping the landscape for platinum group metals and their views on iron ore and zinc. Gold Report interview.

The Gold Report: George and Michael, we're here today to discuss platinum group metals (PGMs), as well as some bulk commodities. It's no surprise that each of the 15 commodities you follow has suffered double-digit price declines over the last year, except for potash, which was up about 9%, and gold, which was up a mere 3%. The hardest hit was nickel, down more than 27%. With commodity price performances like that, why should investors stay in the mine commodity sector?

George Topping: Investors are focused on the immediate economic conditions rather than seeing commodities as a store of value during times of currency debasement. Make no mistake about it; the only way out of the current predicament is the printing of money and the debasement of currencies. This short-term focus on European worries and investors reducing risk is putting pressure on most metal prices, but it won't last. As weak as the global economy is, it is interesting that commodities are still historically strong.

TGR: Is what's happening in the market a bit of an overreaction?

GT: Yes, it is. The market is too focused on the short term instead of the consequences of the solution to the economic woes.

TGR: George, you're on the record as saying that large gold companies need to materially boost their dividends in order to compete with gold exchange traded funds (ETFs), which are funneling away billions of investment dollars. How high do dividends need to be to staunch the bleeding?

GT: I'd aim for a 5% dividend yield to attract fund flows back into the sector.

TGR: Big mining companies have dividends that are much higher than the gold companies. Why haven't gold companies taken that approach?

GT: The gold companies have been trying to grow gold production at any price. We call it "GAAP," growth at any price. Circumstances have changed. Growth is now unaffordable due to inflation. Capital costs have doubled in the last four years. It's time for the gold mining companies to wake up, stop building these new $6 billion mining projects and pay more dividends to shareholders.

TGR: PGM-focused companies are also losing dollars to ETFs. Should they raise dividends, too?

GT: Unfortunately, it's a different situation for PGMs. PGM prices are not high enough for most of these companies to generate sufficient cash flow to pay a healthy dividend.

TGR: How do these companies lure investment dollars?

GT: They should take some free cash flow and invest it in operational improvements. Don't build new mines. Improve existing mines through capital injection, by updating equipment and providing incentives to the workforce. They need to bring about profits per ton rather than focusing on headline production.

TGR: The prices for platinum and palladium are both down more than 20% since June 2011. Is there any relief in sight?

GT: Yes, we're finally starting to see closures. The mining industry in South Africa, which produces 70% of the world's platinum and 35% of the world's palladium, has been disseminated. It won't be long before prices start to move higher.

TGR: The region has also had issues with electrical blackouts and whispers of nationalization. How are those issues affecting supply?

GT: I was in South Africa recently and I'm not impressed with the way the country is going. Corruption is rife. I must have taken about 15 taxi rides and all 15 taxi drivers told me corruption was endemic such that you couldn't move without paying a policeman or civil servant-jobs that they are meant to provide you for free. Safety inspections are another issue. The competence of inspectors is a problem. It affects the industry very negatively.

If I were a mine manager or a chief executive of a platinum company, I'd aim for the highest grade I can find now because I don't know what's going to happen next. I don't want to leave money in the ground for five years. I'd also be less likely to invest in the next generations of shafts. I wouldn't spend a couple of billion dollars when I wouldn't see the first cash flow for the next six years. I'd be looking outside of the country for growth. It's negative in the short term, but it's going to get even more negative as the consequences of that lack of investment become clear.

TGR: Are those problems creating a lot of value in the space or is it just too risky for investors?

GT: There are pockets of value. Companies that have shallow ore, are closer to cash flows and have large resources are the ones that are likely to get taken out. Rather than spending a couple of billion dollars on deep shafts, it's easier to buy any available assets with shallow ore next to an existing operation.

TGR: Are you more bullish on platinum or palladium?

GT: Platinum, mostly because production is challenged in South Africa. Platinum also has a major jewelry role, particularly in China. There's a tremendous amount of growth to come. Palladium will do well, but platinum is safer in the long term.

TGR: The biggest single use for both of these metals is in catalytic converters in automobiles. How far off is global economic growth for that application?

GT: The weightings of platinum, palladium and rhodium in catalytic converters are generally increasing. As countries become more developed, they become more environmentally conscious. There should be a tightening on auto catalytic converters in developing nations just as we have had here. There should be increased usage based on that. In fact, last year North American and European governments mandated that large and off-road trucks have to have catalytic converters.

TGR: Let's move to iron. Overall iron ore prices were down 8% in the second quarter, mostly on weak demand from Chinese steelmakers. Do you expect that price weakness to continue in the near term?

Michael Scoon: Yes. The summer is a seasonally weaker period for all industrial commodities. Low-volume trading activity in the spot market can result in price volatility on any given day, but year-to-date the price has averaged about $145/tonne. And, as you said, prices are down about 8% over the quarter. However, I saw a report this morning that the spread between bid and ask-on-the-spot exchange has narrowed substantially.

TGR: The iron ore market used to be governed by yearlong contracts, but Chinese steelmakers would default on those in order to take advantage of lower near-term prices. Do you think we'll get back to the point where the prices are set for a year or will the spot market continue to dominate as it is now?

MS: The spot market is here to stay for the foreseeable future. It was quite an undertaking to change the term of the contracts. Today, there's a substantial amount of iron ore transacted on either monthly or quarterly pricing. Shorter-term contracts are going to be the way of the future.

TGR: What's Stifel Nicolaus's forecast for iron ore prices through 2013?

MS: I forecast prices softening in the summer months in line with the 8% decline over the 2Q12. I see prices remaining soft in the third quarter, but recovering in the fourth quarter to average around $140/mt in 2012. Prices could fall in 2013 to $131/mt, but settle around $125-130/mt in the long term, based on the marginal cost of production.

Over the course of the next five years, new supply from the three major producers may push the high-cost producers off the cost curve into uneconomic territory. However, the Big Three will be incentivized to keep that marginal cost of production high as they sell more iron ore into shorter-term contracts.

TGR: The Big Three carry a reasonably high dividend-at least relative to the mining space. In 2009 and 2010, and even into 2011, steelmakers were going downstream and buying iron ore companies to control the cost of their raw materials. Does that trend have any momentum left?

MS: That trend does have some momentum left in it. The number of transactions has slowed as steelmakers aren't as active as they were. However, large new sources of iron ore supply are coming from risky jurisdictions, such as West Africa. Steel producers will continue to look for joint ventures or to own projects in safe jurisdictions to help control their supply. Steel producers want to avoid being caught in a supply squeeze. It's to their benefit to secure 30-50% of their iron ore requirement through joint venture partners and offtake agreements in order to derisk their businesses.

TGR: George, in June 2011 you told Reuters that you believed zinc would be a 2013 story. After reaching roughly $2,200/mt in January 2012, zinc prices have trended steadily lower to around $1,760/mt, or about $0.79/pound (lb). Meanwhile, the London Metals Exchange has almost 1Mmt of zinc in stockpiles that are at a historical high. What underpins your thesis that zinc prices will have climbed dramatically higher by this time next year?

GT: Two things: Nothing cures low prices like low prices. Second, the market is forward looking. In 2013, it will be looking at 2014 and reacting accordingly.

TGR: What's your price forecast for zinc into 2014?

GT: I forecast average prices of $0.90 this year going to $1.08 in 2013 and $1.15 in 2014.

TGR: What is its cost per pound?

GT: About $0.60.

TGR: How does that rank relative to the rest of the industry?

GT: It's in the lower half.

TGR: Do you have any parting thoughts for us today on the natural resources space and the mined commodity space that may allay some investor concerns?

GT: There's been a tremendous selloff in the equities, so much so that most of the commodity stocks are very cheap relative to metal prices. The past is the past. Investors should look forward to stimulus packages in China and Europe. There is a lot more debasement of currencies to come. The commodities will still have a role to play in protecting wealth. We'll continue to see a lot more M&A activity given that share prices have fallen. In the current environment, it's difficult to raise debt and equity financing, so juniors will be driven into the arms of seniors.

TGR: Thanks, gentlemen.

*George Topping joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Topping joined Thomas Weisel Partners in December 2009 as a senior mining analyst covering base metals. Topping brings 10 years of experience in the mining industry and 14 years as a sell-side analyst. Topping began his mining career in 1985 with a senior South African mining company and worked both in operations and mining strategy roles for the gold and coal sectors. In 1995, Topping became a sell-side analyst covering platinum, coal and base metals with Irish & Menell Rosenberg, a South Africa-based financial services firm. Topping moved to Canada in 1997, where he has continued as an analyst covering base metals, including a six-year tenure at Sprott Securities from 1999-2005, and most recently at Blackmont Capital since 2007. Topping earned his undergraduate degree in mining engineering from the University of Strathclyde in Glasgow, Scotland.

**Michael Scoon joined the Stifel Nicolaus Research Team in connection with Stifel's acquisition of Thomas Weisel Partners LLC in July 2010. Scoon is a research analyst covering basic materials, exploration, development and production companies in the mining sector. He joined the firm in January 2008 and is based in Toronto. Scoon received a Bachelor of Science in accounting and international business from Miami University in Oxford, Ohio, and is a Level III candidate in the Chartered Financial Analyst program.

Article published courtesy of The Gold Report - www.theaureport.com