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Dave Forest

Dave Forest

Dave is Managing Geologist of the Pierce Points Daily E-Letter.

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Big Buyers Are Looking At This Troubled Metal

There seems to be a trend emerging in mining M&A--in an unexpected part of the world.

That's South Africa. Particularly, in one of that country's most troubled sectors: platinum.

In January, we saw underground platinum mining assets here bought by China National Arts & Crafts Corporation. The deal was relatively small at $37 million. But it appears this may have just been a toe in the water.

Reports last week suggest that Chinese buyers may be planning bigger platinum purchases. With Bloomberg writing that funds partnered with massive Chinese investment outfit Citic Group are eying rock-bottom valuations for mining firms in this space.

This would be a contrarian move, to be sure. General sentiment around the South African hard rock mining sector has been ebbing of late. Weighed down by labor unrest and difficulties with electric power procurement.

But potential Chinese buying here could well prove to be a timely play. In short, the world still needs platinum--and there aren't a lot of options globally for mining it.

With South Africa still producing 70% of the world's platinum supply, the nation remains the gorilla in the room for this market.  As I've discussed, platinum producers are starting to step outside of their usual haunts in looking for new exploration ideas. But it's going to be awhile until any of these conceptual plays bear fruit--if indeed they ever do.

In the meantime, there's simply no substitute for South Africa's massive platinum output. Issues or not.

Chinese buyers clearly realize this. And thus see an opportunity in a sector where valuations for miners are down 75% over the last few years.

We may see some action in this space soon.

Here's to crisis and opportunity,

Dave Forest


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