Platinum gurus Johnson Matthey published their 2010 Interim Review of the platinum market yesterday. A big event in that part of the mining space.
The report was fairly rosy for platinum producers. JM sees the platinum market largely in balance next year supply/demand-wise, after running a slight 290,000 ounce surplus this year.
The six-month price outlook is for platinum to trade between $1,550/oz and $1,900/oz. Very decent prices.
That's the good news.
The bad news is that even at decent prices, platinum producers in the world's largest production region, South Africa, are having a hard time making money.
In annual financial filings released this week, platinum major Lonmin announced negative free cash flow. Despite its sale price of platinum group elements increasing 45% over the past year.
And analysts at RBC Capital Markets note that year-to-date cash costs for the world's top platinum miner, Anglo Platinum, are running around $1,680/oz. Leaving "little margin to fund capex".
As I've mentioned before, South African production costs are ballooning due to electricity costs, labor costs and new royalties. This is a bitter pill, given 80% of global platinum output comes from South Africa.
With high costs looking to be the norm across the platinum industry, there's a really opportunity to "poach the cost curve" (much the same as we've discussed for the uranium industry). A platinum project outside of South Africa that shows favorable costs will be a sought-after commodity.
Such projects aren't easy to find. But they do exist. And it's worth starting to look them up.
By. Dave Forest of Notela Resources
Dave is Managing Geologist of the Pierce Points Daily E-Letter. More