Crisis dims mines’ outlook

JOHANNESBURG – A power crisis in South Africa has clouded the outlook for miners and is likely to widen a global shortage of platinum by around 500 000 ounces this year, as well as cutting gold output by a similar margin.

Platinum , used for jewellery and auto-catalysts, has hit successive record highs as the deepening power crisis in South Africa has forced bullion producers to forecast lower output and encouraged investors to snap up the metal. Platinum hit a record high of US$2 025 on Thursday.State utility Eskom cut supply to miners by 10 per cent last month after mines fell silent for five days when the power shortage ballooned into a national emergency.Analysts say the impact on platinum of the power crisis in the country, the world’s primary source of the metal and also a major gold producer, could be dramatic.The global platinum deficit could almost double by the end of 2008, compared with a gap of about 265 000 ounces in 2007 on the back of safety-related mine closures, they say.The platinum market had a surplus of 65 000 ounces in 2006.”For platinum, where some 80 per cent comes from one country, the power problem will mean we have a sizeable deficit this year,” analyst Robin Bahr at UBS Investment Bank in London said.”Our estimate has been for a deficit of 330 000 ounces.That’s likely to widen factoring-in the new numbers that have come out this week; we could see a deficit of around 400 000 or 500 000 ounces, but we still need to fine-tune our estimates.”The deficit is likely to push prices even higher, and a price-induced rationing would kick in to choke off some demand.Jewellery demand may fall off in the short term, analysts say.”Unfortunately the issue of power has clouded the production horizon,” Implats’ Chief Executive David Brown said.Strong demand has come from platinum’s popularity among diesel car makers in Europe while jewellery demand, particularly in China, has expanded.One Johannesburg-based analyst forecast a shortfall of around 500 000 ounces, and said this could get worse if safety problems, a dearth of skills and labour issues cropped up.Hard hit by the crisis, the world’s biggest platinum producer Anglo Platinum forecast output at 2,4 million ounces in 2008 from 2,47 million ounces last year.Also reeling from the electricity woes, second-ranked rival Impala Platinum estimated output at below the 2 million ounces it produced last year, sending spot platinum to a record high of US$2 025 an ounce on Thursday.The companies are basing their projections on expectations that the electricity crisis that has restricted the mining sector to using 90 per cent of normal power could last for the rest of the year.”The situation is worse than we had expected from a production perspective and the risk of further load shedding remains real,” JP Morgan analysts Allan Cooke said in a report.Amid the failure of electricity generation to match the country’s booming economic growth, Eskom has even asked that South Africa not be touted as an investment destination until it can build new power generators, likely in about five years.Others have also sounded warnings on projects and output.Mining group Rio Tinto this week said it may not give a green light on the Coega aluminium project – promoted by the government as a major job-creation venture – until new power plants currently being planned have been built.AngloGold Ashanti has also warned it could lose up to 400 000 ounces in production, while Gold Fields says output at its South African mines will fall 20-25 per cent in the third-quarter to end-March.Nampa-ReutersPlatinum hit a record high of US$2 025 on Thursday.State utility Eskom cut supply to miners by 10 per cent last month after mines fell silent for five days when the power shortage ballooned into a national emergency.Analysts say the impact on platinum of the power crisis in the country, the world’s primary source of the metal and also a major gold producer, could be dramatic.The global platinum deficit could almost double by the end of 2008, compared with a gap of about 265 000 ounces in 2007 on the back of safety-related mine closures, they say.The platinum market had a surplus of 65 000 ounces in 2006.”For platinum, where some 80 per cent comes from one country, the power problem will mean we have a sizeable deficit this year,” analyst Robin Bahr at UBS Investment Bank in London said.”Our estimate has been for a deficit of 330 000 ounces.That’s likely to widen factoring-in the new numbers that have come out this week; we could see a deficit of around 400 000 or 500 000 ounces, but we still need to fine-tune our estimates.”The deficit is likely to push prices even higher, and a price-induced rationing would kick in to choke off some demand.Jewellery demand may fall off in the short term, analysts say.”Unfortunately the issue of power has clouded the production horizon,” Implats’ Chief Executive David Brown said.Strong demand has come from platinum’s popularity among diesel car makers in Europe while jewellery demand, particularly in China, has expanded.One Johannesburg-based analyst forecast a shortfall of around 500 000 ounces, and said this could get worse if safety problems, a dearth of skills and labour issues cropped up.Hard hit by the crisis, the world’s biggest platinum producer Anglo Platinum forecast output at 2,4 million ounces in 2008 from 2,47 million ounces last year.Also reeling from the electricity woes, second-ranked rival Impala Platinum estimated output at below the 2 million ounces it produced last year, sending spot platinum to a record high of US$2 025 an ounce on Thursday.The companies are basing their projections on expectations that the electricity crisis that has restricted the mining sector to using 90 per cent of normal power could last for the rest of the year.”The situation is worse than we had expected from a production perspective and the risk of further load shedding remains real,” JP Morgan analysts Allan Cooke said in a report.Amid the failure of electricity generation to match the country’s booming economic growth, Eskom has even asked that South Africa not be touted as an investment destination until it can build new power generators, likely in about five years.Others have also sounded warnings on projects and output.Mining group Rio Tinto this week said it may not give a green light on the Coega aluminium project – promoted by the government as a major job-creation venture – until new power plants currently being planned have been built.AngloGold Ashanti has also warned it could lose up to 400 000 ounces in production, while Gold Fields says output at its South African mines will fall 20-25 per cent in the third-quarter to end-March.Nampa-Reuters

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