Update on Week 13 of Platinum Strike.

Today, Tusday April 22, the Platinum mining companies are meeting with the AMCU at an undisclosed location to renew talks that broke down about a week ago.

There is a new offer which was released to the media by the mining companies, which is that the 12,500 rand wage will be met over the next three years. While the workers have been requesting this wage, they are not happy about how it is being given. Instead of a increase to the basic wage before living and other allowances, the Platinum mining companies are only giving around a 10% wage increase and then adding on other allowances and programs to bring it up to the 12500 rand. This is a valid concern by the mine workers because any future wage increase will be based off their base wage, and not the other allowances.

This strike has now been in effect for a full 13 weeks and is not yet over despite this new deal that was released. While the wage number amount was met, the time frame and details are very important. Siphamandla Makhanya a AMCU speaker said that this latest offer was not the final offer, and would not immediately go to a member vote.

There has been little to no political intervention in the matter of the strike, and for good reason. The general election is being held may 7th, and the current President Jacob Zuma does not want to be on the bad side of either the platinum mine owners or the workers. Without pressure from the government to end this strike it will be up to the AMCU and the mine owners to reach their own compromise.

Workers have lost to date a total of 6.3 billion rand, while the mining companies have lost a total of 14.2 billion rand. This strike has most likely expedited a restructuring of the sector as a whole. Talks of closing some mines permanently, large scale layoffs, and liquidizing some companies due to severe deficits are happening.

It is already known that there will be a very large deficit of production vs demand this year. If these strikes continue any longer the bets that the above ground stockpiles will be able to supply this demand may end up backfiring.

Supply and Demand, a thing of the past?

Following Tuesday’s precious metal market drops I was interested in what was driving the prices down. Long gone are the days of seasonal demand, the end of the calendar year rise, or a physical metal supply issue impacting the price immediately. The market has transitioned to a traded commodity, where the volume of trade in a day dwarfs the total precious metal supply available in the world. With the addition of ETF’s like SPDR Gold Trust (NYSE:GLD) and iShares Silver Trust (NYSE:SLV) trading an average 13 million and 44 million shares per day respectively, the speculative market for precious metals has taken control of the markets.

The London bullion market association handles over 70% of all precious metal trades made in a day, these trades are called over the counter (OTC) trades, and the “spot” prices and “London fix” are derived from this. The volume of these trades in a week are more than the total mining production for a whole year.

Due to the precious metal markets being so effected by speculator and high volume trading, as well as being used as a hedge against currency inflation by many different banks and countries, it is behaving more and more like a stock and less like the limited physical substance that it is.

Precious metals dropped anywhere between 2-3% on Tuesday, contrary to the fact that physical demand is going up, the Russian conflict, and that mining has been having strike issues. Saying that the dollar is strong feels like a joke, making the precious metal markets drop. In talking with some of our peers, the market sentiment is that the market has to turn around, there are just too many reasons for it not to. Any one or combination of reasons could cause a surge in the precious metal prices, whether it be a further prolonged platinum strike, mines declaring force majeure invalidating their contracts, a palladium supply freeze out of Russia, or a call on contracts for physical supply.

When any number of events occur that transition the markets back to the physical realm, and the reality of true supply and demand take back over, only then will the precious metal prices reflect what they really should be. That day can not come soon enough.

Platinum Mine Strike now on week #11

There are a lot of different reports and figures coming out of the mine strike in southern Africa, with varying numbers on lost wages and production coming from both the miners the producers and everyone in between. So the question is, what do we know?

Latest news and figures:

  • Anglo American Platinum CEO recently said “If we run out of metal we will go to the market to buy it … to supply our customers,”. This comes after news that Anglo american has declared force majeure to some of its suppliers in its south african mines.
  • Anglo American CEO recently said that if Amplats under-performs it may be sold, “every asset has to deliver return and if the business can’t deliver return than we’ll look at all options”
  • At the end of week ten, the employees have lost 5 billion Rand in wages, while the Mining companies have lost 11 billion Rand in revenue.
  • Amplats still has around half of thier initial platinum stockpile, 215,000 ounces.
  • Platinum production takes about 2 months to go from ore to physical metal, so that means we are closing in on the production aspect of the mining companies drying up and the outflow of the stockpiled metal to go up.
  • The sharp divide between the Miners and Mining companies demands has had little concession, while the miners want double the wages they are currently paid, and the mining companies only offering a 9% increase over three years.
  • It has been stated that for every month that the mines are closed, it will take an equal amount of time to bring them back to full production
  • Pallinghurst chairman Brian Gilbertson recently commented about the stagnating platinum price, saying that the price of platinum has hardly responded to the loss of production and that it is unlikely that the price of platinum will remain depressed for much longer