Platinum: tarnished

Finally digging themselves out? Or only digging themselves in deeper? Platinum prices are down a fifth in the past year. Demand from automakers, jewellers and investors is subdued and uncertain. South African miners such as Impala, Lonmin and the Amplats subsidiary of Anglo American have already made painful adjustments but will have to keep shovelling.

Amplats, the biggest producer, has almost completed a radical overhaul started two years ago. Its new focus on less labour-intensive production at its open-pit Mogalakwena mine will make it the lowest cost producer. Impala and Lonmin, meanwhile, took longer to restructure. This was an error. Unlike Amplats, neither generates enough cash to cover capex, so debt is rising. At Lonmin, a build-up of inventory in the first quarter while it serviced a smelter lifted net debt by $170m to $282m, half its available credit lines. If that inventory is not processed and sold, the company may need yet another rights issue - if it can find any takers.

South African mines will meet more than half of this year's estimated global demand of 8.1m ounces, on CIBC and Johnson Matthey estimates. The rest of the world will provide 1.7m ounces, and recycled scrap another 2.1m. All in, above-ground inventory may come down a bit, which ought to be bullish for prices. But volumes from recycling are increasing year by year, and Amplats could easily drive home its cost advantage by increasing output.

So the miners must hope that in coming years the global economy picks up, increasing demand - especially from the auto industry. Yet the smaller producers are left in a cruel dilemma. Because they have cut investment to stay solvent, they will be unable to respond swiftly if demand recovers. Mines deteriorate without investment. It can take five years or more for the benefits of new spending to be felt - and that is if South Africa's power cuts and rising labour costs do not render new shafts coming on stream marginal. Heavy going for a heavy metal.

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