Rand, Energy Costs To Limit Platinum Expansion-Johnson Matthey
November 17 2009 - 7:30AM
Dow Jones News
The platinum industry is constrained by a strong local currency
in South Africa and the possibility of rising energy costs there,
and these factors will limit future expansion, metal fabricator
Johnson Matthey PLC (JMAT.LN) said Tuesday.
Energy costs and rand strength won't reduce output but will
limit expansion, Johnson Matthey general manager Peter Duncan told
Dow Jones Newswires.
"The ability to grow will be a big issue going forward," he
said.
South Africa is the world's largest platinum producer and its
currency has strengthened, hitting miners' profits.
"The rand is almost as important as the metal price," Duncan
said. "Since March, miners haven't seen any of the rise in the
platinum price as a result."
In addition, South African state utility Eskom Holdings Ltd. has
applied to increase average electricity prices by 45% a year for
three years to help cover rising costs and the expansion of its
generating capacity. Utility costs account for 25% to 30% of mining
costs, while labor costs account for 50% to 60%, followed by
equipment costs and then utilities.
"I don't think an increase in Eskom prices will affect
production," Duncan said. "The impact is on new projects. Payback
is harder if costs go up so it will affect companies' ability to
expand."
And while energy isn't the biggest cost for miners, "it's not
going to get easier to mine. We've seen retrenchment of higher-cost
production already but [we] don't expect more and instead expect
better productivity," Duncan said.
Johnson Matthey said the global platinum market will likely move
into deficit in 2010 unless "something unexpected happens."
This year it estimates the platinum market was in a
140,000-ounce surplus.
Next year some already planned expansion projects will come
online, Duncan said, at Platinum Australia Ltd.'s (PLA.AU) Smokey
Hills project, Platmin Ltd'.s (PPN.T) Pilanesburg mine and Blue
Ridge Mining. Together they will add 90,000 ounces next year,
eventually rising to 160,000 to 170,000 ounces a year.
-By Devon Maylie, Dow Jones Newswires; +44 (0)20 7842 9483;
devon.maylie@dowjones.com
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