Sunday, July 13, 2014

PGM's to lead precious metals higher



It's the end of the beginning rather than the beginning of the end, because this is a systemic issue between the miners and companies. The companies are trying to recoup their costs because they are producing PGMs below the cost of production, whereas the miners are still not getting much money for doing a dangerous job. During that five-month strike the mining companies were losing 5,000–10,000 ounces (5,000–10,000 oz) per day of production. It certainly didn't help the supply side of the equation for PGMs.


My premise is that platinum and palladium—and this has been documented by Sprott Asset Management, Rick Rule and several others—are going to be in a long-term supply deficit because the primary producers in South Africa and Russia are not going to be able to ramp up production any time soon, whereas catalytic converters, exchange-traded funds and individual PGM purchases (physical metal, jewelry) continue to sharply move demand.

I believe that sums up the problem pretty well. The industry will have to downsize to enable a higher price so that the surviving mines can make a decent return. This process will not be without turmoil as the miners and the SA government will not take kindly to layoffs and shaft closings. Nevertheless economic reality cannot be suspended by government decree or by the wants of a group of workers. In the end expect PGM prices to continue to move higher.

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