The rand is pushing platinum lower

Johannesburg – The collapse in the currency of the world’s largest platinum producer is dragging down the metal’s price with it, according to Neal Froneman, chief executive officer of Sibanye Gold, which will enter the sector for the first time this year.

South Africa’s rand has fallen 31 percent against the dollar since the start of last year, the worst performer among 16 currencies after Brazil’s real, while the platinum price plunged 32 percent over the same period and traded at $825.80 by 8:11 a.m. in Johannesburg. More than 70 percent of the world’s mined output of the metal, used in devices that clean the emissions of automotive vehicles and for jewellry, is produced in South Africa. The country is the sixth-biggest gold producer.

While the rand’s plunge is a boon for the country’s gold companies, whose income for every ounce mined has surged to a record high in local-currency terms, the benefit has been less pronounced for platinum operators including Anglo American Platinum and Impala Platinum Holdings, the two largest miners. A weaker rand will typically benefit gold producers in South Africa because they get their income in dollars while incurring costs in the local unit.

“When the rand weakens all they do is say ‘well, you need fewer dollars,”’ Froneman said, referring to platinum prices and costs. “There have been some benefits in the platinum sector as well but it doesn’t flow through as much as it does in gold.” He spoke in an interview at the company’s offices in Westonaria, about 55 kilometres (34 miles) southwest of Johannesburg.

Sibanye, the largest producer of gold in South Africa, is buying three platinum mines in Rustenburg from Amplats, as the Johannesburg-based unit of Anglo American is known, for at least R4.5 billion. It has also agreed to purchase Aquarius Platinum, which owns operations next to those of Amplats. The transactions will enable Sibanye to become the world’s third-biggest platinum miner once they are finalised.

Falling platinum prices are not a concern to Sibanye, Froneman said.

“The transaction structure at Rustenburg was actually designed around a three-year platinum bear market,” he said. “The long-term fundamentals are good. Within that window of three years, we think that’s a safe bet.”

The six-member FTSE/JSE Africa Platinum Mining Index is down 7.8 percent since the start of the year. The FTSE/JSE Africa Gold Mining gauge, with five constituents, has risen 32 percent over the same period.