"Platinum forecast $1,350/ounce long-term but could reach a $2,000 high" (Source: Mineweb)

SFA Oxford says faults are appearing on the platinum map, stressing supply from South Africa.

Author: Tessa Kruger
Posted: Monday , 04 Feb 2008

CAPE TOWN -

While platinum today reached a record high of $1,789/ounce intraday, a mining analyst at the Cape Town Mining Indaba has forecast the long-term platinum price at $1,350/ounce.

Stephen Forrest, founder and director of SFA Oxford, said the forecast was based on the back of continued supply problems in South Africa and extended world emissions legislation.

Platinum reached a record high on Monday due to the South African power concerns, touching a high of $1,789 an ounce before falling to $1,782/1,787 at 1424 GMT, against $1,752/1,759 late in New York on Friday, said Reuters.

Forrest said his long-term expectations for the platinum price were at $1,000-$1,250/ounce, but mostly upside risk implied a $200 premium that brought the forecast average long-term price to $1,350/ounce.

He said fault lines of both economic and technical nature were appearing on the Platinum Group Metals map. Supply shocks to the PGM market included a high number of fatalities in the PGM mining business and inadequate power supply in South Africa.

"The forecasts of platinum producers themselves say that power supply to platinum operations in South Africa will only be adequate until 2010. Eskom provides 90% of power to South African projects. Further rationing of power would cause future stress for the market."

Forrest said challenges were also involved in accessing metals as many new platinum projects were located in "difficult" mining areas.

These challenging issues could prompt investors to consider the "Russian cocktail" as Russian platinum companies could deliver more stable supply.

On the demand side, high fuel prices could hit the auto industry in the long term and push down the price. Platinum is used in the manufacture of autocatalysts required by ever-tightening emissions legislation.

Giving a picture of tomorrow's platinum market, Forrest said world supply will peak in 2013 with new projects delivering a margin of extra supply in the market. New projects with difficult ore bodies could already add 500,000 ounces to market supply by 2010.

However, a supply slump of 7.3m ounces was expected by 2020 as six platinum mines were expected to close by then.

Forrest said that any new deep level project should have a net total cash cost of below $950/ounce in order to ensure its viability.

Reuters reported the electricity supply crisis that has forced South African mines to cut production had the potential to push the platinum price well above $2,000 an ounce.

Palladium rose to a six-year high of $420.50 an ounce and was last quoted at $418/422, against $410/413 in New York, tracking gains in platinum prices.