South Africa: Amplats' plans lift platinum price

The world's largest platinum producer Anglo American Platinum (Amplats) has announced the closure of two of its mines and the sale of a third. This decision implies the dismissal of 14,000 employees – close to 3% of the country's miners. The South African government has expressed its disapproval of these plans. Amplats' announcement has stirred up renewed discussion among commodity investors about supply problems in the platinum sector.

According to an Amplats report, the closures imply 14,000 dismissals – close to 3% of the country's entire mining staff. Commodity markets did not take long to react to the announcement. In late trading last Tuesday the platinum price surged above gold for the first time since mid-March last year. Amplats estimates that these plans will cut platinum production by 400,000 troy ounces. South African production accounts for approximately 75% of the worldwide supply of platinum group metals, which also include palladium.

Members of the South African government seemed surprised at Amplats' plans. Minister of Mining Susan Shabangu even expressed anger to the South African media, stating that Amplats hadn’t informed the government of its plans.

Amplats has stated that it intends to relocate affected staff – for example to construction projects. But according to Shabangu these explanations are not credible, as these other sectors cannot absorb such amounts of manpower. In a country where the unemployment rate is already above 25%, Amplats’ plans could present the government with serious problems.

After last year's strikes – during which over 50 miners lost their life – most mining companies are still struggling with increasing production costs, as a result of having to mine at ever-greater depths and pay ever-greater energy costs.

Last Tuesday news also broke that South Africa's gold production dropped drastically in November 2012 – down 32.2% in comparison with the previous month according to Statistics South Africa.