South Africa, Soviet Union dominate gold, platinum markets

South Africa and the USSR play a vital role in the world gold and platinum industries: in 1989 their combined output accounted for 45% of world gold production and 91% of total platinum group metal (pgm) production.

Recent political developments in both countries are likely to have a significant effect on the world industries, and several other factors are already influencing supply and demand patterns, says market analyst Roskill of London in two reports.

During the 1980s, the gold market became increasingly influenced by producer activity as supply was both accelerated by gold loans and forward sales, and diversified by new gold developments outside of South Africa. The Economics of Gold 1991 says that in recent years, gold loans and forward sales have become the most significant influence on the gold market. This method of maximizing mine profitability has become increasingly important in Australia and North America and has also started to develop in South Africa. There has also been a boom in production outside of South Africa, especially in Australia and North America, with the development of new extractive technology such as carbon-in-pulp and carbon-in-leach methods, which enable low-grade oxide ores to be mined more cheaply.

Gold-loan activity peaked in 1988 when Roskill estimates new loan drawdowns reached 5.3 million oz. This amount fell to 4.4 million oz. in 1989. It is estimated that about US$2.9-billion worth of gold loans were announced between the stock market crash of October, 1987, and the end of 1989. This activity is large enough to influence the market but the effect on price is diluted as the paybacks often occur during several years.

South Africa, which traditionally has kept hedging to a minimum, forward sold two million ounces in the third quarter of 1990, slightly less than North American producers with 3.1 million oz. The South Africa Reserve Bank has introduced a new selling facility called “the stabilized contango scheme.” This method involves a company forward selling a specific quantity of gold during a 12- or 24-month period at a fixed price.

In a country-by-country review of 295 mines and projects, the report discusses the expected course of continuing rationalization in South Africa and the USSR.

Soviet gold production is expected to fall by 1.6 million oz. in the early 1990s because of mine closures, although output may eventually rise with western co-operation and technology. A worsening economic climate in the USSR may result in more physical sales and gold swap activity during the next few years.

In South Africa, the industry is under significant pressure to contain costs as it is forced to mine more deeply and pay higher wages. Production is continuing to decline and political disruption cannot be ruled out. Developments in South Africa and the USSR are also expected to be of major importance to the future of the platinum industry. The move to reform in the USSR has reduced some of the risk of western dependence on the country as an important source of the strategic platinum group metals, particularly palladium.

The progress of liberalization in South Africa suggests that it, too, may become less of a high-risk source. However, developments in both countries have been accompanied by serious economic and political upheaval which could lead to disruptions in supply. The Economics of Platinum Group Metals 1991 examines the main factors affecting supply in 44 countries and assesses the prospects for the future.

The report says that the major market for platinum group metals will continue to be autocatalysts. The latest, and currently the largest, use for pgm catalysts came with the introduction of autocatalysts in the U.S. in 1974 as the most effective method of reducing the pollutants in motor vehicle exhaust gases. Autocatalysts are now required to be fitted to new automobiles not only in the U.S., but also in Japan, Australia, South Korea and several European countries.

The report says that their use in Europe will increase because of European Community emission control legislation; demand is likely to level off in Japan and North America where the proportion of passenger cars fitted with catalysts is already high.