The Company anticipates providing regular news updates over coming quarters as we undertake exploration programs and complete resource and engineering updates that should deliver meaningful milestones for increasing shareholder value. Prophecy Platinum offers compelling value and leverage to platinum and palladium with nearly 0.1 ounces of platinum equivalent from precious metals, equating to more than $150 worth of platinum, palladium and gold in the ground per share.
Current Market and Economic Conditions
The challenging market conditions for the resource sector in general, and precious metals equities in particular, continued from 2012 into the first two months of 2013. This includes PGM-focused equities despite the relative strength of platinum and palladium prices and favourable supply/demand conditions. However, global economic policy continues to have an expansionary and inflationary bias that should be positive for commodities in the long term. The fundamentals for platinum and palladium remain strongly positive with the market expected to be in a deficit situation in 2013.
The junior mining sector is off to a difficult start in 2013 with the S&P TSX Venture Composite Index down 9% year-to-date and the Market Vectors Junior Gold Miners Index down 23% year-to-date. Prophecy Platinum's share price has been relatively stable averaging just over $1/share during this period of negative market sentiment towards junior mining stocks.
Over the past few months, however, the fundamentals associated with our key focus metals, platinum and palladium, have turned significantly more positive toward likely higher future prices. After trading at a discount to the gold price for almost a year and a half, platinum resumed trading at a premium to gold in January of this year. In fact, platinum and palladium have been the best performing precious metals thus far in 2013, with each up 5%, whilst gold is down 5%. The strength in PGMs relative to gold is primarily attributable to an increasing market awareness of the supply threats to platinum and palladium, particularly in South Africa and Zimbabwe.
Compared with gold or silver, the platinum and palladium markets are significantly smaller and mine production is heavily concentrated in high political risk countries. South Africa, Russia and Zimbabwe combined produce over 92% of the world's platinum and 84% of the world's palladium, but this supply has been in decline since 2006. According to Johnson Matthey, a total of 5,840,000 ounces of platinum was mined in 2012, with South Africa accounting for 73% of production and Russia 16%(1) with North America accounting for only 6% of global production. South African platinum production in 2012 fell to its lowest levels in 11 years as violence and unrest between mining unions and demands for higher wages disrupted production. The recent and ongoing labour unrest is adding to the challenges already faced by South African platinum mining companies, in terms of depletion and a corresponding increase in deposit depth. The result has been increased production costs and the shutdown of mines that are no longer economical. In January, Anglo American Platinum (Amplats) announced that it would cease operations at two of its South African platinum mines and put another up for sale, resulting in the loss of 14,000 industry jobs.
The decline in platinum production in South Africa is likely to continue as cost pressures force even more mine closures and as companies refrain from investing capital into new projects and mine expansions. Social unrest and lower tax revenue also have the potential to further increase the pressure on the South African government to nationalize platinum mines. While the ruling African National Congress party rejected proposals to nationalize mines in favour of higher taxes at its national conference last December, political maneuvering in the lead up to the 2014 general election in South Africa could see this issue be revisited.
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