Platinum Primer: Fire Sale on the Rich Man's Gold

Platinum Primer

Fire Sale on the Rich Man's Gold 

ResourceInvestor.com
About 2000 years ago, Aristotle explained why gold remained the ideal choice of money throughout major nations and civilizations. In words that are just as relevant today, he said "Gold is durable, not like wheat, divisible, not like diamonds, convenient, not like lead, constant, not like real estate, and best of all, as jewelry, it has intrinsic value".
Among the most rare, valuable and sought after metals on Earth, platinum shares these same characteristics with gold. Platinum Guild International names platinum as the "most precious" of the precious metals based on its relative scarcity as well as for the following reasons:

1. The annual supply of platinum is only about 6.4 million oz. - which is equivalent to only 7.4% of the annual gold production and 0.87% of silver's annual mine production.
2. Platinum is exceedingly difficult to mine and extract. For example, rock face temperatures at Northam Platinum's Zondereinde mine in South Africa get as high as 162 degrees Fahrenheit and its shafts extend as far as 1.4 miles below the surface. Overall, the platinum recovery process is very complex and lengthy, in some cases taking as long as six months.
3. There are over 5 billion oz. of above ground gold ($8 trillion), whereas only an estimated 200 million oz. ($0.3 trillion) of platinum has ever mined....just 3.75% that of gold $ wise.
4. In addition to its high-conductivity, resistance to corrosion and inertness, platinum is an extraordinarily dense metal. 10% more dense than gold and 20 times the density of water, one cubic foot of platinum weighs more than 1,330 pounds (523 kilograms). As Vronsky notes, "that means a six-inch cube of the white metal weighs about as much as an average man!" This density, along with its other unique chemical properties, makes platinum an invaluable component in a myriad of industrial applications.
5. Platinum has many more utilities than gold. Unlike gold, more than 50% of the annual production of platinum is consumed (read destroyed) by industrial uses (40% alone go to catalytic converters).
6. Unlike gold, there are no large stockpiles of platinum (less than 4 million oz.). Therefore, any disruption in supply from the two major sources (South Africa at 80%, Russia at 10%) could propel platinum on a similar trajectory palladium experienced in 2001, when it moved sharply from $350/oz. to $1,100/oz.

Very Limited Supply

While virtually all other metals can be found in deposit the world over, platinum is anomalous in that important deposits are essentially found to occur in just two areas of the world (apart from a small handful of smaller deposits in North America and Zimbabwe), South Africa and Russia. Platinum does get produced as a by-product in some regions, but only in insignificant volumes.
Roughly 80% of the total world's annual mine production comes from South Africa and, with 88% of the world's reserves, it is far and away the most important national player in the platinum market. Another 10% of platinum supply comes from Russia, with bit players responsible for the remainder. As South African politicians have tabled mining nationalization policies in the last two years, any further escalating political instability and/or labor turmoil in South Africa could have a dramatic impact upon platinum prices – and the same holds true for Russia, albeit it to a lesser extent .

Other Regional Platinum Producers

There are but a few publicly-traded mining companies that produce platinum, and, in most of these cases, only as a by-product. An example is the giant nickel producer Vale-Inco in Canada. Total platinum production in North America is estimated to be less than 400,000 oz. per year (5% of world production) according to the British Geological Survey.

Global Platinum Consumption
Platinum consumption is typically divided into three categories: 50% industrial uses (auto catalysts account for majority), 40% jewelry manufacturing and 10% for investment purposes. With a rapidly emerging middle class, and dramatic economic growth, China is expected to increase both automobile and luxury jewelry purchases as citizens continue to accumulate wealth. China has eclipsed the United States as the largest consumers of cars and is projected by the IMF to be the world's largest economy by 2016. In 2011, about 3.82 million ounces of platinum will go into auto catalysts, 17% more than this year and the most since 2007.
Investment Prospects for the Rich Man's Gold

Since 1970, platinum has on average commanded a 30% premium over gold. As the following chart from www.infomine.com demonstrates, from 2000 to 2008, platinum spent much time trading over 1.8 times gold price.

Historically, the price of platinum runs in tandem with the precious metals group (gold, silver, platinum and palladium). However, as platinum is less liquid and has a smaller investor set, it is much more volatile both on the upside and downside compared to gold.
Platinum price appreciation has outpaced gold since 2001, right up until the US financial crisis in 2008. While gold has recovered from losses and is trading within 15% of its all-time high, platinum price is trading at two-year low and has yet to recover.

While there is mounting concern about global economic growth, automakers are still expected to sell a record 79.5 million cars and light commercial vehicles in 2012, according to LMC Automotive Ltd., a research company based in Oxford, England.
Demand for platinum is also coming from investors, as holdings in exchange-traded products collectively surpassed 1.5 million oz. in 2011 since the first platinum ETF was launched in 2007. Therefore, going forward, investment demand could be a significant surprise factor in driving platinum prices higher.

In 2012, we can expect to see:

• Persistent high gold price
• Global recovery of auto sector
• Platinum investment demand through ETF and physical possession
• Ongoing limitations and potential disruptions to supply

All in all, the current situation bodes well for platinum.  Look for it to trade substantially higher and back at a premium over gold, once the bull market in precious metals begins its cycle anew. With the current crisis in the euro currency and run-away US deficits, platinum might just regain its reign as the rich man's gold in 2012.
John Lee, CFA
jlee@prophecyplat.com
John Lee is a private investor in metals and mining stocks. He has authored numerous articles and been a featured speaker at international conferences on precious metals and global economies. Currently Mr. Lee is the Chairman of Prophecy Platinum (TSX-V: NKL), an explorer with a significant platinum resource in Canada's Yukon Territory.
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Disclaimer: The views expressed in this article are those of the author and may not reflect those of Prophecy Platinum Corp. Neither Prophecy Platinum Corp. nor the author can guarantee accuracy of all information provided. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Prophecy Platinum Corp. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

A deal seems likely in the end- but for what amount??

"When the dog keeps on barking and barking, eventually you have to throw it a bone," 

Chevron's Ecuador case takes new twist - FT.com

Lawyers acting for plaintiffs suing Chevron, the US oil group, over pollution in Ecuador plan to pursue the American company with legal actions in other countries after an Ecuadorean court upheld an $18bn damages award.

Pablo Fajardo, an Ecuador-based lawyer representing the 30,000 plaintiffs suing over environmental damage in the Amazon region, said: "It's not going to be easy to enforce this judgment, but even if hell freezes over we're going to do it."

Chevron, which denounced the judgment as "procured through a corrupt and fraudulent scheme" has no assets in Ecuador, so the plaintiffs will be forced to bring actions in other countries.

Mr Fajardo said: "This judgment gives us the ability to go ahead and enforce the ruling in any part of the world where we see fit."

The legal saga, which has had plenty of twists and turns since the first action was launched back in 1993, appears to have still more to come.

The fight has dragged on thanks in large part to the dogged persistence of Steven Donziger, the plaintiffs' controversial US-based lawyer. While Chevron remains adamant in its rejection of the case against it, the company could yet end up having to pay a multi-billion dollar settlement to resolve the issue.

Fadel Gheit, an analyst at Oppenheimer in New York, says: "At the very beginning, it didn't look as though the case was going anywhere. Oil companies get sued every day by everyone, everywhere, and most of the cases we never hear about."

Now he expects Chevron to agree to pay $2bn-$3bn to bring the dispute to an end.

For Chevron, the second-biggest US oil and gas group by market capitalisation, the battle has been infuriating, not least because it has never operated in Ecuador.

The pollution that is the subject of the case is alleged to have been caused by Texaco, which Chevron bought in 2001. By then, Texaco had been out of the Amazon region for almost a decade, having pulled out of its joint venture with Petroecuador, the state-run oil company, in 1992.

Ecuador's government signed an agreement saying that Texaco had cleaned up the area as required, but that did not prevent civil claims. In and around Lago Agrio, the rough and tumble oil town where Texaco helped found Ecuador's oil industry, locals have come forward alleging damage to the land and their health. In the jungle, deep pits as big as swimming pools filled with crude oil are testament to the scars that the oil industry has left on the region. However, Chevron argues that it is Petroecuador, which was sole owner of the oilfields after 1992, that is responsible for the pollution.

The US company was confident enough in the strength of its argument that it sought to have the case heard in Ecuador. Its reaction to Tuesday's decision, which upheld a ruling from another court last year, was furious.

"Today's decision is another glaring example of the politicisation and corruption of Ecuador's judiciary that has plagued this fraudulent case from the start," it said in a statement.

"Chevron does not believe that the Ecuador ruling is enforceable in any court that observes the rule of law."

So far, investors have shared that view. Chevron's shares closed just 0.1 per cent lower on Wednesday.

That move followed an excellent 2011 for Chevron's investors: over the past 12 months, their shares have risen 20 per cent, compared with 14 per cent for the larger ExxonMobil and just 8 per cent for smaller ConocoPhillips.

Even for a company of Chevron's size, $18bn would be a significant hit: about 8 per cent of its market capitalisation. But investors seem not to believe that the award, the second-largest environmental damages award ever imposed on an oil company, after the $20bn compensation for victims of the Gulf of Mexico spill agreed by BP, will be paid.

For now, that assessment looks justified. There are further legal contests to come in US courts and at the international court of arbitration in The Hague.

Kevin Koenig, a Quito-based spokesman for Amazon Watch, a campaign group, argues that it is time for Chevron to "do the right thing and respect the judgment", but concedes that it is unlikely the case will be resolved soon.

However, he said Chevron had made a "serious miscalculation" in forcing the plaintiffs to pursue the company in foreign courts.

Chevron has significant assets in other Latin American countries, including Argentina, Venezuela and Brazil, where the US group has been targeted by regulators over an oil spill and faces a damages claim for $10.6bn. Mr Donziger's team is reluctant to say exactly where it will take the action next, but moves in one or more of those countries, or in Europe, are possible.

"Chevron has to win every one of those cases. The plaintiffs will only need to win one," Mr Koenig says. John Watson, Chevron's chief executive, is adamant that the company should not pay anything for what it regards as a fraudulent case, Mr Gheit says. However, as the dispute heats up, the argument for reaching a deal grows stronger.

"When the dog keeps on barking and barking, eventually you have to throw it a bone," says Mr Gheit.

http://www.ft.com/intl/cms/s/0/86d1169c-36ef-11e1-b741-00144feabdc0.html#axzz1iZBeORof

Venezuela to Leave 15 Tons of its #Gold Reserves in Foreign Banks - Bloomberg

Venezuela to Leave 15 Tons of its Gold Reserves in Foreign Banks

Venezuela will leave 15 tons of gold reserves in banks outside the country, Central Bank president Nelson Merentes said today.

Venezuela held about 211 tons of its gold in Europe, Canada and Switzerland before it started repatriating the reserves last year, Merentes said on national radio.

"It wasn't necessary to have that much gold abroad for financial transactions," Merentes said. "We're going to keep bringing it back. Soon we will have the majority of our reserves in the Central Bank vault."

President Hugo Chavez ordered the Central Bank to repatriate $11 billion of gold in August as a safeguard against instability in financial markets. The country received the first shipment of repatriated gold on Nov. 25.

The country has a total of 365 tons of gold reserves, Merentes said.

To contact the reporters on this story: Nathan Crooks in Caracas at ncrooks@bloomberg.net; Corina Pons in Caracas at crpons@bloomberg.net

To contact the editor responsible for this story: Carlos Caminada at ccaminada1@bloomberg.net

see the whole story here: http://www.bloomberg.com/news/2012-01-03/venezuela-to-leave-15-tons-of-its-gold-reserves-in-foreign-banks.html