China Buys into South African Platinum Mining

Demand for platinum in China is rising and a state owned mining company has taken matters into its own hands to secure supply. An FT article explains how Jinchuan, a Chinese state-owned mining company, is to acquire a 51% stake in Wesizwe, a junior South African platinum developer, for $227m (€185m, £158m). The China Development Bank will then raise another $650m in project finance to develop Wesizwe’s flagship Frischgewaagd-Ledig platinum project, near Rustenburg, west of Pretoria. After the mine is built, Jinchuan will take all of the platinum produced under a long-term supply agreement.

South Africa accounts for some 80% of the world’s platinum group metal production, with Russia accounting for much of the rest. China is the world’s fourth-largest importer, after the European Union, US and Japan, accounting for about 10% of global demand. In recent years the main demand for platinum has come from China’s rapidly growing automotive sector, where the metal is used to make catalytic converters. But last year demand for platinum jewelry surged, driven by Chinese buyers attracted to lower prices.

This is China’s biggest investment in African commodities outside of the energy sector and underlines the country’s belief in the long-term strength of their automotive sector. As a result of the 100% uptake agreement, none of this metal will find its way onto the world market in years to come unlike more usual models where investors take metal in proportion to their equity stake.

China is investing vast sums in African commodity projects as this article in Mineweb details. Billions of dollars will be pumped into new mine development and associated infrastructure projects in Africa, particularly West Africa over the coming years. Nor is China necessarily paying top dollar for opportunities in today’s market. They have an almost limitless supply of cash for development that speaks as loudly as the price they are willing to pay. Nevertheless those prices may look cheap later this decade if China’s growth continues at anything like it’s 8%+ historical average and raw material supply constraints begin to reassert themselves.

–Stuart Burns

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