GOLD PRICE NEWS – Sparked by fears over a global economic slowdown, the gold price reached a new all-time high of $1,780 per ounce early Tuesday morning. The price of gold has rallied over $100 in the past two days alone as investors poured funds into the yellow metal and liquidated cyclically-sensitive stocks and commodities.
However, in early afternoon trading the gold price surrendered a significant portion of its gains, sliding back down to $1,725 per ounce. Weakness in the gold price coincided with a rebound in the broader equity and commodities markets as risk aversion subsided.
Not only has the gold price posted yet another series of new record highs in recent days, but it has also surpassed the price of platinum for the first time since 2008. The platinum price rallied back toward $1,750 per ounce today after sinking as low as $1,707 early Tuesday morning.
On a year-to-date basis, the gold price has substantially outperformed platinum, gaining 21.4% versus a 0.4% decline for white precious metal. This outperformance is reflective of rising concerns over the prospect of a double-dip recession in the U.S. and on the back of the sovereign debt crisis in Europe.
Looking ahead, TD Securities’ Global Precious Metals team believes the markets may have now priced in these risks. In a note to clients, the firm wrote that with the platinum/gold ratio reaching 1.01 on Monday, it has neared a critical support level that has not been meaningfully breached in over 25 years.
TD Securities highlighted that from a technical perspective, “the head and shoulders formation is pretty much completed and barring a break lower we look to buy platinum vs. gold here. The carry on this trade is negligible so for a long-term view it has some good merit.”
The firm went on to say that platinum has “participated in the rout for industrial metals as the Japanese recovery looks a bit less likely. It feels like the market is fully discounting the precious metal attributes” for platinum and “they are languishing near their recent lows.”
While there are many publicly-traded gold companies through which investors can gain exposure to the price of gold, that is not the case with platinum. Only a small number of companies focused on platinum exist. One such company is Platinum Group Metals (PTM.TSX, AMEX; PLG), which controls a substantial land package on one of the world’s most prolific platinum-producing belts in South Africa. Since October 2008 – when the platinum/gold price ratio last reached 1.0 – shares of PLG have climbed 131%, providing investors with considerable leverage to the platinum price.
Last week, Platinum Group Metals took a significant step forward with the signing of a mandate letter with Barclays Capital, The Standard Bank of South Africa, West LB AG and Caterpillar Financial SARL. The letter calls for a $260 million project finance loan to develop the Company’s Western Bushveld Joint Venture (WBJV) Project 1 Platinum Mine in South Africa. The proposal was preliminarily approved by each of the lenders, but is subject to due diligence, final credit approval and execution of a loan agreement.
Barclays Capital is a premier full service global investment bank with a large presence in South Africa, particularly in the mining & metals sector. Barclays’ commodities business is ranked in the top three worldwide, and the firm has a long history of providing debt and risk management solutions to mining companies.
Moving forward, although today’s outperformance of platinum versus the gold price is consistent with TD Securities’ forecast, one day does not mark a change in trend. Nonetheless, while more time is needed to determine if today’s action marks a critical turning point in the platinum/gold price ratio, the fact of the matter is that the ratio is hovering near strong support and multi-decade lows.
According to TD Securities’ analysis, this may be an opportune time to swap out of investments tied to the gold price and into those tied to platinum, the precious metal that offers leverage to the ongoing currency debasement around the world as well as to a rebound in global economic activity.
Platinum Group Metals Secures $260 Million Loan
An Updated Feasibility Study published for the WBJV Project 1 Platinum Mine in October 2009 planned for a steady state production rate of 275,000 4E ounces (platinum, palladium, rhodium and gold) per year at a capital cost of $443 million. Of the required capital cost, a fully funded Phase 1 $100 million surface establishment and underground decline development program is already in progress. Full Platinum Group Metals News Release.
- The $260 million senior loan includes a term of nine years, an additional working capital facility up to $25 million, and a standby subordinate loan facility for cost overruns, if any.
- The proposal includes a hedging strategy that maximizes the hedging of byproducts such as palladium, gold and nickel - thereby minimizing the ounces of platinum hedged over the loan life.
- The lending group of banks has a global presence, direct platinum industry experience and includes two of South Africa's major banks. Each bank has a defined role in order to assist with efficiency and a timely closing, currently expected by November 30, 2011.
