Platinum – “Buy this metal today”

Casey Research yesterday issued another report titled “The Next Big Crisis Investing Opportunity: Buy This Metal Today”.  It maps out the likelihood of the types of land confiscation we’ve seen in Zimbabwe about to happen in South Africa and how that (and even the threat of it) will affect supply from the country that holds 91% of the world’s platinum reserves and currently produces 73% of the world’s supply. 

We have written before (here) that Casey Research is very bullish on platinum.  We also spelt out the extremely compelling case for platinum here and here in September last year and if you are a gold and silver investor who has never looked at platinum we urge you to do so.

That Casey report is worth presenting to you verbatim, so here it is…

By Justin Spittler, editor, Casey Daily Dispatch

“When chaos hits, most investors panic.

They sell without thinking. But the best investors understand that crises can be huge opportunities.

You see, investors often “panic sell” during a crisis. They dump high-quality assets out of fear.

This allows savvy investors to scoop up world-class companies at deep discounts.

• But that’s not the only kind of opportunity that arises out of crises… 

Crises can also disrupt global supply chains. They can knock the balance between supply and demand out of whack. And that can lead to huge price spikes.

This is especially true of commodities. I say this because natural resources are the building blocks of civilization. The modern world simply wouldn’t exist without them.

The world doesn’t stop using copper, iron ore, or lumber when there’s turmoil. And more often than not, people end up paying steep premiums.

These disruptions in the commodity space can trigger explosive rallies.

As I’ll show you today, one key metal in particular appears to be on the verge of a major supply disruption.

• I’m talking about platinum…

Platinum is a precious metal, like gold and silver.

Many people own platinum coins as a store of wealth. Platinum also finds its way into a lot of jewelry.

But platinum is more than just a precious metal. It also has important industrial applications. Its primary industrial use is in catalytic converters – a specialized vehicle part that reduces harmful emissions. But it’s also used in surgical tools, lab rotary utensils, spark plugs, and even the circuits in your cell phone.

That said, this essay isn’t about platinum demand. It’s a supply story…

And to get the full picture of the supply story, we need to look at what’s happening right now in South Africa.

• That’s because South Africa produces 73% of the world’s platinum… 

To put this into perspective, Saudi Arabia accounts for about 12% of global oil production. So South Africa is about six times as important to the platinum market as Saudi Arabia is to the oil market.

South Africa is also home to 91% of the world’s platinum reserves.

When the supply of a commodity is this concentrated, it doesn’t take much to trigger a major disruption.

And that can happen sooner rather than later…

• You see, right now South Africa appears to be headed for a full-blown crisis…

I say this because the country looks like it’s about to embark on a massive property confiscation scheme. Crisis Investing chief analyst Nick Giambruno, who’s been following the situation closely, explains:

“South African President Cyril Ramaphosa plans to change the constitution to allow for land expropriation without compensation. This is when the government steals land from an owner and gives it to someone else, in this case, based on race.”

In his recent issue, Nick showed how Zimbabwe did the same thing in 2000. It introduced a mass confiscation of private property… a “land reform program,” supposedly to correct past injustices. It confiscated farms from white owners and gave them to government supporters.

And that ultimately destroyed the country’s economy. 

And it now looks like South Africa is headed down the same dark path.

• Of course, politicians throw out crazy ideas like this all the time… 

And many of those never get put into law or policy. But there’s a good chance South Africa follows through with this.

After all, Ramaphosa’s party controls about 63% of the Congressional seats in South Africa’s National Assembly.

According to Nick, it’s no longer a question of if South Africa expropriates land from its white citizens… but rather, when: 

“Bottom line: A solid majority of South Africans support the expropriation of land without compensation in some form or another. It’s only a matter of time before it happens. Land confiscation and the ensuing economic collapse are already baked into the cake.”

This is clearly bad news for the people of South Africa.

But it’s also a huge opportunity for speculators. That’s because turmoil in South Africa could set the stage for a monster platinum rally. More from Nick…

“The impending chaos there all but guarantees an enormous supply disruption for platinum… Simply put, the stage is set for a supply shock – and price spike – of historical proportions.”

 

• This is the last thing South Africa’s mining industry can afford… 

Nick explains:

“Aside from the supply threat posed by South Africa following Zimbabwe’s lead, the country’s mines are already in terrible shape. And they’re getting worse…

First, half of South Africa’s mines are unprofitable. And others may become unprofitable because of operating cost overruns or rising labor costs. This means some of them could shut down, even without an all-out crisis in the country.

Second, labor is the biggest contributor to high costs. And South Africa’s mining unions are exceptionally strong. So cutting costs is hardly an option.”

• Nick isn’t the only “crisis investor” closely watching this situation, either… 

Casey Research founder Doug Casey had this to say in the latest issue of Crisis Investing:

“Nobody wants to invest in a place where property rights are ceasing to exist. Nobody is going to put any significant capital in there, and they’re not generating any domestic capital.

I just don’t see how the mining industry can continue there. It’s a far cry from the 1960s when these mines were making enough money to pay, on average, 10% dividends with gold at only $35 an ounce.”

In short, South America’s mining industry faces serious problems. And those problems could soon lead to a massive global supply disruption.

All else being equal, that’s a recipe for higher platinum prices.