massive upside to south african country risk?

There's plenty of detail to discuss about South Africa's socio-economic climate and the impacts that it can have on mining companies there, but let me paint four broad scenarios. Note that there would be a disastrous human cost attached to some of these scenarios, but that has to be a separate story. What follows is purely investment-oriented.

1. Status quo

This is arguably the worst investment scenario, involving vague simmering risks that both discourage investors and create headwinds to productivity and profit. If there's a silver lining, it's that the current situation has probably already been discounted in share prices.


2. Improving socio-economic scene

Obviously this scenario would act as a tailwind for share prices. However, with global interest rates set IMO to rise due to rising default risks and rising sovereign credit demand, this scenario may be hard to achieve.


3. South African miners experience rising levels of threat.

In this scenario, perceptions of rising threats to production would probably drive up the price of platinum, because South Africa produces roughly 80% of the world's supply. If the perception was that platinum mining companies would be able to continue operating, company share prices might rise, although volatility in costs, productivity, profits, and share prices might be extreme. This scenario might tend to be transitional in nature.

4. Mining completely disrupted by warfare, civil unrest, botched nationalisation of mining activities, or the like.

In this scenario the price of platinum might be expected to rise by a nominal factor of five, based on a nominal five-fold reduction in world production of platinum. In this scenario, a proportionate holding of platinum metal in one's portfolio might offset, or more than offset, falls in PLA's share price. Mind you, PLA's Australian platinum deposits might themselves prove to be a partial hedge against South African instability.

On a broader front, purchases of platinum metal might be used to offset risk in South African companies mining other metals besides platinum, or any other South African investments.

I believe that sovereign risk levels are rising around the world, and that this trend is likely to worsen. The irony may be that, with its sovereign risks being readily offset with purchases of platinum metal, South Africa could become a more acceptable investment destination than many other countries.

Platinum can be conveniently purchased in ETF form, such as ETPMPT as traded on the ASX Warrants Exchange, if the risks associated with ETFs are considered acceptable.

This post is particularly speculative in nature and probably full of errors. Comments would be appreciated. I don't hold ETPMPT, but hold PLA and GDO.