South African miner Gold Fields announced today that due to a bleak outlook in the return of electric capacity in the region, it will be forced to mothball some of its mining operations and lay off up to 6,900 employees. Gold Fields is one of the largest miners in the world. They actually view their future production as coming in at 15-20% below current levels for the next several quarters. Africa is the world's second largest producer of gold and the largest producer of platinum.
What is the best way to play the demise of South African miners?
Obviously, the ideal play is a straight commodities play absent the operational risk that comes with owning individual miners. For gold, that would be the gold bullion ETF, GLD. Granted, gold didn't rally today based on the report that the U.S. is backing IMF gold sales given the Bush administration's view that the plan to sell 12.9 million ounces of gold is "probably the most viable" option to ensure the long-term funding of the IMF, Dow Jones Newswires reported Monday.
No such ETF exists for platinum, so the next best thing is a miner in the U.S. insulated from the African power. As posted last night, Stillwater mining from Montana (SWC) derives a fair amount of their revenues from platinum and palladium. It is down 6% in after hours trading as of now following a mild beat, obviously not hitting the whisper number. This is good news in that the bad news is out of the way and margins are expected to be very strong moving forward as long as metals prices remain elevated. To put things in context, here's a YTD chart of SWC with GLD and the S&P500:
Disclosure: Long GLD and SWC.Sources:
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