Gold, Platinum Advance in London After Xstrata's Bid for Lonmin

By Claudia Carpenter

Aug. 6 (Bloomberg) -- Gold and platinum advanced in London on speculation the $9.8 billion takeover offer of Lonmin Plc will spur consolidation of South African mines and limit supplies. Palladium rose the most in three months.

Xstrata Plc, the world's fourth-largest copper producer, bid for Lonmin to add mines in South Africa and diversify its metals output to include more platinum. South Africa is the world's second-biggest gold producer after China and largest miner of platinum used in jewelry and car parts.

``The supply story is an important issue for gold,'' said Eugen Weinberg, a commodity strategist at Commerzbank AG in Frankfurt. ``The market expects consolidation to continue in precious metals which is a positive factor for prices.''

Gold for immediate delivery advanced $10.25, or 1.2 percent, to $884.70 an ounce as of 11:34 a.m. in London, the first gain this month. The rally is probably more to do with the Lonmin bid than the drop in the dollar, Weinberg said. Gold has climbed 6.1 percent this year as declines in the dollar spurred investor demand for an alternative to the U.S. currency.

The metal has performed ``better than anything in our portfolio,'' Graham Birch, manager of the $13 billion BGF-World Mining Fund, said in an interview in London yesterday. ``Gold does what it always does, which is serve as a store of value.''

AngloGold Ashanti Ltd., South Africa's biggest gold producer, climbed 1.3 percent in Johannesburg trading and Gold Fields Ltd., the country's second-biggest, gained 1.7 percent. Johannesburg-based Anglo Platinum Ltd., the world's largest platinum producer, jumped 8.9 percent.

Gold Trust

Assets in the SPDR Gold Trust, the world's largest gold- backed fund, declined to 21.2 million ounces yesterday from 21.69 million the day before, according to the SPDR Web site. Gold prices yesterday dropped to the lowest since June 16.

South Africa was displaced last year as the world's biggest gold producer for the first time since 1904 as output fell 8.7 percent, London-based research company GFMS Ltd. said. Output in the country won't likely rise this year, Weinberg said.

Johannesburg-based AngloGold was among companies that shut South African plants as tens of thousands of workers went on strike over rising energy bills. ``All our shafts are unlikely to be operating today in South Africa,'' Alan Fine, spokesman for AngloGold, said today.

Average attendance at Gold Fields' Driefontein mine was 40 percent, spokesman Daniel Thole said.

``Wage increases and higher energy costs have brought the market price of aluminum and nickel close to their mining cost, a reason why many smelters are being closed,'' Shailendra Kumar, an analyst at Commodity Research Group in Mumbai, wrote in an e- mail. ``Gold may see the same sequence.''

Central Banks

European central banks are unlikely to increase gold sales this year after the Bundesbank held back on dumping the metal, London research company VM Group said in a report yesterday.

Platinum climbed $61.75, or 3.9 percent, to $1,635.75 an ounce, gaining for a second day.

Supplies of the metal will fall short of consumption by about 500,000 ounces this year because of increased demand from makers of auto catalysts, Xstrata said in the statement.

Catalytic converters used to control noxious fumes from vehicle exhausts accounted for 60 percent of total platinum demand last year, according to London-based catalytic converter manufacturer Johnson Matthey Plc.

The deficit last year was 480,000 ounces, the largest since 2002, Johnson Matthey said in May.

Silver climbed 22.01 cents to $16.68 an ounce and palladium jumped $16.50, or 4.6 percent, to $373.25 an ounce, the biggest advance since March 25.

To contact the reporter on this story: Claudia Carpenter in London at ccarpenter2@bloomberg.net