TORONTO (miningweekly.com) – There is a “growing sense of concern” among London’s investment community over the risks of mining in South Africa, number-three platinum producer chairperson Roger Phillimore said in an interview on Thursday.

“There is a growing perception in London that the operating risks of doing business in South Africa are [getting] greater rather than less,” he told Mining Weekly Online in Toronto.

“They talk about nationalisation, a whole slew of regulatory matters, the desire to clamp down on freedom of speech, they go to electricity pricing, labour relations.”

Phillimore’s comments underscore the findings of the Fraser Institute survey released in March that ranked South Africa 67 out of 79 jurisdictions as a mining investment destination.

The situation has not been helped by the ruling ANC party’s youth league leader Julius Malema’s repeated calls for the nationalisation of South Africa’s mining industry.

Describing the threats as “a most unfortunate situation”, Phillimore said that ultimately it was a decision the South African government would have to take, but there were “an awful lot of precedents of nationalisation not having worked” elsewhere.

He said that perceptions of South Africa in the London investment community were deteriorating for it.

“There is a growing sense of concern, and we share these views with government, and I must tell you that we get a very good hearing.”

PRICES

While many commodities, including copper, gold, and iron-ore have touched new highs since recovering from the 2008 recession, platinum is still well off its February 2008 $2 252/oz record.

Spot platinum, used in car exhaust systems and to make jewellery, was trading at $1 842/oz on Thursday afternoon.

This is while electricity costs in South Africa, which produces about four-fifths of global supplies, have increased at 25% a year for the past two years, and labour costs have also outpaced inflation.

According to Phillimore, the price of the white metal needs to climb significantly or companies won’t build new mines.

“You need an incentive price for new production, at current exchange rates, well north of $2 000/oz,” he said.

“The basket of prices, I think, has got to go up by a considerable amount if there’s going to be any incentive to spend the very large amounts of long lead capital.”

While prices have climbed from their recession lows, the weaker US dollar and stronger rand have squeezed South African platinum producers’ margins.

Lonmin will increase its output to 950 000 oz/y of platinum over the next five years, Phillimore said.

PERFORMANCE

Lonmin had struggled to meets its targets in 2007 and 2008, leading to the ousting of CEO Brad Mills in September 2008, in the midst of a hostile takeover attempt by diversified major Xstrata.

Then chairperson John Craven also stepped down in early 2009, to be replaced by Phillimore in March of that year.

Phillimore said he was pleased with the company’s progress since.

“I think it’s going very well. We’ve come a long way in re-establishing our credibility as a reliable producer,” he said.

“In terms of the way that operations have been restored, I’m very pleased.”

WATER UNDER THE BRIDGE

Asked about having Xstrata as Lonmin’s biggest shareholder, holding just under 25% of the company, Phillimore said the relationship is “entirely professional, and very straightforward”.

“What happened in 2008 was rather disagreeable. That is water under the bridge, they have been very good shareholders ever since,” he added.

Xstrata had been highly critical of Lonmin’s performance during its hostile takeover attempt, which it abandoned after having built up a large ownership of Lonmin.

Since then, speculation has emerged that Xstrata might consider having another go at the platinum miner.

Lonmin closed at £15.44 a share on Thursday in London – about half of the £33 a share the Zug-based miner offered to pay in late 2008.

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