The ongoing unrest, owing to labour challenges in the platinum mining industry, has tainted the global perception of South Africa and has had a negative effect on the country’s economy, which has led to knock-on effects, such as a dramatic weakening in the rand that will lead to a hike in fuel prices, states consulting and management services firm Deloitte executive Ebrahim Takolia.

He explains that labour unrest issues, which flared up in the country in 2012, have become bigger challenges than operational and strategic issues and would have been manageable if the platinum industry was not in crisis in every other area.

“Looking at the current positioning of the rand, it is clear that the South African economy has been impacted on by the unrests in the mining sector, which reduced exports and increased the country’s current account deficit,” Takolia says, adding that the mining sector is the biggest contributor to export earnings in South Africa and, therefore, any disruption to this affects the country’s current account deficit.

He states that the greatest challenge in the platinum mining sector is that mining investors are long-term investors and they need stability.

“Challenges such as labour unrest create problems, even though they are short term. International investors might defer investments in South Africa and move to other countries in Africa,” Takolia notes.

He adds that, in addition to labour unrest, calls for above-inflation increases in salaries further exacerbate the problem and could compromise the long-term viability of ope- rations, as labour costs are the largest cash cost component of a mining company.
“Global economic conditions continue to remain subdued, which directly impacts on the platinum price, as it is underpinned by industrial production in Europe and jewellery demand in Asia,” he notes.

Takolia points out that the platinum industry urgently needs to look at resolving these labour issues, as it cannot, to a large extent, be controlled by the local industry.

“Other contributing factors that the local industry cannot control, include weakness in the economies of Europe and Asia,” he states.

Meanwhile, Takolia points out that the production of catalytic convertors, the biggest industrial consumer of platinum, is becoming increasingly more efficient and requires less platinum and palladium. “Recycling now also accounts for a significant portion of platinum brought onto the market.

“The platinum industry has pinned its long-term hopes on hydrogen fuel cells. However, low-cost proton exchange membrane fuel cell developer, ACAL Energy, has developed, using a liquid chemical catalyst based on detergents, a catalyst that the company claims requires 80% less platinum.

“The company claims this fuel cell will result in a 25% reduction in cost and has enhanced longevity, durability and adaptability, compared with current hydrogen fuel cell prototypes,” he explains.

Takolia notes that a much-talked-about Citigroup report, which indicated that South Africa has $2.5-trillion of mineral reserves, was largely based on the assumption that South Africa could economically extract its platinum-group metals (PGMs).

“Owing to the current challenges facing PGM mining, this number must now be substantially lower. For example, before the industry became unstable, mines were able to extract a much higher proportion of the PGMs than they can now, owing to lower metal prices,” he says.

Takolia states that, while there is still a shortage of highly specialised skills in some areas in mining in South Africa, the current downturn in mining will ease demand for some skilled and semiskilled workers.

He adds that the biggest potential for growth lies in creating significant new markets for products requiring PGMs, particularly in Asia, which can offset effi- ciency gains in production and increased recycling.

“This will result in increased net demand for PGMs,” he concludes.