The local mining industry needs to shift its labour-intensive paradigm, especially if it hopes to reap the rewards of bearing 80% of the world’s platinum reserves, argues global mining strategist Virtual Consulting International partner Gideon Malherbe.

South Africa often regards the mining industry as a labour provider, with platinum latterly at the forefront of job creation. Mining, however, should not be seen as a labour provider, but as a skills provider, says Malherbe.

“South Africa is moving towards a populist sense of entitlement – pitting one part of the population against the other for political gain – a wrong which cannot be righted unless we change our way of thinking.”

Malherbe believes the mining industry should pursue mechanisation and automation to reduce unsafe low-paying jobs, improve skills and higher paying jobs and stabilise production volumes.

He says sceptics might point to plati- num producer Lonmin’s failed attempt at mech- anisation to reject the notion, but adds that the embattled miner failed because it did not follow proper new product development procedures while pursuing mechanisation.

Malherbe maintains that, had Lonmin invested in mine development “according to any basic mine plan”, it would probably be mechanised by now. “What they did was bet on mechanisation at the cost of developing the [existing] underground infrastructure to mine conventionally. So, when they experienced the inevitable blip with their new methods, they could not produce sufficient platinum in the conventional way,” says Malherbe.

He explains that, in most mechanisation projects, one would pilot and debug any new equipment and methods before rolling it out to the rest of the mine.

Lonmin reportedly shelved the idea in July last year, after announcing in 2008 that it would close its mines, stop growth projects and change its approach to mechanised mining.

Despite this one failed attempt, Malherbe maintains that mechanisation can and should be attained.

“Yes, this will lead to significant low-wage job losses, but the unemployment challenge is not exclusively the mining sector’s problem, it’s a national problem and, if the problem is distributed across all industries, per- haps then it will lead to a better solution.”

Industry Outlook

Last year’s prolonged wildcat strikes and safety stoppages paralysed numerous platinum mines, especially in the fourth quarter. This will result in a predicted 12% drop in platinum supplies to 4.25-million ounces, according to platinum researcher Johnson Matthey’s 2012 Interim Review.

However, the advantage of this misfortune for local platinum producers is that stockpiles are now diminishing. Without stockpiles, platinum pricing will settle around marginal pricing, which is positive from a supply-demand point of view, says Malherbe.

Further, he believes that the industry will be defined by the actions of South Africa’s top three platinum producers – Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin – in terms of restructuring the sector.

“These companies are going to negotiate and establish new rules and will drive the future of the platinum industry. Their focus from now on has to be on preventing runaway costs and I think the only way to do this would be to rationally rethink automation and mechanisation.”

Malherbe is positive about major diversified miner Anglo American’s (Anglo’s) appointment of Australian Mark Cutifani, head of AngloGold Ashanti, as its new chief executive because he believes that it bodes well for Amplats – the world’s largest primary platinum producer, accounting for 40% of the world’s supply.

“I definitely think Cutifani will provide Amplats CEO Chris Griffith with the impetus and support to fundamentally review the com- pany’s asset base and its labour structure,” he says.

Malherbe says Cutifani’s appointment will initiate a reconsideration of Amplats’ assets. Anglo, like the other platinum producers will have to consider the cost of each of their assets and find ways to enhance the platinum portfolio.

This means Amplats will need to lower production costs by slowing down or closing higher-cost mines and speeding up production of lower-cost mines.

“Hopefully, Griffith will take the lead in labour discussions at national and regional levels. Whether the industry decides on a new union structure or a multi-union construct, it needs to agree on a procedural labour representation solution,” he says.

Meanwhile, Implats and Lonmin are facing significant challenges, with the former needing to control runaway costs and the latter needing to solve its leadership vacuum, says Malherbe.

“This year marks a breathing point for Implats to regain control over their runaway costs and step back into business, with a strong focus on stabilising production and managing costs.”

Still, he predicts that the current high costs will affect labour stability, causing a high risk of strikes to continue in 2013.

“It would be naïve to believe that labour unrest and unemployment won’t continue in 2013. South Africa’s belief that mining must be a labour-intensive industry is an inefficient, antiquated way of thinking. Frankly, it’s unaffordable and not consistent with international social norms.”

Malherbe states that most developed countries are mechanising their mining industries and believes South Africa needs to follow suit if it wishes to remain competitive and reap the benefits of a well-endowed mining nation.

Lonmin is in deeper water than its counter- parts because of its lack of leadership, says Malherbe. “It wouldn’t be surprising if Lonmin faces significant cuts in its overall production expectations,” he says, adding that the platinum producer’s first port of call should be to establish a focused board and senior leadership structure.
Meanwhile, South Africa’s National Planning Commission has expressed faith in the platinum sector as a whole in the revised National Development Plan 2030, noting that unlocking the growth potential of the mining sector “relies substantially on platinum-group metals”.

Malherbe believes this to be a viable notion and says that the sector’s current volatility partly arose from an overemphasis on the financial crisis.

“The 2008 credit crisis led to the collapse of the car market, which led to a drop in platinum sales; but all commodities are cyclical, with periods of margin pressure. Leadership must, therefore, understand that their strategies should outlive business cycles, though the global economic crisis was a unique situation,” he concedes.