https://www.miningweekly.com

SA platinum industry holds major potential amid challenges

25th January 2013

By: Yolandi Booyens

  

Font size: - +

Increased operating costs, excessive production, weakening prices and industry perceptions are challenges experienced in the platinum-group metals (PGMs) industry, says corporate solutions provider Cadiz Corporate Solutions fund manager, mining analyst and consultant Peter Major.


Higher, uncontrollable and almost relentless mining costs and cost increases are evident in the PGMs industry. Therefore, it is necessary to examine where those costs and cost increases are coming from, he notes.


Labour stoppages, owing to legal and illegal strikes, safety stoppages and public holidays greatly impact costs.


“Even the amount of normal production days are not enough to balance costs and profits. A capital expenditure (capex) of billions of dollars is required to build a platinum mine. Operating 270 days a year is not efficient and owing to illegal and legal strikes, South Africa is not even operating at that level,” says Major.


Overseas mines work 350 days a year, which helps these companies absorb the large capex and fixed running costs of all mines. “South Africa must do the same,” Major stresses, noting that labour costs have increased well over 10% a year for the past ten years compared with South Africa’s 5.6% inflation increase over the same period.


In addition, electricity and supplies costs, which have risen by over 20% a year on average during the past ten years, all damage the platinum mines’ margins.


“From 2000 to 2008, platinum traded at nearly double the gold price. But for all of 2012, it was at a 7% discount to gold,” Major points out.
Platinum mines generate about $12-billion a year from the PGMs and base metals mined – more than the $10-billion generated by the gold and coal industries. “That makes platinum South Africa’s number one foreign exchange earner in mining,” he adds.


However, Major notes that the coal industry only generated $7.7-billion in export revenue in 2011 and $6.5-billion in 2012, while all South Africa’s PGMs production is exported. Only the base metals are used locally.


The $12-billion revenue generated from PGMs mines comprise platinum at $8.2-billion, palladium at $1.8-billion and rhodium at $700-million, notes Major, a featured speaker at the 2013 Investing in African Mining Indaba, from February 4 to 7, whose keynote address at the Cape Town International Convention Centre will be a review on PGMs.


“This is an appropriate topic for the 2013 Indaba as platinum mines host the majority of South Africa’s labour unrest and comprises more than half of the country’s $2.5-billion generated from mined resources,” he says.


It is also in the platinum industry where the Association of Mineworkers and Construction Union found the opportunity to increase its membership. It now has higher numbers than the National Union of Mineworkers at platinum producer Impala Platinum’s operations, highlights Major.


The labour unrest, where wildcat strikes broke out at platinum miner Lonmin’s Marikana mine, in Rustenburg, claiming the lives of 46 people before the strikes associated violence spread to other sectors, such as the gold mining sector, has been most acute in the platinum industry, Major states.

In early 2012, consultancy and research company Goldfields Mineral Services announced a global platinum surplus of about 800 000 oz, pressuring platinum prices for at least 12 to 18 months.


However, after the labour unrest that surplus is virtually gone. “It now appears the platinum market will be in equilibrium to deficit for at least the next 12 to 18 months – a huge turnaround in a four-month period,” Major points out.


Mining Weekly reported in November that the global platinum market will move from a surplus of 430 000 oz in 2011 to a deficit of 400 000 oz by the end of 2012, as supplies are expected to drop by 10% to 5.84-million ounces, owing to labour disruptions and mine closures in South Africa and a lower recycling of platinum as a result of a decrease in PGMs prices in general, platinum researcher Johnson Matthey predicted in its ‘Platinum 2012 Interim Review’.

Gross demand is expected to remain firm at 8.07-million ounces for 2012, with falling vehicle production in Europe and a slight decline in diesel cars in the European region to be largely offset by increased purchasing by Japanese and Chinese manufacturers, causing gross platinum demand in autocatalysts to soften only by 1% to 3.07-million ounces.

It is not only because of lost production decreasing excess stocks that PGMs prices have risen, but also the realisation that platinum mines in South Africa may limit or cut many of their planned expansion projects, Major notes.


“In future there will be less shafts, employees and new PGMs production projects in the industry, unless PGMs prices rise noticeably,” Major predicts.


Opportunities


He notes that there are many opportunities in the platinum industry with many avenues available to increase productivity by using the current workforce and facilities already in place. “New shallow mines have a much lower fixed cost base than deep old mines.”


Mechanised PGMs mines – where the orebody is mechanically extracted – can also achieve lower costs a ton than conventional mines. But this is dependent on the orebody. Mechanising a narrow or conventional seam will only increase costs.


However, a weakening exchange rate results in mechanised mines having a much lower rand hedge than conventional high-labour mines, which will impact more negatively on the highly mechanised mines.


“Without any safety stoppages, strikes and power outages, all of South Africa’s platinum mines will be economic at current metal prices,” Major states, adding that labour, management and community relations can play a big role in differentiating South Africa’s 30 platinum operations.
“Allowing these mines to work more than 300 days a year will also make a big difference,” Major stresses.


He notes that mechanised and shallow mines will hopefully be new trends in the PGMs industry and this will assist in lowering accidents and fatality rates. “Without either, platinum prices are likely to stay at the current fairly elevated prices.”


The average price of platinum for the past 42 years has been $950/oz in Real Terms, much lower than today’s $1 600/oz. During the 1990s the platinum price averaged around $500/oz in Real Terms.


He adds that South Africa is, by far, the dominant PGMs producer and produces 75% of the world’s platinum. America and Russia combined produce 18% and Zimbabwe produces 5%, but the country could easily triple this amount if its investment climate was improved.
“South Africa has over 80% of known PGMs reserves in the world. We could flood the market forever.”


No other continent, let alone country, can begin to compare with the availability and deposit sizes of the PGM minerals available in South Africa, which also hosts good infrastructure. This powerful environment can be substantially improved, says Major, adding that there are programmes in place to improve South Africa’s infrastructure and access to its mineral deposits.


Additionally, the country’s production rate can also be increased relatively quickly and cheaply compared with its competition, should commodity prices run up from current levels.


Major states that in his PGMs review at the 2013 Mining Indaba he aims to illustrate South Africa’s position on the metal price investment curve – taking into account the PGMs investment communities huge exchange-traded fund (ETF) and bullion holdings.


“I also want to present the platinum equities position in relation to PGMs, ETFs, gold and gold shares performances over the past five, ten, 20 and 50 years and where they lie in relation to all the other mining and resource equities available to investors – as well as traditional equity and alternative investments.”


Major states that he hopes his presentation spurs the South African government, unions, employees, municipalities and mining companies to work together and use all of the country’s advantages to its benefit by increasing minerals production, beneficiation and investment in the mining industry.

Edited by Tracy Hancock
Creamer Media Contributing Editor

Comments

Showroom

Weir Minerals Africa and Middle East
Weir Minerals Africa and Middle East

Weir Minerals Europe, Middle East and Africa is a global supplier of excellent minerals solutions, including pumps, valves, hydrocyclones,...

VISIT SHOWROOM 
Yale Lifting Solutions
Yale Lifting Solutions

Yale Lifting Solutions is a leading supplier of lifting and material handling equipment in Southern Africa. Yale offers a wide range of quality...

VISIT SHOWROOM 

Latest Multimedia

sponsored by

Hyphen, Eva mine, ferrochrome price make headlines
Hyphen, Eva mine, ferrochrome price make headlines
27th March 2024
Resources Watch
Resources Watch
27th March 2024

Option 1 (equivalent of R125 a month):

Receive a weekly copy of Creamer Media's Engineering News & Mining Weekly magazine
(print copy for those in South Africa and e-magazine for those outside of South Africa)
Receive daily email newsletters
Access to full search results
Access archive of magazine back copies
Access to Projects in Progress
Access to ONE Research Report of your choice in PDF format

Option 2 (equivalent of R375 a month):

All benefits from Option 1
PLUS
Access to Creamer Media's Research Channel Africa for ALL Research Reports, in PDF format, on various industrial and mining sectors including Electricity; Water; Energy Transition; Hydrogen; Roads, Rail and Ports; Coal; Gold; Platinum; Battery Metals; etc.

Already a subscriber?

Forgotten your password?

MAGAZINE & ONLINE

SUBSCRIBE

RESEARCH CHANNEL AFRICA

SUBSCRIBE

CORPORATE PACKAGES

CLICK FOR A QUOTATION







sq:0.108 0.141s - 92pq - 2rq
Subscribe Now