Many analysts suggest that the South African platinum-group metals (PGMs) sector is not likely to have a promising future in the near term and some are not even convinced that conditions will become more favourable in the foreseeable future.
This is as a result of production costs continuing to rise, while commodity prices continue to fall, forcing companies to reassess their resources and reserves and declare that fewer of these can be extracted.
Minerals industry consultant Venmyn Deloitte mineral project analysts Iaan Myburgh and Gert Kriel agree with this outlook, stating that the PGMs sector has been depressed for more than two years.
“Although PGM price spikes have occurred, owing to South African supply constraints, the country has not fully benefited from the price increases, as PGM production resultantly decreased during these times, owing to labour unrest and challenging operating conditions,” says Myburgh.
Kriel comments that the platinum price fluctuated between $1 300/oz and $1 450/oz during May and June.
“Although the price fluctuations indicate an increasing price trend of late, this increase has not been sufficient to reverse the reduction in price of the preceding months and years.”
He adds that the future price of PGMs is likely to remain at subdued levels until there is stronger demand.
Kriel notes that, while many mines are marginal producers, the price of platinum is expected to rebound in the next two years, mainly as a result of likely platinum supply cuts.
The industry, however, will take longer than this to recover, as industry recovery usually lags price recovery.
Meanwhile, Myburgh notes that the cost of mining is a good indication of the platinum price margin. The platinum price needs to be more than $1 300/oz, as many mines that fall below this margin are expected to close.
Kriel and Myburgh predict a price of $1 800/oz in the long term, as the current platinum price levels are not sustainable.
One of the factors that has led to the present depressed state of the PGMs sector in the country is rising labour costs in skills-scarce job categories, as workers in these categories are demanding above- average pay increases.
In addition, increasing labour unrest in the face of rising living costs, complicated by ructions caused by competing unions, has become prevalent, notes Kriel.
Capital costs in all aspects of mining are also likely to increase, he notes. The increased costs will stem from factors such as increasing refrigeration costs, as some PGM mines get deeper and move further away from shafts.
Also, with the rand depreciating and revenue subsequently increasing, the costs of mine expansions (typically measured in dollar values) will also increase. All of these factors will be problematic and make for investment conditions in which it is difficult to raise capital.
“While this turmoil has caused a slight supply shortfall, the demand for platinum is not yet strong enough to result in a strong sustained increase in the price of platinum,” notes Myburgh.
The turmoil in the mining industry has led to actual and planned layoffs of mine staff, capital project cutbacks and impairments, as well as reduced platinum production forecasts.
In the short term, workers would have gained in monetary value, but it is likely that they will experience difficulty in the long term should the mines be uneconomical to operate.
“The long-term consequences of the turmoil in the platinum sector is that producers may lean towards more mecha- nisation and lower employment, with a resultant net reduction of employment in the country, as the wages that are currently being received and the wages that are being requested are not market related,” states Myburgh.
While mechanisation will have benefits, such as reducing the safety risks associated with mining and the number of shutdowns owing to safety concerns, mines that cannot afford mechanisation will possibly close down.
Kriel says it is likely that the PGMs companies that become more viable will be the ones that treat tailings and those that have easier-to-extract surface operations, as opposed to difficult-to-mine underground operations.
“These operations require less capital than traditional mining companies, since the tailings companies will extract platinum from the chromium-rich upper group two or lower group dumps, while the surface or near-surface mining companies will not have the expensive underground operations,” he explains.
Another way for platinum mines to remain viable is for the platinum industry to con- tinue adopting cost-saving measures.
Kriel and Myburgh also advise the platinum industry in South Africa to investigate the establishment of an industry regulating body.
The role of this body would be to regulate the supply that comes from the country and also to assist in ensuring that the platinum price is such that it makes platinum mines sustainable in the long term.
It is also advisable that, given the likelihood of mechanisation and staff layoffs, the industry transform itself to instead employ more labour in the industries that supply the platinum industry.