Platinum industry on brink, Chatham House Rule meeting hears

JOHANNESBURG (miningweekly.com) – Fifty per cent of South Africa’s increasingly fragile platinum-mining industry was loss making under current prices, a Chatham House Rule roundtable has been told.

The Chatham House Rule disallows the revelation of the identity and affiliation of the speakers, but allows what they say to be published in unattributed form to facilitate the bringing into the public domain of important information.

The rule was being evoked, the meeting was told, because of the sensitive nature of the contents under discussion.

The roundtable on the topic of African National Congress (ANC), the South African Mining Industry and Nationalisation heard that mine shafts were heading for closure and that considerable retrenchment was in the offing.

The meeting was told that at the core of platinum’s woes were excessive production costs, which had soared from the $800/oz when capital expansions had been implemented eight years ago, to $1 500/oz currently.

“It’s extraordinary what’s happened,” the meeting heard.

Speakers attributed the cause to mainly poor government policy, management problems and high administered electricity prices, which had risen from 17 c/kWh in 2007 to 54 c/kWh now, an increase of 218% in five years.

The cost of labour had risen 12% a year in the same period.

The view was reiterated that electricity was becoming far too expensive to facilitate South Africa’s aspirations of leveraging industrialisation and beneficiation off its metals and minerals base.

It was difficult to introduce energy efficiency into the mines because of their depth and magnitude and the shifting of 500 MW from peak to off-peak periods to reduce the overall demand profile had proved insufficient to offset the rapid increase in costs.

It had to be recognised that there could not be an indefinite increase in the cost profile while there were excessive hikes at the pricing level.

The industry was in “a very difficult space at the moment” and there was a strong call for the policy discussions to be synchronised with the economic realities being faced.

The recommendation of some that South Africa and Zimbabwe cartelise platinum was rejected as ill advised on the basis that the metal was not like oil, which was unsubstitutable, and could also come up against strong recycling initiatives.

While it was recognised that the mining industry as a whole needed to coordinate its efforts to uplift the lives of near-mine communities, effective outcomes would be impossible without industry growth.

Even before Marikana, mining was shrinking at a rate of 1% a year at a time when other mining jurisdictions were growing at an average rate of 5% a year.

The unusual step of the National Treasury to condemn the regulatory system as opaque and inefficient was significant as it was rare that one government department criticised another.

The government was censured further for failing to insist on broad-based black economic empowerment to be mandatory when it revised the mining legislation in 2010.

The hard lesson of the Marikana tragedy was that the mine community and the mineworkers had not been made part of any empowerment scheme.

Unlike the original Mining Charter of 2002, the revised mining charter imposed obligations on the mining industry alone and left both the government and labour without obligation.

If South Africa was serious about moving in partnership with business and labour, those obligations needed to be replaced on both government and labour as a matter of urgency.

In the case of Marikana, Lonmin’s bypassing of the National Union of Mineworkers and its effective direct negotiation with mineworkers completely undermined the collective bargaining system, which was a key aspect of South Africa’s Labour Relations Act passed in 1995.

Marikana also illustrated the appalling living conditions on the mine, which indicated that the social and labour plans under the Mineral and Petroleum Resources Development Act were malfunctioning.

Moreover, local government in Rustenburg appeared to have collapsed completely after having received five qualified audits from the auditor general and no audits at all this year as a result of auditors being unable to express an opinion on the municipality’s accounts.

Much of the commentary on mining and the ANC’s policy proposals were based on the industry being highly profitable, even though the opposite was currently the case.

The reality was that commodity prices had fallen and were poised to fall further and production costs were soaring, which had put substantial parts of the sector in serious financial trouble.

At the same time, the government was failing to provide the policy clarity that the private sector needed.