South Africa’s platinum mines have been idled for the past three weeks as the country rides out a national lockdown to curb an anticipated surge in Covid-19 cases across the country.
However, while mining majors have indicated confidence that they will be in a position to recover, they will likely emerge from the shutdown battered, with the full impact of the Covid-19 virus difficult to predict.
Further, the impact is likely to extend beyond the lockdown.
On March 27, most mines across South Africa halted operations, following an unprecedented government directive that left most mines on critical care and maintenance, resulting in the declaration of force majeure by miners on several contracts.
Government invoked the South African Disaster Management Act to give effect to a 21-day national lockdown, nearly a month after South Africa confirmed its first Covid-19 case.
In the preceding two weeks, government introduced a range of restrictions, from physical distancing to the cancellation of events and gatherings in a bid to reduce spread.
At the time of writing, South Africa’s national lockdown was set to lift by April 17.
Following the lockdown announcement, platinum miners scrambled to mitigate the risk of ramping down production, ensure protocols were in place to maintain the mine while under lockdown, enable the safe operation of the mines’ essential services and facilitate the safe resumption of operations after the lockdown period ended.
“[Essential] operations will continue to operate at reduced levels, using stockpiled ores or lower levels of mining production, while ensuring that due care is taken with preventative and monitoring measures to protect those staff,” said Mineral Resources and Energy Minister Gwede Mantashe at the time, acknowledging the importance of maintaining value-adding mining infrastructure and facilities, particularly refineries and smelters, which cannot easily be switched on and off.
This meant that the mines started operating with skeleton staff who ensured security, ventilation, cooling and pumping, refrigeration, tailings facilities and specialised maintenance, water treatment and critical head office services, besides others, continued uninterrupted.
“This would be unprecedented in the history of mining in South Africa. There were certain times when components of the industry were closed, for example, during the Second World War, but this is unprecedented,” newswire Bloomberg quoted Minerals Council South Africa CEO Roger Baxter as saying.
The closure of operations prompted platinum producers Anglo American Platinum (Amplats), Sibanye-Stillwater and Impala Platinum (Implats), besides others, to declare force majeure on several contracts.
Minerals Council South Africa continued to explore solutions to ensure that the lockdown did not lead to permanent damage to the industry, particularly as marginal and lossmaking mines would have difficulty reopening without remedial measures.
“There are other creative solutions being explored, including [those] by organised business as a whole, that could assist the survival and eventual recovery of the industry and the economy. The mining industry intends to be at the forefront of exploring these solutions, as we seek to ensure the long-term sustainability of our industry,” Baxter says.
During a video interview with Business Day, Nedbank precious metals equity analyst Arnold van Graan said that the materially negative impact of the shutdown would go beyond the 21-day lockdown, as the mining companies had prepared for the shutdown only a few days prior to its announcement and, with the post-lockdown ramp-up period, there would be a further production impact.
Mitsubishi Corporation International (MCI) expects South Africa’s platinum supply to reduce by 7%, or by between 200 000 oz and 300 000 oz, in light of closed operations.
This in a market that produces 70% of the world’s platinum supply.
Further, closure of the mines for at least three weeks will impact on an already tight palladium market, despite the country accounting for less than 40% of primary mined palladium supply.
“We can expect lost output of around 200 000 oz in a ten-million-ounce market, which will affect material availability at the margins, but the impact on sentiment and the potential for ongoing disruption is far greater,” says MCI in its latest precious metals update.
Prior to the restrictions and subsequent lockdown, the World Platinum Investment Council (WPIC) had forecast platinum supply for 2020 to narrowly exceed demand by 119 000 oz, which indicated a more balanced market, with total supply of 8.1-million ounces and total demand of 7.99-million ounces.
“In November 2019, we published a forecast predicting a sizeable surplus for 2020. Today, however, we forecast a near-balanced market in 2020, where supply will exceed demand only by 1.5%,” WPIC CEO Paul Wilson commented at the time.
The outlook was driven by strong industrial and growing automotive demand, with upside from reducing carbon dioxide emissions and responding to palladium shortages.
This had followed a platinum surplus reduction of 65 000 oz in 2019 from 790 000 oz in 2018, with total supply up 1% and total demand up 11%.
However, the WPIC’s Platinum Quarterly for the fourth quarter of 2019 warned that Covid-19 fears continued to rattle markets worldwide, with expectations that platinum demand would be impacted should the virus not be contained within months.
While the lockdown is expected to significantly reduce the year’s platinum group metals (PGMs) production, the effects of Covid-19 have already slowed demand from global car companies and the jewellery sector.
“While the mine shutdowns have the potential to move the platinum market into deficit this year, it must be considered that the global automotive market is also being severely affected by Covid-19 lockdowns globally,” MCI points out.
“The 21-day lockdown in South Africa, which would significantly reduce 2020 PGMs production, should go a long way to offsetting the demand impact of the outbreak,” Graan indicated in a Reuters report.
“This should ensure that the market is not flooded with unwanted supply while demand is low. This would contribute significantly to keeping the PGMs market fundamentals intact.”
The MCI report shows that, in Europe, diesel car sales dropped by 8% in February alone, and the firm expects a potential drop in sales of 80% or more going forward, which could remove 500 000 oz from platinum demand and effectively keep the market in surplus.
“The automotive sector is facing its biggest existential crisis since the 2007 to 2009 financial crisis, with 97% of light-vehicle manufacturing plants in Europe and North America temporarily shut down,” data and analytics company GlobalData notes.
GlobalData’s latest estimates for Europe and North America show that some 2.5-million light vehicles have been removed from production schedules, says GlobalData automotive analyst Calum MacRae, noting that 168 out of 173 light-vehicle manufacturing plants in these markets, and many others, halted operations in March and April for varying amounts of time.
“The speculative nature of the squeeze suggests it will be short-term; however, everything hinges on how quickly mine production can resume in South Africa and whether other countries’ mining and refining operations will be closed,” MCI notes.
“What appears clear, given the uncertainties on platinum supply and demand right now, is that it will be a volatile time for both prices and forward/lease rates,” says MCI.
In a Business Day interview, Minerals Council South Africa chief economist Henk Langenhoven explained that the ramifications of these shutdowns were almost impossible to calculate.
“We need to give this time and see where it settles, and where the metal prices settle,” says van Graan, noting that, prior to the lockdown, the mining companies had benefited from “exceptionally strong” metal prices and a plunging rand.
“Once we get clarity as to the real global economic impact on demand, only then can we really start to assess the medium- and longer-term impact of this,” he notes.
As the platinum miners responded to the lockdown, many measures were put into place as the miners initiated care-and-maintenance procedures to ensure a safe and sustainable return to production as soon as the lockdown orders were reversed.
Many warned that the suspensions would adversely impact on output from the mines for the year, and that previous 2020 production guidances would be altered.
Sibanye-Stillwater quickly embarked on a high-level response to develop and implement protocols, procedures and systems to measure and identify the risks and develop and implement proactive measures to mitigate Covid-19 risks, not just in South Africa but also in the US, where its PGMs operations are considered “critical infrastructure” and are operating, albeit with fewer staff.
Amplats undertook a controlled ramp-down of its underground mining operations at Amandelbult, the Modikwa joint-venture (JV) and the Kroondal JV, as well as at the Mortimer and Waterval smelters.
The mining operations at the openpit Mogalakwena mine and at the mechanised Mototolo mine are expected to continue on a reduced basis, with the Polokwane smelter operating to smelt this material into furnace matte.
Critical care and maintenance work will continue at all operations and will include the ongoing repair of the Anglo Converter Plant Phase B unit.
Meanwhile, Implats says it has a robust response plan in place to respond to the unfolding Covid-19 pandemic and regularly reviews and adapts its response plan to ensure it remains robust, relevant and fit for purpose.
“We are working closely with governments and regulators at all levels in our countries of operation – South Africa, Zimbabwe and Canada – to ensure we do what is necessary to mitigate, as far as possible, the impacts of this global crisis on our operations, our employees and our host communities.”
Implats’ South African operations – Impala Rustenburg, Marula and Impala Refining Services – were successfully ramped down. Force majeure letters were issued to all consultants and contractors to legally suspend obligations under existing contracts for the duration of the lockdown.
The group applied for permission to conduct limited smelting operations at Impala Rustenburg and limited operations at its Springs refinery to allow some in- process inventory to be treated during the lockdown period under controlled conditions.
Meanwhile, Jubilee Metals is confident that its robust business model, strong liquidity and proactive measures will enable the group to withstand the disruption, minimise costs and maximise production.
“Jubilee Metals will continue to monitor the situation and put in place further measures should the lockdown period be extended or the situation for whatever reason materially changes,” says CEO Leon Coetzer.
Meanwhile, Eastplats temporarily closed all operations, including the current remining operations at Crocodile River Mine, with some critical underground care and maintenance activities continuing, while Tharisa idled its PGMs smelter and declared force majeure on its contracted chrome concentrate sales agreements.
Royal Bafokeng Platinum (RBPlat) placed its operations under care and maintenance, with only essential services in place to facilitate remote work for employees that are not required to work on site to ensure business continuity, as best it could.
‘At this stage, it is difficult to predict the full impact of Covid-19; however, we will take guidance from the relevant authorities, monitor the situation closely, and take all possible actions to manage and mitigate this situation in our workplace,” says RBPlat CEO Steve Phiri.