In the last months of 2014, the prospects for the platinum industry seemed even more gloomy than they had at the height of the mineworkers’ strike in South Africa. The triple uncertainties of the white metal’s selling price, labour instability and resource nationalism cast a pall of gloom over the industry’s prospects. Demand for platinum, however, is not going to disappear.
Far from outright collapse, the outlines of a restructuring of the industry are already visible in South Africa. That is critical because the country sits on the Bushveld Igneous Complex (BIC) which contains 80% of the world’s known platinum reserves and produces approximately 78% of global supply. The scale of the South African industry’s pre-eminence is shown by the fact that the second biggest producer, Russia, accounts for only 13% of global production. The only other African country that mines the metal, Zimbabwe, accounts for just 2%.
Perhaps the biggest uncertainty is the future price of platinum. When the volume of the metal’s production dropped by 12.5% in 2012, market pundits confidently predicted the price would rise in accordance with elementary supply and demand.
However, Moneyweb recently reported that since March 2013, platinum prices have plummeted by around 20%, prompting the world’s two largest producers – South Africa and Russia – to actively collaborate on ways to grow demand. According to South African mines ministry spokesperson Phuti Mabelebele, this will include ‘technology development and jointly exploring new applications for the metal’. Talks between the two countries will be held in early 2015.
Nearly half of world platinum production is used by the automobile industry to make catalytic converters (or mufflers), required by environmental regulations in almost all countries. Most of the remainder goes to the jewellery manufacturers, while industry optimists look to developments in fuel cell technology as a future growth vector.
The platinum price, however, has proven unpredictable. From a peak of over US$2 000 five years ago, it dropped dramatically during the first part of the 2008 global recession to US$850. At that point it seemed to be tracking global industrial demand as might have been expected. The price then quickly recovered to US$1 400 and surged to US$1 700 in 2013.
Since then, it has steadily dropped – and market-watchers have struggled to explain why. Some have referred to the stockpiles mining companies had put aside; others to the development of more efficient autocatalysts that use less platinum per unit. The hoarding of the metal by speculators is also thought to have an impact, as has the recycling and the substitution of platinum by palladium. The point is that, unlike most commodities, no consensus has been reached on explaining the market.
The uncertainty around the future of platinum is directly related to the metal’s dual nature. It is both an industrial commodity (and thus tends to track economic activity) and an investment commodity. But although it had been suggested that platinum had become a countercyclical safe-haven investment like gold, the 2008 crash showed this perception to be plain wrong. Investments have been speculative, buying low and selling when the price goes up. However, the industrial uses of the metal will drive its future.
This uncertainty is a window of opportunity for the bold, those who back their reading of the market or who think they can run a South African mine better than the present owners.
The recent woes of African platinum mining are well known. In South Africa, the industry has been bedevilled by repeated strike action, trade union rivalry and violence including, most dramatically, the shooting of 34 miners by policemen at Marikana in August 2012.
Over the five months in 2014 when the industry’s 70 000 workers were out on a wage strike, main-producer companies saw losses of some ZAR24 billion. However, this was far from the first labour protest to assail the sector. The problem started with the work stoppage by 5 000 mineworkers (mostly rock drill operators) at Impala Platinum’s Rustenburg mine in January 2012.
Strike action subsequently spread through the sector, driven by sometimes violent competition between the established National Union of Mineworkers (NUM) and relative newcomer Association of Mineworkers and Construction Union (Amcu).
There are those who believe they can make such enterprises work, and who see this present ‘crisis’ as an opportunity
The management teams of South Africa’s three platinum mining giants – Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin – battled to find stable negotiating partners and were frequently frustrated by the fact that the issues on the negotiating table did not appear to be the main concern of their bargaining partners: more often than not, the two main unions had more issues with each other than with management.
A more militant Amcu, closer to the grassroots, won out over a perhaps complacent ANC-aligned NUM, a significant element in the country’s ruling Tripartite Alliance. This meant that in the 2014 wage negotiations, Amcu were the dominant representative of workers in the platinum sector, in terms of South Africa’s restrictive labour laws.
Cheap, low-skilled labour has been central to much of South African mining since the discovery of gold in 1886. The significant continuities between the migrant labour system that characterised gold mining in particular during the apartheid era and conditions on the platinum belt were determined by the nature of the ore.
Platinum mining is well established along the eastern and western rims of the BIC, a 370 km-wide saucer that is shallowest at those two edges. As the reef is less than a metre thick, mining requires labour-intensive methods. In a typical traditional platinum mine, miners use hand-held pneumatic drills to bore holes, which are then filled with explosives. After blasting, the ore is removed from the stope using mechanical scrapers. Between 10 tons and 40 tons of ore yields one ounce of platinum.
These hundred-year-old methods sit rather awkwardly with the sort of large-scale industrial enterprise needed to make mining possible. Mines are considerably deep (Northam Platinum’s Zondereinde mine, on the upper western limb of the BIC reached 2 450m) – and very hot due to the area’s exceptionally sharp geological temperature gradient.
The wages of individual miners may be low but the capital investment required by the mine itself is enormous. Some observers consider the old-fashioned, deep-level platinum mines to be a thing of the past. With the nature of the ore bodies precluding much (although not all) future mechanisation, a much higher wage bill means that many of the more marginal shafts – perhaps half of those in South Africa – are under risk of closure. In July 2014, Amplats announced that it would be selling four of such mines and looking to exit two joint ventures.
However, Amplats will retain its investments in the newest – and some believe the most promising – part of the industry. These are the highly-mechanised open-cast mines on the shallow northern section of the BIC – the Platreef. Mined on scale for the first time in only 1993, this area has much thicker reefs, varying between 10m and 90m.
The jewel in the Amplats crown is Mogala-kwena near Mokopane (previously Potgietersrus) in Limpopo province. Amplats says that the heavily mechanised open-pit mine will last 39 years and will eventually be the largest open- pit mine in the world (7 km by 1 200m).
Sceptics might ask who would buy one of Amplats’ old-style mines. But there are those who believe they can make such enterprises work, and who see this present ‘crisis’ as an opportunity. One such company is Northam Platinum, currently owner of the world’s deepest platinum mine, which plans to double its production (to 1 million ounces per year) by expanding existing mines and through possible acquisition. This will lift the firm into the first rank of platinum miners.
Meanwhile, in late 2014 it was announced that Canadian-based Ivanplats (Ivanhoe Mines) had been given the go-ahead on what is set to be one of the world’s largest platinum mines. The ZAR1.6 billion Platreef project is expected to ‘attract foreign capital, create much needed jobs and contribute significantly to socio-economic development in areas surrounding the project’, according to South African Minister of Mineral Resources Ngoako Ramatlhodi.
Another player that recognises opportunity is Simunye Gold, which is seeking a way to enter the platinum sector. Simunye was originally part of the Gold Fields group, spun off to protect that company’s prime assets. However, Simunye made such a success of running its deep, marginal, labour-intensive gold mines that it ended up outperforming its parent company. Although it appears to have the experience and track record to take on a portfolio of traditional platinum assets, it needs to avoid taking on more than it can handle. Labour relations in platinum may prove to be more complex than those it so successfully managed in the gold sector.
The Zimbabwe experience illustrates another problem. When labour unrest devastated South African production, there was some impetus to shift investment to Zimbabwe with its notably quiescent workforce. This may still happen but resource nationalism has been a big hurdle.
In 2011, the Zimbabwean government began enforcing a law requiring foreign-owned companies to give majority ownership (51%) to black Zimbabweans. The major mining companies (Amplats, Aquarius Platinum and Implats subsidiary Zimplats) complied rapidly but were still subjected to harassing claims.
While there is a distinct lack of certainty in the platinum sector, certain changes are likely to be enduring. The future industry will be more mechanised and employ fewer people. This is part of a general transition in the South African mining industry, some of which has been and will be painful. Jobs continue to be lost and there may be further violent confrontations to come. But while some established companies seek relief, others will be seizing the oppor-tunities brought by change.