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Here in South Africa there is plenty of talk of
nationalizing the nation’s mines, especially the country’s
platinum mines. After all, SA is no longer the world leader in gold production,
while the country still produces 80% of the world’s platinum. In fact
platinum group metals (PGM) account for the bulk of SA’s mineral value.
However, as Nazmeera Moola points out in her “economic viewpoint”
column in the February 24th Financial Mail, PGM production has been falling
since 2007 at the same time profit margins fell, despite elevated prices. Ms.
Moola writes that margins dropped 5-10 percent last
year from the previous year, with rising wage and electricity costs to blame.
For the first time in years, the platinum price is
lagging the gold price, despite the fall in production. And production will
likely be further challenged going forward. Strike violence has not only led
to 59 hospitalizations but three deaths, with the latest being a contract
worker who was beaten to death. The body was found in Freedom Park near
Impala Platinum’s Rustenburg mine.
Impala dismissed 17,000 workers over the labor
unrest and 3,000 oz. of production is being lost each day. Through February
14th 60,000 oz. had been lost and the company announced that it would fall 40
percent short of fulfilling its contracted deliveries for April.
After six weeks, about half the the
dismissed workers had been replaced, but workers are being prevented from
entering the mine by striking workers. Some two dozen workers not wanting to
take part in the illegal strike remain in the hospital after being assaulted
by strikers.
Platinum mining is dangerous business and the South
African government’s Department of Mineral Resources, while aiming for
zero mining fatalities on the job, have stepped up the number of safety, or
Section 54, stoppages. These DMR stoppages can lead to complete mine
shutdowns.
According Ms. Moola,
Section 54 stoppages accounted for half the 14% year-over-year drop in
production at Aquarius Platinum, while causing Anglo Platinum to lose 101,000
ozs. of production in
2011. Impala’s production at Rustenburg was down in 12% in 2011 due to
Section 54 stoppages.
“The combination of deeper mines and the increased
focus on safety means mining techniques will need to adjust,” writes Moola. “This means less ore will be extracted and
costs will rise.”
Platinum expert Steve Forrest makes the point that
in addition to rising safety standards, there has been a lack of capital
investment in platinum mining, and he believes PGM production peaked in 2008.
Impala has announced that once the strike is settled
at Rustenburg, it will reassess the viability of each mine shaft at the
project. At the same time Anglo American CEO Cynthia Carroll is considering
either curtailing production at Anglo Platinum or getting rid of the company
entirely.
South African’s ANC considers platinum a
“sovereign resource.” So talk of nationalization could easily
turn into heavy-handed government action. In neighboring Zimbabwe, the
ham-handedness has already begun.
Just a week ago Implat’s
David Brown received a demand letter from Robert Mugabe’s Zimbabwe
government giving him two weeks to hand over the ownership of 29.5 percent of
his company’s Zimplats operation to the
state-run empowerment fund, threatening unspecified sanctions if it did not
comply.
Perhaps Brown knew this was coming, as he had
tendered his resignation weeks earlier, effective June 30th, with no
replacement named. Brown was hoping to meet with government, attempting to
negotiate a smaller taking, pointing out that handing over nearly a third
(and eventually 51 percent) of the Zimbabwe operation will stop the
company’s growth prospects.
Zimbabwe’s Empowerment Minister Saviour Kasukuwere says he is
“sick and tired” of Brown’s delaying tactics regarding the
ceding of shares under Zimbabwe’s controversial indigenisation
legislation.
“We can only engage him if he comes here to
implement the law,” Kasukuwere told Reuters, after
stating that: “The problem with Brown is that he talks too much. We are
sick and tired of his delaying tactics.”
Kasukuwere was quoted by Associated Press as saying that a
proposed visit by Brown would not change the government’s decision. He
also said he has no plans to meet Brown.
“I don’t need to meet them over
anything. Why are they coming to see me? I’m not a zoo,” Kasukuwere told The AP. “I have nothing to discuss.
They must respect the laws of this country.”
Just a day after the Empowerment Minister’s
threatening comments, Zimbabwe Prime Minister Morgan Tsvangirai
spoke to a trade and investment conference crowd in Johannesburg trying to
drum up investment in his country. Using his best salesman spin, Tsvangirai called the indigenisation
policy “rhetoric rather than reality.”
Business leaders in South Africa are talking about
the opportunity for a “platinum valley,” emulating
America’s Silicon Valley.
“Both big business and government are singing
from the same hymn sheet of diversifying potential demand for platinum within
the huge global energy arena,” writes Martin Creamer for Mining Weekly.
“Platinum, clean energy and jobs can go hand in hand with the
development of hydrogen fuel cells – zero-emission devices that are
able to shrink the world’s carbon footprint.”
All this feel-good, job creating, clean energy
rhetoric sounds great for spurring platinum demand and putting people to
work. However, the government’s thievery (or threats to) of platinum
assets only serve to stifle capital investment, leading to continued lower
mine output.
Sadly, in a region with unemployment well over 20
percent and rampant poverty, the abundant precious minerals will stay in the
ground, while millions living above ground starve.
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