SA ‘unable to fully cash in on PGMs’
• Sibanye-Stillwater CEO cites uncertain investment environment as major hurdle
SA producers of the majority of the world’s platinum group metals (PGMs) are unlikely to invest heavily in new projects because of the unfavourable investment environment in the country and tough lessons learnt from the past, says Sibanye-Stillwater CEO Neal Froneman.
SA producers of the majority of the world’s platinum group metals (PGMs) are unlikely to invest heavily in new projects because of the unfavourable investment environment in the country and tough lessons learnt from the past, says Sibanye-Stillwater CEO Neal Froneman.
Prices for PGMs are racing ahead in a global surge of commodity prices including iron ore and copper, but producers of the six metals making up PGMs are unlikely to invest too heavily in new projects, despite more than a decade of underspending on mines, Froneman said.
Sibanye, the world’s leading source of mine-to-market PGMs, has unveiled a R6.3bn capital investment programme in SA for two PGM projects and one in gold.
Froneman has stressed in the past that the K4 project in PGMs and the Burnstone gold are both partially built mines while the other PGM project is a fairly small opencast mine.
Asked during a webcast discussion with asset manager Ninety One about the prospect of SA PGM producers pouring money into growth to take advantage of a strong mediumand long-term outlook for the supply and demand fundamentals for these metals, Froneman said it was unlikely.
“I don’t think the environment, despite the improved fundamentals, actually allows for capital investment to happen because the hurdle rates in SA are still too high, because of risks associated with the lack of an investor-friendly environment,” Froneman said.
“We have many projects that are good projects in a normal environment, but when you can’t predict the price of electricity, which is 20% of your costs, or the reliability of supply, or the legal tenure of ownership because there are outstanding court cases, those investments are difficult to get board approval,” he said.
I DON’T THINK THE ENVIRONMENT, DESPITE THE IMPROVED FUNDAMENTALS, ALLOWS FOR CAPITAL INVESTMENT
Froneman is easily one of the most outspoken CEOs about the operating environment in SA, incurring the wrath of mineral resources & energy minister Gwede Mantashe, who has attacked him in public.
The cautious approval of projects by SA PGM miners was also because of the undisciplined approach to investments in the 1990s and early 2000s, which flooded the market with metal and led to years of subdued prices.
Those subdued prices combined with rapid price increases in SA for inputs such as electricity and other consumables, as well as above-inflation wage increases and labour unrest, squeezing profit margins and pushing companies such as Lonmin to the wall.
“The industry is acutely aware of the mistakes of the past when there was a lack of discipline in terms of capital expenditure, which resulted in oversupply, and it’s one of the reasons you have a relatively depressed platinum price,” Froneman said.
Froneman is also the vicepresident of the Minerals Council of SA, which represents 90% of the country’s annual mineral output.
SA is the leading source of PGMs, chrome and manganese. It is a major source of iron ore, coal, vanadium and zinc.