Platinum still battling ‘world’s worst hangover’

Production in SA 70% lower than pre-crisis level

SOUTH Africa, the world’s biggest platinum producer, has seen its production of the metal tumble almost 70% in the past eight years. The latest production figures show the trend continuing.

Producers have been punished by the perfect storm of 2008’s global financial crisis, which pushed the platinum price down from $2 250 an ounce to $777.50 in the space of a year; a five-month industry strike in 2014, which cost it R24-billion in lost revenue; and a slowdown in demand from China.

In 2006, South Africa produced about 5.3 million ounces of platinum. In 2014, production stood at 3.1 million ounces, according to the latest available data from the World Platinum Investment Council.

Peter Major, a mining analyst at Cadiz Corporate Solutions, said: “We have spent billions in platinum. It’s not sustainable. Our industry borrowed money and because platinum was going up the bank was happy with companies borrowing money. And now that everything is back to normality, it’s like you woke up with the worst hangover in the world.”

He said that although global factors played a role in the drop in production, companies had also made bad moves that contributed to the decline.

Lonmin said this week that its production for its 2016 first quarter was 1.7 million ounces, 22.6% higher than the same period last year due to an open smelter that had since been brought back on line. Its platinum group minerals production for the quarter was 11.8% lower than the previous year due to safety stoppages.

Amplats production in its fourth quarter was largely unchanged compared to the same period in 2014 and production at Aquarius, one of the smallest mines, was up by 0.5% yearly and declined 4% quarterly.

Revenue at the small platinum mine — hit hard by rising input costs — declined by R25-million this quarter. The company’s revenue has declined 220% since 2011. Aquarius is soon to be acquired by Sibanye Gold.

Major said small platinum companies stood no chance of surviving in this economy. This had been historically proved, he said: Cecil John Rhodes tried it with diamonds and Henry Oppenheimer tried it with gold.

“People were dying every day; no one was making money. Big companies are more efficient, they do better training, there are more safety measures. Aquarius had to get taken over with these low platinum prices,” Major said.

He said that apart from electricity costs and labour, the government also had a role to play with policies and legislation that really hurt mining companies.

In North West in Rustenburg, a small community called Chaneng makes its living by working in the mines. It has seen jobs cut as companies move to more efficient ways of mining.

Major agreed that there was an indirect proportionality between the increase in production and the number of people who worked in mining as the years went by. “We probably had a few more people then than we do now. In 2008 the South African platinum sector employed more than 230 000 people, but today it’s probably closer to 140 000 to 150 000.”

Mining companies such as Impala Platinum, which still has a life-span of about 30 years, and Royal Bafokeng Platinum, which started operating a new mine, Styldrift, in 2010, still see an opportunity to continue producing.

And while platinum production decreased in the past 10 years, demand, driven by autocatalysts in the automotive industry and jewellery, has been on the rise — albeit slowly — in the same period.

The increase in the platinum price this week, which rose 4% from last Friday to $887 (about R13 800), might provide a glimmer of hope for the industry.