Platinum truly needs a friendly ear in Pretoria

Enjoying a hearty breakfast with our new minister last week, it was not difficult to conclude that Gwede Mantashe has very strong views. In conversation, he made it clear that he does not consider the platinum industry to be in crisis and, by the way, Northam put the shaft in the wrong place! I nearly choked on my sausage.

Mantashe has 31 years of experience in the mining industry and is a straight talker. His views are to be respected, and he speaks from the heart, albeit from a strong political standpoint.

The minister understands the gold mining industry and how the dollar price of gold relates to the success or otherwise of gold companies.

However, gold is not platinum. There are very significant structural differences. Platinum companies produce a basket of metals including palladium, rhodium, gold, base metals and, of course, platinum. The rand basket price that we receive for all our metals on a weighted basis is the true measure of revenue.

In nominal terms, the basket price today is the same as it was 10 years ago. Inflation in costs is inexorable and has severe consequences — resulting in some operations becoming loss-making.

In response, management teams have suspended dividends and in some cases cut back on mine development. The lemon has been squeezed several times.

In addition, the surface infrastructure and metallurgy associated with platinum group production is complex. This brings a high degree of fixed costs and a higher unit cost when volumes reduce.

To throw a cheeky comment back at Bernard Swanepoel, who hosted the breakfast, “you can produce gold in a cooking pot with a blowtorch”.

Strategic options for the platinum industry have been reduced to: rationalise, close or consolidate. Production from the Western Limb of the Bushveld is set to fall further as ore bodies are depleted and a decade of underinvestment is realised. A lengthy supply correction is inevitable. South Africa has lost over a million ounces of annual platinum production since 2008 in a global market of eight million ounces.

There is no question that our platinum industry is in a great deal of trouble. The stakes are high — the industry employs 176 000 people and has a high economic multiplier effect. It is important that the government, industry and labour work together. We need greater alignment on policy, and a successful Mining Charter negotiation would be a good start.

The industry is in need of a friendly ear in the government and it is quite possible we have one in Mantashe. Our responsibility is to ensure he is well briefed on today’s difficult circumstances and we in turn need to offer pragmatic solutions.

Back to Northam. In hindsight, it would have been wonderful if the Zondereinde shafts were a couple of kilometres to the west. However, Northam did not own that ground at the time of shaft sinking. Today we do, and we look forward to accessing the high grade Merensky ore in the newly acquired Western block.

Strategic options have been reduced to: rationalise, close or consolidate