Image: Gallo

Platinum mine

That is one interpretation some analysts have placed on the pending departure of Implats CEO David Brown "to pursue his own interests" and his replacement by a company outsider, Terence Goodlace.

Couple that with Aquarius Platinum's CEO Stuart Murray's blunt statement accompanying his company's latest production results presentation that the South African mining industry is "a difficult place in which to operate".

Brown's resignation comes at the end of a year of squeezed profits for Implats and follows difficulties in Zimbabwe, where his company's operations are faced with progressive expropriation made worse by garnishee orders on Implats's bank accounts over a disputed $28-million royalty demand.

No sooner had Goodlace been named as Brown's successor than Implats's Rustenburg mine was hit by a strike by 20000 miners.

Murray made no bones about his belief that safety-related work stoppages, some of which he claimed were unjustified, were a leading cause of Aquarius's difficulties.

Aquarius also provides an example of what can go wrong when mining operations are left to outside contractors rather than being managed in-house. The question remains whether the use of contractors was felt to be necessary because of skills shortages.

As it is, Murray has blamed what he said was "underperformance" by a lead contractor for difficulties at his company's Rustenburg mines, adding that this has rendered the cost-reimbursable contractual arrangement untenable in platinum's current market environment. There should be more to come this week when Aquarius's interim results are due to be released.

Murray has skirted the issue of management's responsibility for Aquarius's travails. However, the recent production report makes the point that dollar prices for all platinum group metals (PGM) fell by between 14% and 17% in the December quarter while the rand, the currency in which the costs at Aquarius's South African mines are incurred, was on average only 13% down against the dollar.

Discerning any light in the PGM gloom is difficult. As metals consultancy Natixis points out, while platinum's $1720/oz average price in 2011 was 6% higher than in 2010 and palladium did better with a 37% average increase to $733/oz, by end-December both metals were trading near their lows for the year.

In London at present platinum's spot price is barely above $1610/oz and palladium's in the mid-$690/oz. Gold has been strengthening, to reach $1740/oz at the start February.

A major change has taken place - platinum's decades-long price premium over gold has been reversed for several months.

For the present, gold is trading at prices that reflect investor fears over the world's financial system while investment demand for platinum and palladium seems non-existent.

Last year, according to Natixis, platinum holdings in physically-backed exchange-traded funds (ETFs) remained largely unchanged year on year at 37 tons while the scramble that lifted palladium holdings by 80% to 64 tons in 2010 has gone into reverse. Last year ETFs cut their palladium holdings to 45 tons.

According to Natixis, global platinum supply increased by 6% to 200 tons last year though the South African mines' proportional contribution to the total slipped to 75% from the 77% to 78% of the preceding five years.

In South Africa, Natixis unsurprisingly states, the mines are suffering from rising wages, declining grades, increasingly deep operations and rising power costs. And those issues will not go away, the consultancy adds.

On the other hand, new production coming on stream in Zimbabwe lifted that country's contribution to 6% of the global platinum total in 2011, twice 2010's percentage.

As for 2012, Natixis forecasts better demand for petrol-driven cars in the US, Japan and developing countries, with consequently improved demand for palladium-based catalysts.

But in Europe, where half the cars are diesel powered and use platinum-based catalysts, the picture is gloomier.

On these bases, Natixis forecasts an average $1650/oz price for platinum and $750/oz for palladium. That points to a tougher year for South African mines.