Closures of platinum mines gain momentum amid underinvestment
The long-awaited and much-delayed closure of South African platinum mines is gaining momentum after years of underinvestment and cross-subsidisation of unprofitable operations as companies held out for improved prices.
SA is the world’s leading source of mined platinum, accounting for 80% of the world’s supply, but years of stagnant prices, unsettled labour relations and inexorable cost increases eroding profit margins have rendered more than half of the country’s platinum mines marginal or unprofitable for years.
Companies therefore have had little money beyond sustaining capital to invest in growth projects, sparking warnings from CEOs in recent years of South African platinum supply falling further from its 2006 peak of 5.6-million ounces. It has already fallen to about 4.3-million ounces a year.
In 2015, output was 4.6-million ounces.
Northam CEO Paul Dunne and former Impala Platinum CEO Terence Goodlace have both warned of steadily declining output, mainly because of underinvestment in existing mines and in new projects to replace old operations, with Dunne forecasting a drop below 4-million ounces.
A February report from Standard Bank precious metals analyst Leroy Mnguni confirmed the warnings, pointing out a large loss in production from the historical engine room of South African platinum production.
"The highest contributor to global platinum supply is expected to decline by 1,180,000oz … over the next 10 years," Mnguni said. He said the mines around Rustenburg supplied the world with 30% of its platinum, making it the single biggest contributor.
"Significant capex cuts in this region over the last five years and depleted reserves have undermined production sustainability," he said.
Johnson Matthey said in its latest platinum group metals report South African platinum mines would release 150,000oz of platinum from stockpiles and metal delayed by processing problems, giving a once-off boost to production numbers.
"World primary supplies of platinum are unlikely to change much in 2018, with the impact of mine closures in South Africa offset by a one-off benefit from the refining of some unprocessed inventory that accumulated last year ," it said.
Mnguni estimated 234,000oz of platinum supply would be shut down by 2021.
In the latest results from Implats, the world’s second-largest miner, CEO Nico Muller spoke of the closure of four shafts within two years, taking 190,000oz of the metal production out of circulation.
However, one of the shafts, Number 12, which generates 80,000oz a year, is receiving close attention to try and keep it open for longer and keep intact the company’s longer-term profile from its Rustenburg mines at 700,000oz.
Just four large shafts in the Rustenburg area will supply 80% of Implats’ 700,000oz target. If shaft 12 cannot be made sustainably profitable it is likely that Implats will only have 630,000oz coming from the Rustenburg area in 2022, a far cry from the 830,000oz target the company had set in 2016.
World primary supplies of platinum are unlikely to change much in 2018, with the impact of mine closures in South Africa offset by a one-off benefit from the refining of some unprocessed inventory that accumulated last year 
Some unprofitable mines have been kept open longer than they should have been in the face of resistance from the government and other stakeholders, including labour, and with some companies hoping for a recovery in moribund platinum group metals prices to save them from the exercise.
The unprofitable Bokoni and Maseve mines were shut in 2017.
Lonmin is also undertaking a major restructuring of its mines in an attempt to stave off severe financial problems and secure an all-share takeover bid by Sibanye-Stillwater.
Neal Froneman, Sibanye’s CEO, issued a stark warning to Lonmin recently that the company’s shareholders would not agree to acquiring Lonmin if there was debt in the company and its mines were not put on an even keel.
Lonmin has to cut 13,000 jobs to prepare the business for Sibanye’s takeover and position it to repay debt.
Anglo American Platinum has sold its deep-level and labour-intensive mines since it ran into a political firestorm in 2013 when it said it was to retrench 14,000 employees, shut four shafts and sell its Union mines.
The world’s largest platinum miner has since sold all its Rustenburg mines to Sibanye and sold its Union mine, leaving it with shallow, mechanised, profitable mines. Northam has scrambled to get shallow, modern, mechanised assets into its portfolio to ride out the weak platinum price cycle.
Dunne has said this strategy will create 6,500 jobs.