Picture: REUTERS
Picture: REUTERS

Speaker after speaker at a platinum conference highlighted the parlous state of SA’s platinum industry and its declining relevance to world supplies, flying in the face of comments from Mineral Resources Minister Gwede Mantashe that there was no crisis in the sector.

While one executive spoke of the understanding Mantashe had behind closed doors in talks with companies about the dire situation in the local platinum mining sector, the minister could hardly be seen to describe it as an industry in crisis given his constituency and background in the ANC and National Union of Mineworkers and he could hardly concede the point, which could be seen as an endorsement of mine closures, suspensions and job cuts.

"It can’t be a crisis. My own diagnosis of the crisis in the platinum sector is relations with both the workers and communities. When you have a relationship with your workers they understand and they become partners in managing your mines. But we’ve seen a wave of strikes in the last few years and that tells you about the relationship and the impact of running of mines. If we improve that we’ll go a long way," he said.

But CEOs and analysts, talking at the one-day Johannesburg Indaba Platinum conference, were far blunter and realistic in their assessment.

Stephen Forrest, the chairman of metal research group SFA Oxford, which compiles data and reports for the World Platinum Investment Council, said the prevailing platinum price could be seen as a "closure price" rather than incentivising expenditure on staying in business or large new mines, creating a problem of falling supply from SA. He said that SA, the world’s single largest source of platinum, had fallen from 70%-80% of global supply to just above 50%, with recycled platinum making up 25% of supply.

Since 2008, SA had cut 1.5-million ounces of platinum production, with small companies closing shop and big mines closing shafts. Another 500,000 ounces of metal had been stalled from coming onto the market as projects were suspended, Forrest said.

"Today’s price is the mine closure inducement price. Today’s price at this exchange rate is what closes mines and doesn’t start mines," he said.

Paul Dunne, CEO of Northam Platinum, said the rand price for the basket of platinum group metals – the true measure of value for local miners – was down 15% from the November peak last year.

The rand platinum price was about R14,000/oz then and it is now about R11,300/oz.

On average, and looking at the industry on a cash cost basis, the top quartile of South African production, or 1-million ounces, is about R5,000 higher than the current rand basket price, meaning it costs miners R5,000 per platinum ounce more than they receive now.

"Against those numbers this industry today is having great difficulties," Dunne said, adding the industry had endured a difficult decade already, with low and volatile prices, regulatory uncertainty and labour unrest.

Patrick Mann, an analyst with Deutsche Bank, said that platinum production from the country’s conventional underground and labour-intensive mines was more expensive than recycled metal.

It was hard to see growth in the South African industry beyond Northam’s new Booysendal mine and Royal Bafokeng Platinum’s new Styldrift mine, Mann said.

He said the rand platinum price needed to be above R28,000/oz for the industry to be in a "healthy" position.

The local industry was shifting as quickly as it could to mechanised mining to lower costs, and Nedbank analyst Leon Esterhuizen said this was a damning indictment that SA had lost its labour cost advantage in the global mining industry, with falling efficiencies on underground platinum mines a major problem for companies.