EDITORIAL: Platinum turns a corner
Trading updates from Amplats and Impala, the world’s biggest miners of the metal, give reason for optimism
Nearly seven years after an unprotected strike at Impala Platinum triggered widespread unrest in the Rustenburg area culminating in the Marikana massacre, has the sector finally turned the corner?
Two encouraging trading updates this week from the world’s two biggest miners of the metal — Anglo American Platinum (Amplats) and Impala — suggest it might have.
Benefiting from higher prices for platinum group metals (PGMs) — in particular palladium, which is trading at record levels — Amplats said it expects 2018 profit to as much as double. Impala saw its share price rise to a 14-month high on Monday after saying it will return to profitability in the first half.
This is good news, but it only tells part of the story. Impala is forging ahead with a painful restructuring at its Rustenburg operations, where it plans to cut 13,000 more jobs — mainly through asset sales — to ensure its long-term financial sustainability. Amplats too implemented significant job cuts after the appointment of Chris Griffith as CEO in 2012. His strategy included mine closures and asset sales to focus on low-cost mines.
In hindsight, biting the bullet early, rather than hoping prices would improve, was the more prudent way to go.
While PGM prices have risen somewhat since the second half of 2018, they remain near decade lows. Few market watchers would have expected the price of platinum, which accounts for the bulk of PGM production in SA, to remain this subdued for so long, highlighting why betting on price movements or a currency depreciation to keep shafts operating so often ends in tears.
What mining companies can control, to a large extent, is cost. The cheaper it is for you to dig metal out of the ground, process and refine it, and deliver it to your customer, the bigger the competitive advantage you enjoy. This is also why it is so important that administered costs such as Eskom’s electricity tariffs, or Transnet’s port and rail prices, in the case of bulk minerals, should be at globally competitive levels.
Griffith opted to focus on getting costs under control early on, embarking on a painful restructuring, and patient shareholders have been richly rewarded. After a dreadful decade, the stock has returned 104% over the past 12 months, comfortably outperforming its rivals and the JSE’s all share index, which managed a miserable 0.02%, according to Bloomberg data.
Paul Dunne at Northam Platinum has also been investing heavily to bring down its production costs, adding assets from the likes of Amplats and Glencore to get access to higher-grade ore, extend the life of two mines and increase smelting capacity.
By contrast Lonmin, which is about to be gobbled up by Sibanye-Stillwater, is the textbook example of how not to run a mining company. Despite spending billions, it couldn’t succeed at attempts to mechanise its operations in an effort to lower costs. Patient shareholders kept bailing it out with new equity injections, but ultimately poor management over many years — not only of its resource, but also host communities and its workforce — led to its demise. Thousands more jobs will perish in the platinum fields of Rustenburg as Sibanye-Stillwater takes control and combines its assets with purchases from Amplats’s earlier housecleaning efforts.
The question remains whether Sibanye’s CEO, Neal Froneman, has the Midas touch to get these unprofitable shafts back to profitability and whether it can restore trust with key stakeholders in the area. Relations with key union Association of Mineworkers and Construction Union, which has been on strike at its gold operations since November, have shown no sign of improvement. On the plus side, the record price for palladium — it has significant exposure to the metal thanks to its 2017 purchase of US miner Stillwater — may provide some financial room to breathe.
SA remains home to about 80% of the world’s known platinum reserves. With a friendlier business environment and with PGM prices seemingly having bottomed out, investors — and jobseekers — may want to start paying closer attention.