SA platinum sector is dead, long live the new platinum sector
The future of South Africa's platinum sector lies not in the deep-vein, shanty-town-lined mines of old but rather in the newer, shallower, more community-aware mines.
Posted: Thursday , 13 Mar 2014
GRONINGEN (MINEWEB) -
What was clear from the presentations and conversations in Toronto during this year's Prospectors and Developers Association of Canada conference is that the long-term future of South Africa's platinum sector lies not in the deep-vein, shanty-town-lined mines of old but rather in the newer, shallower mines that afford more opportunities to local communities and for mechanisation.
From a cost point of view, this, at least on paper, was obvious in a slide shown by Mike Jones, CEO of Platinum Group Metals, during his presentation.
As is evident from the graph, mines like Mogalakwena, which is a shallow open pit operation fall very low on the cost curve, especially compared to mines like Marikana - the site of so much of the violence that has beset the industry over the last two years.
As South Africa's Minister of Mineral Resources, Susan Shabangu pointed out to Mineweb last week, “If you look at the new mines in SA, they are completely different from your traditional mines, especially the old gold mines in the West Rand of Johannesburg and the platinum mines in Rustenburg.
“If you go to Limpopo and look at the new mines, they are completely different. Most of them are mechanized, they employ young, literate people. They no longer employ people who don’t have matric; they employ people with a grade 12.”
And, this is exactly the space in which Jones is hoping Platinum Group Metals’ new Waterberg discovery is going to play. Because of the type of reef that has been discovered on the Northern Limb of the Bushveld Complex, PTM says the ore can reclaimed through high tonnage room and pillar mining accessed from surface declines, which changes the type of labour required.
“These can be high-paying jobs. You have the productivity in this situation to pay a significantly improved wage,” he told Mineweb.
See also: Long term SA platinum game changer?
This is a similar to comments made recently by Ivanplats CEO, Robert Friedland, who reportedly told a mining conference in Johannesburg that Ivanplat’s Flatreef deposit would change the pay scales of platinum miners by an order of magnitude. This claim was moderated slightly, during his presentation at this year’s Investing in African Mining Indaba, but the sentiment remains: more mechanisable deposits mean higher levels of productivity and the capacity for significantly higher wages for workers with greater levels of skill.
According to Ivanplats geologist, Tim Dunnet, who spoke directly after Jones in Toronto, the style of mineralisation at Flatreef indicated platinum orebodies that were on average 24m thick with some areas much thicker. This is significantly higher than the types of veins commonly seen in the deep level mines on the eastern limb, where grading is generally between 40cm and 1.5m.
Jones told Mineweb, “I think it is going to be very different. I think that these deposits have the potential to create a paradigm shift in the industry and we look forward to being part of that change.”
Of course, neither Ivanplats nor PTM have yet got a producing mine. PTM's first mine, the Western Bushveld Joint Venture (WBJV) Project 1, is due to start production only in 2015. But the numbers are compelling, especially in light of the fact that the strike ongoing at the three majors operations is heading into its seventh week and the surplus of above ground stocks that is partly responsible for the weak price environment is being eroded.
Indeed, some estimates see the levels of above ground stocks falling to low levels by 2015 as demand increases and supply remains constrained, which fits in rather well with PTM's timelines, if such estimates turn out to be accurate.
But, where does this all leave the majors and the tens of thousands of workers currently employed in their mines?
The Rustenburg strike has, so far, cost the three companies close to R8bn in lost revenues, while the employees of Lonmin, Impala Platinum and Anglo American Platinum have lost over R3.5bn – long past the point where the benefits gained from an eventual increase would mitigate its impact to workers' bank balances.
And, it looks like the two parties are as far away as ever, especially since the spat between the CCMA and the Chamber of Mines.
For the companies the equation is simple, acceding to the current demands by the Association of Mineworkers and Construction Union (AMCU) will shutter the Rustenburg mines.
As Anglo American Platinum CEO, Chris Griffith put it to Mineweb, "At the moment we have a philosophical position that’s been taken by AMCU, with a demand of R12 500 on basic salary and a number of other demands. If we were to add those all up, it would mean a doubling of the wage bill for Amplats. Just to put that in rands and cents, that is a R13bn increase in the amount of wages, given that we increased again our debt level last year from R10.5 to R11.5bn. If on top of that we were to put on a level of R13bn of cost increases you can see that all of a sudden we wouldn’t have a company, and certainly we would have to go back to our shareholders and have to say to our shareholders ‘we want to close down the company by giving a R13bn increase in wages’.”
This sentiment was echoed by both Lonmin CEO Ben Magara and Impala Platinum CEO Terence Goodlace, who put an even sharper point on it, saying, " if you're paying something like R7bn in wages and salaries every year, if you were to more than double that it’s quite clear that the mines wouldn’t be able to survive and on that basis there wouldn’t be much point in operating. So we have to come to some sort of solution which is affordable and sustainable in the long run."
For AMCU, things are perhaps somewhat more complex, as there is definitely now a growing reputational risk to changing its demands, something that would be pounced on by other unions in the space. But, if AMCU president Joseph Mathunjwa is to be believed, there is something far greater than reputation at stake.
Asked at the very start of the strike if workers could actually afford further salary losses, he answered with another question, "can they really afford not to?"
Addressing the Cape Town Press Club during this year's Investing in African Mining Indaba in February, he said, while explaining the union's ideology, "Since 1867, during the diamond and gold rush, mining companies have only been interested in extracting the minerals and showed very little corporate social responsibility. It is flabbergasting and mindboggling that 2 centuries down the line we are still debating the issue of how these companies (who have amassed riches and wealth over the years) need to plowback to the communities. Workers continue to live in shacks, communities don’t have schools and the nation has a very unequal employment level."
The problem is, the economics of the old mines don't really work any other way.
As Goodlace explains, a shift to mechanisation is not really an option for all the mines, “With the current setup of the mines, that’s [mechanisation] quite awkward to do. For us it’s a volume game and we are actually in the process where we need to deliver more volumes but we are still operating narrow reef mining in a labour intensive way."
But, he added, "If you were to look at the future and say what about the possible new shafts which is 18 and 19 shafts which could probably only come into production in the middle 2020s you couldn’t perpetuate what we’re currently doing. So in that way those operations would probably fit into the equation that you’ve mentioned.”
For Magara, the benefits of mechanisation are clear, but he says, while part of the equation is figuring out how to compete as both a country and a platinum sector, “there’s also a reality from job creation of what it means and how we can make sure that there are more jobs.”
But, “If I look at the realities of the platinum industry, we are a sector which is possibly in the fiftieth quartile of the best paying in South Africa and that must be taken care of and cognizance of. Therefore, because of that our increase, as you may have seen, is in excess of 3% above inflation. So we have acknowledged what the employees are asking for, beyond that it’s not affordable.”
CPM Group Managing Director, Jeff Christian agrees telling Mineweb, "You’ve seen the South African platinum industry contract from around five million ounces a year down to about 4.1 million ounces in 2011-2012. It’s up to about 4.3 million ounces and frankly we don’t necessarily see it contracting sharply from here. But what it has to do is be more productive and more profitable and that probably means less production at a higher price."
There is no doubt that platinum mining in South Africa will continue, as Jones was eager to point out, "there are no better gold rocks on the planet than in SA," but the manner in which it will do so and how many people it can will employ in a few year's time is very much an open question.