[miningmx.com] – IT’S difficult to know what measures Mineral
Resources Minister Susan Shabangu can take to improve business conditions for
South Africa’s platinum producers. That is the intent of a report she commissioned
and which now awaits her attention. Asked if subsidisation was on the cards,
Shabangu responded that that was a “short cut’ her department was anxious to
avoid. So, what are the long-sighted, permanent policy adjustments she can make?
To be honest, it’s unlikely her department can generate the brio with which the gold
mining sector marched to New York in 1999 in protest of central bank gold sales; not
in the current economic climate. As Deputy Mines Minister at the time, Shabangu
was part of that initiative, led by Bobby Godsell and James Motlatsi. She remembers
it fondly. But the market forces driving down the platinum price are not so discrete,
nor as easy to influence, as the activities of some central banks.
So the only intervention the mines ministry can really mount is on the supply side of
the equation; principally cost controls.
In this regard, the stand-out major coup would be an entente with labour. Normally
50% of unit costs, wage increases have contributed to the massive cost hikes that
has driven about 80% of South African production into the red. Might Shabangu’s
idea to unify the industry for the sake of the platinum industry draw a more
conciliatory approach from the NUM during wage negotiation time? Doubtful, since –
as Eunomix’s Claude Bassiac observes – the labour vote is powerful within the ANC
and doesn’t march to anyone’s drum but its own. Drawing labour into guaranteeing
lower administered costs would be more doubtful still if the Associated Mineworkers
& Construction Union becomes the dominant union in the platinum mines.
A waiver of the royalties that all mining companies pay quarterly to the National
Treasury might be another option; perhaps a regulated electricity price is possible?
The less zealous approach of the Mines Safety Inspectorate regarding Section 54
stoppages – provided safety is not compromised – has already helped, as the last
thing the mines need is to be operating at anything below full tilt.
Or do they? Is Shabangu fighting against inevitable market forces that dictate the
price of platinum? According to Thomson Reuters GFMS, there’s a 450,000 oz
platinum surplus that can’t be wished away. Industrial and jewellery demand is
muted in Europe, sluggish in the US and uncertain in Asia. Less production will bring
a price reaction.
Yet, there’s no sign that South Africa will produce much less platinum than it is
today, notwithstanding the cost issues. Platinum miners are planning new production
regardless; Nkwe Platinum said today (June 12) it would spend R5.2bn
developing its 330,000 oz/year Garatau platinum mine. (Quite how Nkwe will raise
that capital in the current climate is anyone’s guess. One supposes they have a
plan).
And existing producers have no intention of scaling back in a way the aluminium
industry once achieved in the Nineties. Says Arne Frandsen, CEO of Pallinghurst
Resources, which owns Platmin: “We’re going a slightly different route as we’re
ramping up. We’re not going to let our ounces turn sour in the ground’. There are
even reports that Anglo American Platinum’s optimisation study is not as far-
reaching or as profound as the market is expecting since, it says, most of its mines
are profitable.
The report isn’t out yet, but it’s hard to see what can really be achieved by
Shabangu, whose investment sympathies are nonetheless admirable in an ANC
minister. In any event, there are bigger fish to fry, such as heading off the State
Intervention in Mining (Sims) report, which wants to tax the entire mining industry,
not just platinum, more heavily. At least in its stricken state, the platinum industry
provides Shabangu with the extra firepower to make a nonsense of Sims when it is
discussed at the ANC’s policy-making conference from June 26.
