Distressed PGMs sector’s ‘crisis’ can be resolved – analyst – by Nomvelo Buthelezi (MiningWeekly.com February 8, 2013)


The South African platinum mining industry – which hosts about 80% of the world’s resources – is in some distress, with the challenges it is experiencing including sluggish demand and significant amounts of the precious metal being brought back onto the market through recycling, increasing operating costs, greater stakeholder expectations, inadequate funds for capital expenditure projects and the need to improve extraction efficiencies as deposits are becoming deeper and more complex to mine.

But Cadiz Corporate Solutions mining and resources division manager Peter Major is adamant that “the platinum industry crisis” is not that bad, averring that “it is not a meltdown and there are ways through which the platinum industry can recover”.

He believes that the industry “can survive at the current platinum price of $1 700/oz. “The crisis can be resolved. The state of the industry is the result of a very positive macro environment – the industry grew too fast and, with the money that was coming in, overexpenditure took place,” Major tells Mining Weekly.

But professional services firm Deloitte’s Ebrahim Takolia stresses that companies need to assess all aspects of their operating costs and capital expenditure and improve extracting efficiencies, wherever possible, without compromising on safety, the long-term viability of platinum reserves or the industry.

As the industry is still reeling from events at Lonmin’s Marikana mine – where 34 striking mineworkers died in a standoff with police – picking up the pieces has become a more difficult task than had initially been envisaged.

The effects of the ‘successful’ labour negotiations, which saw the strikers being awarded hefty wage increases, with other mining houses following suit, will now take full effect. Number one platinum producer Anglo American Platinum has issued the first warning signs of buckling under the huge labour costs and other pressures: it has announced plans to close two mines, mothball four shafts, put a mine up for sale and shed 14 000 mining jobs.

“Ultimately, the years of above-inflation wage settlements have caught up with the industry and, for as long as companies are burning cash and mines are unprofitable, the industry will remain tentatively poised,” says SBG Securities PGM equities and commodities analyst Justin Froneman.

The industry has to deal with out-of- control cost increases.

For the rest of this article, please go to the MiningWeekly website: http://www.miningweekly.com/article/distressed-pgms-sectors-crisis-can-be-resolved-analyst-2013-02-08-1