Johannesburg - Construction of the biggest platinum mine planned since 1993 is being delayed because of an impasse between billionaire Robert Friedland’s Ivanhoe Mines and South Africa’s mines ministry over the extent to which local communities will benefit.
South Africa’s Department of Mineral Resources delayed authorisation to start building the $1.6 billion (R17 billion) Platreef mine by 12 weeks to a target date of November 26, saying some elements of the company’s plan to benefit the surrounding community were “sketchy” and did “not offer much,” according to an October 2 letter sent to Ivanhoe and seen by Bloomberg.
The department said its demands were “not exhaustive” and it may request “further clarification” before it gives the go-ahead.
Ivanhoe chief executive Lars-Eric Johansson said in an October 9 response to the mineral resources department, a copy of which Bloomberg has obtained, that “We believe that each and every formal request by your department to date has been accommodated.”
The department’s demands come amid opposition by some groups from one of South Africa’s poorest communities in northern Limpopo province over how Ivanplats, the Vancouver-based company’s local unit, brokered a deal to sell community members a stake in the project to meet government requirements.
South African mines minister Ngoako Ramatlhodi has asked to meet Friedland to resolve issues, the department said October 30 in an e-mailed response to questions.
The department “cannot ignore complaints from the community and is duty-bound listen to the communities and address their concerns,” it said.
Job Cuts
“The department regrets the leakage of correspondence with Ivanhoe wherein fundamental regulatory issues are distorted and trivialised,” it said.
The department said it “has not delayed the issuing of the mining right” and the minister is seeking a meeting with Friedland to resolve the issues.
Ivanhoe said it can’t comment on correspondence with the ministry because it’s confidential.
The company said on October 15 it took a legal step allowing it to consider cutting 325 jobs at Platreef while it awaits a definitive date for the mining-right approval -- the final notary hurdle before it can start digging the mine.
Projected to produce at least 785 000 ounces of platinum, palladium, rhodium and gold, an industry measure known as 4E, by 2024, platreef is one of three projects -- none of which are in production -- that if built will extend the success of Ivanhoe founder and executive-chairman Friedland in starting mining projects.
He sold the Voisey’s Bay nickel mine in Canada to Inco Ltd. for C$4.3 billion ($3.8 billion) in 1996.
In 2012 he relinquished control of the $6 billion Oyu Tolgoi copper-gold mine in Mongolia to Rio Tinto Group.
Unemployment, Water
The unemployment rate in the area around Platreef is 40 percent and only 20 percent of homes have running water, according to South Africa’s statistics agency.
That compares with national rates of 25 percent and 73 percent respectively.
Ivanhoe has a 64 percent stake in Platreef and a group led by Japan’s Itochu owns 10 percent.
Yuji Hoshino, a spokesman for Itochu in Johannesburg, declined to comment.
Ivanhoe last month announced a transaction that would reserve a 26-percent stake for so-called black economic empowerment in line with government regulations seeking to help make up for the discrimination against non-white South Africans in the economy before the end of apartheid in 1994.
Twenty percent will be held by a trust for the benefit of the 20 local host settlements in the community, where about 150 000 people live.
Six percent will be split between black employees and investors.
Adequate Consultation
The deal is “in line with South Africa’s policies to correct the historical imbalances created by apartheid,” Ivanhoe said.
Three different groups set up by local residents, one of which is supported by the legal-support organisation, Lawyers for Human Rights, say Ivanplats didn’t sufficiently consult with the entire community when it arranged to sell it a 20-percent stake in Platreef.
The company says it pays a stipend to a chief in the area who the groups say helped rig elections to the trust set up to represent local interests.
The chief, L.V. Kekana, didn’t answer three calls made to his mobile phone or reply to a text message seeking comment.
Fifteen of 20 settlements in the area participated in the elections, according to the company.
Ivanplats said it has adequately consulted with the community and doesn’t have an improper relationship with the chief.
It held more than 150 meetings over 18 months to inform the community of the black empowerment deal, it said in an e-mailed response to questions on October 7.
Fully Complied
“Ivanhoe Mines reiterates to Bloomberg the company’s foundational commitment to a culture of honesty, integrity, accountability and respect for the communities in which the company operates,” it said in a separate e-mail yesterday.
“Compliance with the spirit of all laws, rules and regulations applicable to the conduct of the company’s business is important for Ivanhoe’s reputation and continues success.”
The community will own a stake that will be paid from future mine proceeds, it will carry no liability for any debt, and it will receive an 11 million rand annual donation until it starts receiving dividends, according to the company.
The Department of Mineral Resources on July 29 wrote to Ivanplats setting September 3 as a tentative date for the mining right execution “subject to fulfilment of the conditions contained in the aforementioned granting letter,” according to a copy of the letter obtained by Bloomberg.
Bushveld Complex
Ivanplats completed the black empowerment, or BEE, deal and delivered the documents relating to it to the department on September 4, according to a company letter to the department the same day.
The company said in the letter it had now “fully and finally complied with each requirement.”
After having spent 2.3 billion rand on exploration, and with 143,000 rand in daily costs, the delays “could deter investors and result in an unwillingness on the part of investors to invest more funds into the development of the project,” it said.
Platreef plans to exploit part of the world’s largest platinum-bearing geological feature known as the Bushveld Complex.
It’s next to Anglo American Platinum’s Mogalakwena mine, the biggest and most profitable mine owned by the world’s largest producer.
When Platreef starts production in 2020, it’s projected to become the lowest-cost platinum group metal producer in Africa, according to the company.
South Africa accounts for about three quarters of world platinum production.
It will be a little smaller than Mogalakwena and will rank behind Impala Lease Area, the main mine owned by Impala Platinum Holdings Ltd.
‘Sketchy Details’
A preliminary economic assessment by the company in March forecast that the $1.6 billion needed to start production would be paid off in five-and-a-half years.
Platinum output from the mine after completion of its second phase will be equivalent to six percent of the amount of the metal produced globally last year.
The department’s response came nearly a month later in a four-page letter saying it was necessary to clarify how the community will “realistically derive economic value” from the BEE deal.
“Notwithstanding the amount of 11 million rand the sketchy details of the community transaction shall be clarified, so that it can be established if indeed this would constitute empowerment and/or upliftment of the community,” the department said in an October 2 letter.
It asked for evidence that the community was represented in management, details of “social and development” projects, “written commitment” that there would be opportunities for black-owned businesses to supply the mine.
‘Real Transformation’
“The community asset mapping process as presented is academic in nature and does not offer much in terms of the manner in which communities shall instantly benefit from the future dividends including the 11 million rand payable,” the department said.
After indicating it would push for “real transformation,” it said, Ivanplats “can start to demonstrate such by achieving beyond the set minimum targets.”
The department’s requests for more information are “incompatible” with its decision to grant the mining right, Ivanplats’ Johansson said in the October 9 response.
The company was “disappointed” the department asked further questions more than three months after it submitted the BEE agreements.
The queries “could have easily been dealt with,” he said.
With “extremely significant” projected cash flow for the communities, the company said it was “bewildered” that the BEE deal “might not constitute empowerment and/or upliftment of the communities” given that it meets the department’s minimum spending requirements on it social and labour plan.
The department’s letter “suggests that additional issues may be raised in future which could delay the execution of the mining right further,” Johansson said.
“The company is unable to withstand further delays.” - Bloomberg News