‘Platinum sector at a tipping point’

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AngloPlatStrike

Reuters.

The extent of the crises that South Africa faces over platinum – plunging demand, rocketing electricity input costs, waning investment and investor confidence over violent strikes and labour unrest – may have pushed the industry to “a tipping point”.

MPs serving on the mineral resources portfolio committee were told yesterday by the Chamber of Mines and Amplats’ mine management that the industry’s troubles would not be over for some years.

Chamber of Mines chief economist Roger Baxter told committee chairman Fred Gona that it was “a critical time for the platinum sector… you have defined it as a South African platinum mining crisis. It is enveloping all of us.”

If Eskom achieved its demand for 16 percent a year increases for the next five years, it would translate into a 587 percent increase in tariffs over 11 years. “The platinum industry cannot afford this increase. The industry is at a tipping point,” Baxter said.

Already electricity prices for the mining sector had risen from 18c a kilowatt-hour (kWh) in 2007 to 61c/kWh last year. “This is a 239 percent increase.”

Baxter told MPs that for the past five years platinum demand, especially from the main market Europe, had declined. That market was not expected to improve significantly any time soon either.

In fact the demand for catalytic converters for motor vehicles had contracted. While some of the market for platinum products had been made up by the jewellery sector, especially from China, this had only meant that demand had stabilised rather than grown as had been expected.

At the same time the industry had faced above-inflation raises for mineworkers. “Remuneration in the sector has risen 12 percent [a year] per worker between 2007 and 2012… nearly 5 percentage points higher than producer inflation.”

Owing to the global financial crisis there had been “a big fall-off” in demand.

Before Marikana a surplus of 1 million ounces of platinum had built up, which had been reduced by about 400 000 ounces owing to the tragedy.

“Fifty lives were lost and the reputation of the platinum group metals sector and South Africa as a key mining investment destination was tarnished by developments. The strike-induced decline in production exacerbated the cost squeeze faced by the industry, as there was less production covering the overhead cost structure of the industry.”

In current trading conditions about half of the industry players were not operating at a profit. This was confirmed by Impala Platinum head of personnel Johan Theron, who said his company could pay no taxes as it was returning no profits.

When pressed by Gona whether the 14 000 jobs under threat at Anglo American Platinum would be saved, Chris Griffith, the chief executive of the biggest platinum producer, said he could not give any assurance that they would.

Responding to Gona’s remarks that there was a problem of mining communities believing that they had not benefited from mining wealth, Vusi Mabena, a senior executive for transformation and stakeholder relations at the Chamber of Mines, said although mining in general made a significant contribution to the tax cake, mining communities did not necessarily benefit directly because it all went into the national revenue fund.

“That money gets put in a fiscal kitty and gets absorbed into all the challenges that the country is having,” he said.

Gona responded: “You see the mineral wealth is a national heritage of all South Africans. Once we talk about ring-fencing the revenue generated from the mining industry… we are missing the point.”

Gona said mining companies had extracted big profits but these had been “skewered all these years… there has been no ploughing back into the development of the country particularly where it comes to social responsibility.”


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