Wesizwe Platinum project on trackComment on this story
Johannesburg - With a seven-week strike all but crippling South Africa's platinum sector, depressing prices and pushing up costs, it may seem reckless to build a new project to mine the metal.
But Wesizwe Platinum, backed by Chinese money, is pressing on with its mine and on Thursday said it had moved its target date for full production up by two years to 2020.
“People say why on earth are you building it when you can go and buy it. There are lots of people talking about selling mines,” Paul Smith, Wesizwe's chief operating officer, told a media briefing.
He said “it's all about what's in the ground” as virgin, good quality reserves on South Africa's famed Merensky Reef are no longer up for grabs.
Wesizwe's flagship Bakubung project is one of only a handful of platinum shafts being sunk into the South African earth - or anywhere for that matter.
It has therefore generated more interest than would be normally expected from a mine of this size, which aims now to hit full production of 420,000 ounces of platinum group metals a year by October 2020, up from a previous target of 2022.
That would be around 10 percent of current South African production but the industry in this country is facing a serious crisis and so that percentage could be higher in a few years.
“Shaft sinking is a dying sport,” Smith said.
Shaft closures are another issue.
About half of South Africa's platinum shafts are currently not making any money and when the current wage strike against the world's top producers - Anglo American Platinum, Impala Platinum and Lonmin - is over, there will almost certainly be boardroom pressure to close shafts.
But Wesizwe's shareholders, including a Chinese consortium headed by mining giant Jinchuan, which has a 45 percent stake, are taking a long view and have deep pockets from which to sink money into areas where other investors fear to tread.
Wesizwe represents the first direct Chinese thrust into platinum production in Africa and as such marks a new chapter in the Asian giant's scramble for resources on the continent.
Platinum is primarily used for catalytic converters in motor engines and for jewellry.
Demand for both is seen soaring in the long run in China as its car production goes into overdrive and its burgeoning middle class consumes luxury items.
The Chinese Development Bank has provided a $650 million loan for the Wesizwe project - at Libor plus 350 basis points, which in dollar terms currently would be around 4 percent, far less than the 8 percent or more South African companies would normally expect to pay.
The total cost for the project is estimated at 10.7 billion rand and so there is a shortfall which Smith said would kick in around 2017.
“We are currently assessing how we are going to fund it,” he said, which include discussions with “strategic shareholders” - meaning Jinchuan, so the gap will likely be filled easily.
The mine will also be semi-mechanised - which for geological reasons is not easy to do elsewhere in South Africa's platinum belt - and so the labour force will generally be highly skilled.
This may help the company to avoid some of the labour unrest which has swept the industry. - Reuters