Hungry China bankrolls Wesizwe platinum mine project

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Ed Stoddard

China’s scramble for resources is breaking new ground on South Africa’s platinum belt.

As older and less profitable shafts face closure, Chinese money is bankrolling one of a handful of new platinum mines being built in South Africa.

Wesizwe Platinum’s Bakubung mine, which aims to start production in 2018 and churn out 350 000 ounces of platinum group metals a year by 2023, is China’s first direct investment in the sector.

A Chinese consortium headed by Jinchuan has a 45 percent stake in Wesizwe and the China Development Bank last week gave a $650 million (R5.75 billion) loan, providing the capital needed to complete the mine.

Platinum is primarily used for catalytic converters in motor engines and for jewellery. Demand for both is seen soaring in China as its car production goes into overdrive and its rising middle class buys luxury items.

In some ways, this Chinese foray into Africa’s resource sector follows a similar pattern.

Wesizwe’s chief operating officer, Paul Smith, said the loan’s interest rate was the London interbank offered rate (Libor) plus 350 basis points – an exceptionally low rate for a South African company that highlights one advantage of having Chinese shareholders.

At current Libor levels, this would be about 3.8 percent against the 8 percent or more South African companies would normally expect, especially after the country’s sovereign credit ratings downgrades.

“I think this is typical of the Chinese model. The terms and conditions they are offering are extremely generous and competitive. And they would be looking for some long-term benefit for their outlay at the moment,” said Gary van Staden, a political analyst with NKC Independent Economists.

Competitive debt conditions are the norm for Chinese financing when it comes to resource-related projects in the region.

Smith said last week that Wesizwe would “make use of the Chinese supply base”.

But Wesizwe also represents a departure from other Chinese approaches to Africa, as Jinchuan has partnered with local investors and is making use of domestic expertise.

The prevailing stereotype of Chinese investment in Africa is that its companies snap up the assets and then bring in their own skilled labour force.

But if you want to mine platinum, then it is best to have South African accents on your engineering team, as few other countries have experience in this area for obvious reasons.

This was driven home in Zimbabwe, where Impala Platinum acquired Zimplats and made a success out of platinum assets in the country after companies such as BHP Billiton were stymied by the geology.

Chinese companies also have tended to swallow assets in Africa and then delist them, which was the case when Jinchuan acquired cobalt and copper producer Metorex.

Smith said “there is no way we are going to delist”.

The mine is one of the few being built in South Africa’s platinum belt at a time when Anglo American Platinum is planning to mothball two unprofitable operations.

“People are shutting shafts on old ore bodies, but here we have a virgin ore body,” Smith told reporters.

Wesizwe shares closed 3.64 percent higher at 57c on Friday. – Reuters


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