Platinum fails to fill breach left by gold in South Africa

Price less than half of 2008 peak.

BRITS, South Africa – When South African miner Papi Soke went from gold to platinum, he thought he was trading a sunset industry for one with a brighter future.

This month, the National Union of Mineworkers (NUM) shop steward was one of over 800 workers laid off at the Eland platinum mine, closed by Glencore.

“I don’t know what to do now. I am thinking of maybe going to a diamond mine,” the 34-year-old father of two, whose wife is expecting in December, told Reuters as he sipped juice in a mall in the mining town of Brits north of Johannesburg.

Glencore is not alone. Platinum producers Lonmin and Anglo American Platinum are also planning to cut jobs and the government has held meetings with companies and unions to try and prevent widespread lay-offs.

Impala Platinum is closing operations that will affect 1 600 jobs but it has said it hopes to absorb many of those workers elsewhere in its business.

As South Africa’s gold industry – which has produced a third of the bullion ever mined – began a steady slide in the 1990s, platinum was expected to fill part of the gap. But platinum’s prospects are now as dire as that of gold.

The local industry is still recovering from a five-month strike last year, and an oversupply and low demand has pushed the price of the metal used in autocatalysts and jewellery down almost 40% from 2014’s peak.

This month it slid to seven-year lows below $900 an ounce on worries about a drop in demand for diesel cars after carmaker Volkswagen admitted rigging diesel emissions tests.

Diesel autocatalysts account for 40% of global platinum consumption, so weaker demand for diesel cars will further hurt the metal’s price. It’s now trading over $1 000, but is still less than half the $2 290 peak it hit in 2008 and the outlook remains bleak.

“At current prices, fully 70% of the platinum shafts in South Africa are losing money, across the industry, by our calculations,” said Implats spokesman Johan Theron.

A Reuters poll last week pegged an average platinum price forecast for 2016 at $1 105.50 an ounce, 12% below the forecast of a similar poll conducted three months earlier.

Further job losses are certain, a sensitive issue in Africa’s most advanced economy, where the unemployment rate is around 25%, the mining workforce is restive, and income disparities are glaring.

The layoffs may prove a serious test for the ruling African National Congress (ANC) in local elections next year, as it counts on a declining base for much of its political support.

“The industry is in a tough space and the companies have to do what’s necessary to ensure they survive,” said Roger Baxter, the chief executive of South Africa’s Chamber of Mines.

Lonmin said on Wednesday it planned a $400 million rights issue of new shares, a last-ditch effort by a company on the brink.


Changing Fortunes

In 1987, according to Chamber of Mines data, there were almost 554 000 people working in South Africa’s gold sector. Platinum that year employed around 83 000.

But as the century-old gold mines around Johannesburg plunged deeper into the earth for lower grade ore, pushing up costs, the industry began shedding jobs.

Soke’s father was among those.

“He worked in the gold mines for 25 years, but in 1996/97, when the price went down, he lost his job. I now support him.”

As the fortunes of the industries changed, platinum began employing more miners, picking up some of the men who lost their jobs in gold.

In 2006 for the first time, platinum’s employment levels exceeded gold’s, reaching 168 500 compared to 160 000.

In early 2008, when platinum scaled its record peak of almost $2 300 an ounce, its premium over gold was $1 257. Gold’s premium over platinum is now $165.

Soke made the switch in 2008, after five years at a mine run by Harmony Gold.

“Harmony offered a voluntary retrenchment package and I switched to platinum to advance my career,” he said.

South Africa sits atop about 80% of known reserves of platinum. The industry still has a larger labour force, but its numbers peaked in 2008 at almost 200 000. It was 188 400 last year and will almost certainly decline from here.

In 2014, only Anglo American Platinum among the big producers had a positive return on equity (ROE) – which measures a company’s profitability – of 1.2%, according to Thomson Reuters’ data.

Northam Platinum’s was -10.1%, Impala Platinum was at -7.1% and Lonmin was -5.7%.

In gold, Harmony was -15.1% but two of the big gold producers were positive – Gold Fields was 0.3% and Sibanye Gold was 12.9%.

Sibanye, the most profitable bullion producer in South Africa, offers a bright spot for platinum, having snapped up Aquarius Platinum and Amplats’ labour intensive assets.

Its chief executive Neal Froneman has said that, with the right market conditions, he might even expand the workforce.

“I wish an investor would come and invest in Eland,” Soke said.


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