The past 6 months have been extremely difficult for the platinum industry. In our last bulletin, we anticipated that the next 6 months would be bumpy but few imagined the severity.
A 5-month labor strike, the longest in the history of the South African mining industry, brought the industry to its knees with all parties enduring hardship. An impasse was created with producers not willing to concede to the wage increases being demanded due to a lack of affordability. Besides the obvious financial loss to all stakeholders, there have been other far-reaching implications. As workers returned there were indications of a deterioration in the health of many mineworkers given poor nutrition and reduced medical support. This also suggests a wider impact on their families and dependents. Many businesses, communities and towns supporting mining operations have also suffered and a concerning outcome of the protracted strike was the lowering of investor confidence towards South Africa, clearly evidenced by the recent downgrading of the country by two global rating agencies.
Global demand-supply dynamics have also been interesting over this period as, despite a significant reduction in production of platinum-group metals (PGM)s, platinum pricing has not moved significantly suggesting that global inventory levels were higher than expected. This trend is expected to change going forward as the fundamentals for platinum are looking more favorable with positive global growth sentiment and lower global inventory levels than a year ago.
The recent tensions in the Ukraine and threats of sanctions against Russia may also be beneficial to PGM pricing, particularly palladium. The recent announcement by Anglo American Platinum (Amplats), the largest global producer of platinum, to dispose of its Rustenburg and Union assets should bring about fundamental changes to the platinum industry. Amplats are deploying a capital allocation strategy to prioritize its focus on assets that deliver the highest return and will see a shift away from conventional to mechanized and opencast mining. This implies a change in the future skills and supply chain profile of the industry on assets where mechanization and automation can be deployed. As the industry readjusts, there is every likelihood that foreign ownership of South African platinum assets may reduce.
“As the industry readjusts, there is every likelihood that foreign ownership of South African platinum assets may reduce.”
- Wayne Jansen
KPMG in South Africa