FEATURE-S.Africa platinum boom attractive, but dangers lurk


By Sue Thomas

JOHANNESBURG, Nov 26 (Reuters) - Soaring demand for platinum is luring new miners and inspiring expansion projects in top producer South Africa's Bushveld complex, but analysts and industry players say many may not survive the rush.

Supplies of platinum from South Africa, the world's largest producer, are forecast to grow by eight percent to a record 4.4 million ounces in 2002 -- still not enough to meet demand of 6.3 million ounces.

With demand for the metal, used in jewellery and in the auto industry, refiner Johnson Matthey predicts the price of platinum to trade between $550 and $650 an ounce in the next six months, from around $590 now .

Price and demand have driven established miners to invest in expansion projects in South Africa. At the same time, new laws have allowed black miners excluded from mining under apartheid to bite into the lucrative sector.

South Africa recently approved a new Minerals Act aimed at changing the white-dominated industry, and a final draft charter that says 15 percent of local mine assets must be in black hands within five years and 26 percent in 10.

Eight years after the end of apartheid, the South African economy is still largely controlled by whites, but government policies aim to give the black majority a bigger role.

In the past few years, South African mining companies have rushed to tie up deals with black businesses after the government began negotiating the new minerals law.


"There's no question that the platinum industry requires extra platinum ounces, and South Africa is the most obvious source because it's got the best resources in the world," Matthey market research director Mike Steel told Reuters.

"And I think the plans that have been announced so far are necessary to match that demand that we see going forward."

Most of the new ounces will come from established miners, especially world number one and two Anglo American Platinum and Impala Platinum , which are expanding.

Angloplat alone sees expansion plans boosting its output by 75 percent to 3.5 million ounces by 2006.

"That (expansion by established miners) will help the process (of meeting demand) proceed much more smoothly than somebody who is starting from scratch and having to put in all the infrastructure," Steel said. "So, although there is a lot of interest in new possibilities, they are not going to be the main contributors in the short to medium term."

But new prospectors who go exploring for platinum in the hope of cashing in on the longer-term will be left with relatively slim pickings in the Bushveld Complex.

The majors staked their claims in the richer and easier to mine western Bushveld decades ago, leaving the remote eastern Bushveld, with its poorer grades, lack of infrastructure and harsh mining conditions.

In August, the government issued exploration licences for properties in the eastern Bushveld, the rights to which were held formerly by Angloplat.

"A lot of the properties that were left behind by the majors, were left behind for a reason," said one analyst. "In a lot of the recent announcements, if you look at the properties a lot of them are pretty marginal."

The eastern Bushveld, he said, had a much higher ratio of less undesirable palladium to lucrative platinum.


The palladium price soared from $284 an ounce in May 1999 to a peak of $1,094 in January last year, mostly due to high demand and disruption in key supplies from Russia.

As industry users began seeking alternatives to the costly metal, demand slumped and the price collapsed.

Matthey forecasts palladium demand to plunge 28 percent to 4.9 million ounces in 2002 -- its lowest since 1994 -- as auto companies and electronic component manufacturers work off their inventories of the metal.

"That doesn't mean you can't make money, but in comparison to the majors that have established themselves in the western Bushveld, you're going to have to be pretty determined and have a lot of experience and skill to succeed," the analyst said.

Mlibo Mgudlwa, chief executive of newly established Africa Wide Mining, had the gleam of platinum in his eye when he signed an exploration deal with junior Canadian firm Platinum Group Metals. It is his first foray into mining.

"Mining hasn't been open to everybody in South Africa. It was the few who were involved. We saw that through the new dispensation, venturing into mining could be advantageous."

"This will be our first mining venture, and we saw the prospects of getting a lot of platinum."


"With prices the way they are everyone is drilling frantically," said Tony Reilly, corporate affairs director at Lonmin , the third-largest producer. "It's no El Dorado, but certainly there will be projects that will be viable."

Lonmin aims for platinum production of 870,000 ounces in 2003 from 750,000 in 2002 on its accelerated expansion plan, and is keen to tie up joint ventures with black-controlled firms, in line with the new legislation which comes into effect next year.

"Mining companies have seen the future and the future is going into partnership with empowerment firms, doing joint ventures and getting licences approved now, because if you don't you will be left standing in the queue," said Reilly.

He, and others, warn that linking up with the inexperienced or going it on your own is fraught with risks.

"Palladium is not something you can count on, so you depend on platinum. It has good prospects for the moment, but no-one has managed to get two-year prospects right," said the analyst.

"The established producers will pick up concentrates at very little risk, but many producers will not be able to carry on if it all goes wrong."

Lonmin, Reilly said, undertook any project on the basis that it would still have sustainable profits even if the platinum price halved. "Some of the other projects, especially in the eastern section, could run into trouble if platinum prices move towards palladium. We are in the hands of the world economy."

Angloplat CEO Barry Davison said recently that no amount of legislation could insulate new miners from the harsh realities of the global market place.

"It's not simply a matter of buying a piece of land and then taking it to the stock market. Prosperity will be achieved by those who have the critical success factors -- long arms and deep pockets," he said. "Please do your homework."



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