AQUARIUS Platinum will suspend operations at the Marikana mine it shares with Anglo American Platinum at the end of this month because of weak platinum prices and high costs, a move that could be the start of more closures in the embattled platinum sector.
This is the first closure of a platinum mine by a major mining group because of the poor state of the market and it follows shortly after Eastern Platinum suspended work on a new project near Steelpoort, Limpopo, because of the weak outlook for the market.
Amplats is reviewing its business to restore it to profitability and, while the group is tight-lipped about what it is considering, it is highly likely it could shut loss-making shafts and revisit joint ventures not making money.
Two sources told Business Day that Marikana, near Rustenburg in North West, issued a notice to its workforce last week to tell them of the pending closure of the operation, which will be put on care and maintenance until the market recovers.
"Aquarius told people at Marikana on Wednesday it was going to close the mine," a source said. Two shafts have already been closed, in March, because of the poor platinum price.
A second source confirmed the closure of the remaining shafts and the concentrator plant later this month, saying it was thought the high cost of the operation and the low platinum price were the key reasons.
"Something like this has been coming for a while now. We are seeing what the low platinum prices are doing to the miners and I think there'll be more closures like this," the second source said.
Steve Shepherd and Allan Cooke, analysts at JP Morgan Cazenove, said in a recent note: "Platinum mining in SA has rarely, if ever, been more challenging for management and shareholders ."
Amplats said yesterday: "We have been advised that Aquarius, as the official managing partner, will be issuing a statement tomorrow (Monday) morning."
Aquarius could not be reached for comment.
It is not clear at this stage what will happen to the 1500 people working at Marikana.
In financial 2011, Marikana contributed 53000oz of platinum group metals to Aquarius's output of 487404oz. It contributed $71m of the group's $683m revenue and it was the highest-cost producer of the company's mines.
By the end of the third quarter (March) of its 2012 financial year, the M5 shaft project and the Siphumelele shaft at Marikana were placed on care and maintenance because of the low rand price for the mine's metals.
Aquarius CEO Stuart Murray said in the March-quarter results that operational stoppages by the government because of safety issues, poor labour productivity and delays in securing a mining right to begin an open-pit mine had made it a difficult quarter.
"These unnecessary operational and regulatory headwinds are occurring against a backdrop of a pricing environment that remains relentlessly tough, with unabated on-mine cost inflation, little fundamental demand recovery and continuing volatility in financial markets," Mr Murray said.
"The result is that margins are under severe pressure throughout the industry, and it is my view that labour unions and the government need to start co-operating constructively with mining companies immediately if the very sustainability of the platinum industry, and the thousands of jobs it provides, is not to be threatened."
It is unclear at this stage if the Marikana decision forms part of Amplats's review of its business it announced earlier this year and which is expected to be completed by the end of the year.
Anglo American, which owns 80% of the world's largest platinum miner, wants to restore the business to profitability and while it has not told the market what it intends doing, speculation is it will suspend unprofitable mines and possibly sell loss-making assets.
The closure does raise questions about Amplats's five other joint ventures, some of which have been running at a loss for years, prompting the company to step up its involvement in those businesses.
It will have immense consequences for smaller empowerment companies that have joint ventures with Amplats if mines operated in these structures, which are the sole income sources for these smaller groups, are put onto care and maintenance for an indefinite period.
Aquarius shares have been one of the leading fallers in the platinum sector, declining more than 40% since the start of the year, as poor operational results combined with uncertainty around its Zimbabwean Implats co-owned platinum mine, Mimosa, spooked investors.
Eastern Platinum, a Canadian company, said at the end of last month it was stopping work at its Mareesburg mine and Kennedy's Vale concentrator project, which would have added 100 000oz.
The decline in prices, weakness in Europe, soaring input costs and a volatile labour force had informed the decision, Eastplats CEO Ian Rozier said.