THE government is aware of the difficulties the platinum sector is facing and Mineral Resources Minister Susan Shabangu will call the companies together to find a way out of trouble. But the options are limited and will largely rely on labour making significant concessions on long-held positions.
A task team drawn from the Department of Mineral Resources was set up three months ago to study the platinum sector at the behest of Ms Shabangu, because of the unequivocal message coming from companies that they were battling with costs, static prices and operational issues.
The problem has become so severe that the Marikana mine was shut by Aquarius Platinum and its partner, Anglo American Platinum (Amplats). Eastern Platinum has stopped work on a 100000oz-a-year platinum group metal project, citing poor market conditions.
Amplats, the world's leading platinum producer, is conducting a review of its business to restore profit. There is widespread speculation that could involve closure of unprofitable shafts and abandoning unprofitable joint ventures.
The report is now on Ms Shabangu's desk, but she says it will only get her full attention next month because the pending African National Congress policy conference starting on June 26.
Ms Shabangu is a senior member of the party. One of the key issues at the conference is SA's mineral sector and the role the state must play in it.
Two senior platinum figures, who declined to be named, suggested a number of options that could be raised at the meeting Ms Shabangu plans to convene. The options are limited because the price for platinum is set globally and is complicated by the fact that the metal has industrial and jewellery applications.
The key change that can be wrought in the platinum market to improve prices would be a reduction in output by South African producers, who supply about 80% of the world's platinum. It is unrealistic to expect just one or two companies to cut production to benefit the entire industry.
Ms Shabangu could ask all platinum companies to take a proportional cut in their output so that everyone feels the pain, said one platinum insider. Mining companies cannot discuss such an issue among themselves for fear of appearing to be colluding or operating as a cartel.
It is a controversial call, with some expecting the Amplats review of its business to result in production cuts that could bring the market closer to a balance in supply and demand.
The surplus is between 400000oz and 500000oz a year.
A wide range of analysts has called for the platinum miners to take the tough decision of scaling back output.
"Supply-side intransigence now looks unsustainable and we believe we may finally be close to witnessing industry-wide supply discipline and production cuts," says Dominic O'Kane of Liberum Capital.
Labour needs to give its approval for underground mechanisation as a way to bolster productivity and lowering costs, but this would come at the expense of the number of people employed by the mines, says the insider.
Labour has problems of its own, with the National Union of Mineworkers embroiled in a tussle with a militant newcomer, the Association of Mineworkers and Construction Union, for membership on platinum mines around Rustenburg. The unions are likely to oppose anything that will reduce their membership and clout.
There is the option of working more than 11 days in a fortnight. The average mine works about 23 shifts a month, about 20 of which are needed to cover working costs and continuing capital spending. The department-led safety stoppages eat into the remaining three days on which mines rely to generate profit and capital for future expansion.
Labour needs to be open to working more shifts per month or the department needs to be more circumspect in suspending mines for safety violations, saving the measure for major infringements.
Ms Shabangu ruled out any compromise on its drive to make mines safer. Gold mines have tried to introduce a concept called "continuous operations" to work their mines around the clock, but these efforts have largely failed.
Labour's wage demands, which have outpaced inflation, have eaten into profit, adding to the mine inflation rate now at well above 10%. Labour makes up half of mines' costs, making it an obvious target for trimming expenses.