SA’s already fragile platinum mining sector could be further damaged should proposals contained in a report commissioned by the African National Congress (ANC) into the state’s role in the minerals sector take effect.
The document, called State Intervention in the Minerals Sector (Sims), has been roundly criticised by the mining sector and the Department of Mineral Resources, which have warned that its recommendations for a 50% resource rent tax on "super profits", increased regulation and ring-fencing of certain minerals would prove damaging and drive off investment.
The Sims report suggests export tariffs on platinum sales — except where trade agreements prevent this — capping the price at which the metal may be sold to domestic users, that the metal be subject to exchange controls as gold is, and that SA use its position as the world’s dominant supplier to negotiate supply and beneficiation deals with customers.
It also suggests that a state-owned mining company be given preferential rights to future discoveries of platinum group metal (PGM) deposits.
Little clarity on ANC mines policy emerged from the party’s policy conference in Midrand last week. But recommendations in the Sims document come against a backdrop of a platinum sector struggling with stagnant rand prices for the basket of metals it produces, and soaring costs as electricity prices and wages rise at above-inflation rates.
"It is important to note that the demand for PGM is derived — that is, the use of platinum is created and promoted by mining companies, and not driven by the market itself," Anglo American said in a document feeding into the ANC’s policy debate.
"Further, the potential to create new input markets is limited: firstly, the network effects of processing further downstream are restricted in terms of product variability (most processing is in the form of manufacturing autocatalysts); secondly, there are intellectual property rights that protect the technology required in downstream operations," said Anglo, which owns 80% of the world’s largest platinum miner, Anglo American Platinum (Amplats).
Amplats has established a R100m PGM development fund to promote technologies and products using the metals. It is also pushing fuel cell technology, which uses platinum.
Aquarius Platinum has suspended two mines in recent weeks, taking a third of loss-making production out of circulation. Eastern Platinum has halted work on a 100000oz a year PGM project because of the state of the oversupplied market. Amplats is reviewing its operations with a view to restoring the company’s profit margins.
An estimated 120000oz of platinum have been taken out of the system and Impala Platinum has shed about 140000oz due to a six-week strike in the March quarter and a slow return to full production again.
Aquarius CEO, Stuart Murray estimated the market has a surplus of 500000oz of platinum because of the slowdown in Europe, a major market for platinum for autocatalysts.
Anglo warned the platinum market was fragile.
"While 80% of the world’s PGMs originate in SA, end users already see SA as an unreliable supply source. If platinum mines in SA use collective producer power to exert dominance over the market, there would be increased incentives for end users to substitute or recycle PGMs.
"By artificially increasing the industrial price, demand for platinum will be dampened, posing a direct risk to the health of the market," it said.
Compelling buyers of platinum to set up beneficiation projects could also backfire, it warned.
"Forcing platinum miners to negotiate supply and beneficiation-linked contracts with their international customers by controlling the sale of platinum through the Treasury will restrict the supply of platinum to the market. This will result in price increases for platinum.
"This would compromise the appeal of platinum for industrial uses, which may trigger a retaliatory response from customers in the form of increased substitution or recycling," it said.
© BDlive 2012