Picture: THINKSTOCK
Picture: THINKSTOCK

THE idea of a "cartel" to boost platinum reserves — as proposed by Public Investment Corporation CEO Elias Masilela — was described as "naive" last week and unfeasible because of a series of fundamental problems.

Fund managers and platinum industry executives cited international competition regulations; the lack of co-operation between the government and South Africa’s mining industry and the likely highly negative effect on employment levels at platinum mines, which would result from production cuts.

They were responding to comments by Mr Masilela — which followed similar statements by Mineral Resources Minister Susan Shabangu — that South African producers should consider controlling output to improve prices.

According to a report by Bloomberg, Mr Masilela said: "(The platinum producers) may want to think about supply-demand conditions globally to influence the price. South Africa is a major supplier of platinum, but remains a price taker."

Bloomberg pointed out that Mr Masilela’s comments "echo those by the governments of South Africa and Russia, which together hold about 80% of platinum group metal reserves".

"The countries plan to set up a production bloc resembling the Organisation of Petroleum Exporting Countries (Opec) … they said in March last year."

It quoted Mr Masilela as saying that "there are ways of doing these things without flouting rules and laws and that’s a function of how transparently you do it and how independently you do it".

Cadiz Corporate Solutions mining analyst Peter Major said: "Great idea, but it should have been done a long time ago, as De Beers did with the Russians on diamond sales. Today, there are some downsides such as, for example, you might get caught. Such an arrangement would break every rule in the World Trade Organisation book."

A senior platinum executive industry said, on condition of anonymity, that aside from the regulatory issues, the proposal was unworkable due to the effect on employment levels if platinum mines cut back on production to reduce supply and increase prices during times of surplus.

"Opec can control oil output by simply turning on and off the wells. There’s minimal impact on employment levels because labour amounts to about 5% of the cost of producing oil. Labour accounts for around 50% of the total cost of producing platinum. Cutting back production means closing down shafts and/or mines which means putting a lot of people out of work," he said.

The government’s attack on Anglo American Platinum (Amplats) in January last year — when it unveiled initial proposals to restructure its Rustenburg division at the cost of 14,000 jobs — is illustrative of how it might react to potential job losses. Ms Shabangu threatened to review all the new order mining rights awarded to Amplats if it proceeded with the retrenchments.

"The only way it might work is if the South African government accepted platinum as a strategic asset that it was prepared to buy and stockpile during dips in the market and then release the metal during the boom times when the price was higher," said the platinum executive.

Mr Major viewed such co-operation as highly unlikely. "The elephant in the room is the issue of poor productivity on the gold and platinum mines. The issue is not low prices, because both the current gold and platinum prices are actually pretty good.

"It is naive to think we can manipulate prices."