Gloomy outlook for Zim platinum mines
ZIMBABWE’s platinum mining sector is in a precarious position, with operators living on the margins as they try to respond to a commodity price rout on the global market that has hit profits.
The country, home to the world’s second biggest known deposits of platinum after South Africa, estimated at 2,8 billion tonnes of the platinum group metals (PGMs), has three platinum-producing mines namely Zimplats, a subsidiary of Impala Platinum (Implats), Mimosa Mining Company, a 50-50 joint venture between Aquarius Platinum and Implats and Anglo American’s Unki Platinum Mine.
The price of the commodity, currently Zimbabwe’s biggest foreign currency earner accounting for about 45 percent of the country’s export earnings, has tumbled by its biggest margin in years to less than a US$1 000 an ounce, casting a dark cloud in the platinum sector.
At its peak, platinum reached its highest price in early 2012 of US$1 450 an ounce.
The decline in the international price of platinum has put the local platinum miners under pressure, with restructuring of businesses that has also entailed shutting some shafts in response to plunging commodity prices.
Zimplats’ chief operating officer, Stanley Segula, said his company had rationalised its capital spend, pushing hard for volumes in order to remain afloat and cutting costs.
The measures come against the background or increasing cost of production in the platinum sector, which have gone up by over 85 percent in recent years.
Segula told the Financial Gazette that in the platinum business, structure and processes need to be realigned to ensure they continue to deliver value.
“The stage where we are, it’s no longer business as usual,” said Segula.
“I tell you, if this massive crash (in commodity prices) is sustained, a massive re-engineering is required because operators (platinum miners) are under water in terms of costs, which means the price has gone below the cost of production and we can’t even break even. (Commodity) prices are quite soft and threatening. This (price of US$1 000 an ounce) is not a sustainable price. Remember most of the operators had budgeted for (a price of) between US$1 300 and US$1 400 an ounce.
“For us, the strategy we have adopted is premised on three pillars. These are production improvement, cash preservation and cost management. This means we have to make sure the efficiencies are right; we have to stop spending where it’s not really necessary to spend…..we have to go back to the drawing board and look at our costs to say, are we doing the best?
“So at the moment that’s the stage where we are.”
Segula said the price of PGMs was at the level it was 10 years ago, yet the unit cost of production has gone up by about 85 percent because much of the platinum extracted in Zimbabwe is now mined at deep and dangerous depths, one of the many factors pushing up costs.
Over the years, platinum mining has become more difficult and more risky because the ore bodies have become deeper, although the miners have not gone deeper than two kilometres as is the case in South Africa where the miners have gone down to five kilometres or more.
This comes with complexities as the ore grade also changes with the cost of mining having gone up.
Given the gloomy outlook for the platinum miners, serious restructuring is being considered.
Already Anglo American Platinum, which owns Unki Platinum, is considering a head cut of about 20 percent at group level as well as further restructuring around the world.
Winston Chitando, the executive chairman of Minosa Mining Company, could not be reached for comment, but sources at the mine said Aquarius and Implats had decided against sinking a second shaft, preferring on-reef development for its current expansion programme.
Mimosa’s revenues for the quarter to end of June marginally declined by two percent to US$62 million, underlining the effect of softer commodity prices on global markets.
Zimplats, who have plans to rebuild its old base metal refinery (BMR) at its Selous Metallurgical Complex near Chegutu at a cost of US$131 million, reported a US$74,3 million loss in the full year to June 30, 2015 compared to a US$97,1 million profit in prior comparable period after losing key tax battles earlier in the year.
This had been coupled with depressed sales volumes and lower metal prices on the global markets.
No comment could be obtained from Unki general manager, Walter Nemasasi, but sources familiar with developments at the mine told this paper that the mine had put on hold expansion plans due to the fall of platinum prices.
In its report for the quarter to June 30, 2015, Angloplats said its Unki mine had produced 16 000 equivalent refined platinum ounces, four percent higher than the comparative period.
“However, only 1 300 ounces in concentrate was dispatched, after the suspension of export of concentrate on April 10, 2015 as negotiations over export taxes were undertaken with the Government of Zimbabwe. Following the agreed postponement of the taxes, the export of concentrate re-commenced on July 3, 2015, with concentrate stockpiled at the mine,” it said.
In a later report for the six months, Angloplats said capital expenditure projects had been revised down.
“Looking ahead, cost inflation remains a challenge, with labour, electricity and foreign currency denominated input costs under continued inflationary pressure. The global platinum market remains in deficit while the macro and price environment will remain challenging.
“The company’s project portfolio has been re-evaluated in the current commodity price and weak demand environment and as a result all expansionary projects are delayed,” the company said.
It also noted that: “The current global macro-economic environment will continue to weigh down on the market fundamentals, leaving a challenging price environment.”
Early this year, government imposed a 15 percent tax on raw platinum export but withdrew the decision to give the platinum miners more time to construct refineries to value add the mineral.
Elsewhere, governments are adopting strategies to save jobs in their mining sectors in the wake of the tumbling commodity prices on the international markets.
In South Africa, the sector which contributes about seven percent to Africa’s second largest economy, has come under pressure in recent years due to falling commodity prices, rising cost of operations occasioned by frequent power cuts and protracted labour unrest.
In response, the South African government has come up with a series of interventions that include boosting the platinum sector by promoting the metal as a central bank reserve asset.
Pretoria has also committed to establishing a fund to assist mining companies in retaining retrenched mineworkers.
An estimated 23 000 South African miners have lost their jobs since April this year as falling metal prices and lower demand for commodities globally hurt earnings for local mining companies.
The administration in South Africa has even gone to the extent of intervening in power tariffs and supply disputes between certain miners and power utility, Eskom.
For example, its mines ministry is mediating between Glencore and Eskom after a spat between the two companies over the price the state-owned company pays for coal.
Industry experts said the Zimbabwe government cannot continue to watch while the industry is fast driving towards the edge.
They said while the fiscus may not have the funds to bail out struggling miners, like what is happening in South Africa, it must stop exerting unrealistic demands on the miners.
To ease pressure on the miners, it has been suggested that government should for now put on hold its beneficiation agenda, especially for PGMs producers and diamond miners to avoid further squeezing their cash-flows.
It is also being suggested that the tax regime be looked at once again to make it more competitive and in line with other countries.
In order to plug the fiscus gap arising from these interventions, analysts said government can no longer afford to ignore austerity measures that are critical to turning around the country’s economy.
The longer the government continues to ignore these, the harder the battering to be suffered by industry and commerce.