Fin24

BEE platinum mines were a 'mistake'

2011-07-17 15:39

Johannesburg - The platinum mines in the Eastern Bushveld were developed because of pressure to effect black economic empowerment (BEE) in the mining industry but should never have been built, RBC Capital Markets platinum analyst Leon Esterhuizen has said.

Esterhuizen pointed out that that the entire platinum sector is under severe pressure, but that the low grade mines in the Eastern Bushveld are suffering the most.

Esterhuizen said that platinum mines’ profit margins are falling month by month because mining costs rise faster than metal prices. Platinum mines, especially the junior producers, are carrying the burden of BEE.

Not one of the mines in the Eastern Bushveld, he said, is currently making a profit. These are also the mines where the big producers, like Anglo Platinum [JSE:AMS] and Impala Platinum Holdings [JSE:IMP], have BEE partners.

The problem is that for political reasons they dare not close these mines, he added. This situation largely contributes to investors’ current negative view on the platinum sector, which is keeping platinum mines’ share prices depressed.

The share price of Wesizwe Platinum [JSE:WEZ] – which, under exceptionally favourable circumstances and with full Chinese funding, this month started building the first new mine since the 2008 economic downturn – has in fact dropped since the deal was announced with Jinchuan, China’s largest nickel producer.

The mine Frischgewaagd-Ledig near Rustenburg in the Western Bushveld, which has a much higher grade of ore, is being built with $207m in equity funding from Jinchuan and long-term funding of $650m (almost R6bn).

Wesizwe’s share price nonetheless fell from 186c when the deal was concluded to around 170c in recent weeks. It improved slightly on Friday, closing at 182c.

The Wesizwe deal moreover has a uniquely favourable element. Jinchuan and the China-Africa Development Fund, which together advanced the debt finance for the development of the group’s Frischgewaagd-Ledig Mine, undertook to make up any funding shortfall without in any way diluting the shareholding of the other shareholders.

Even this is unable to invigorate the Wesizwe share price.

- Sake24

For business news in Afrikaans, go to www.sake24.com

Comments
  • Valis - 2011-07-17 16:58

    Cry, the beloved country...

  • gmain - 2011-07-17 17:42

    sigh

  • JustinX - 2011-07-17 18:37

    I bet he will be called racist soon! Tell it like it is! SA is finished!

  • Lembede - 2011-07-17 19:26

    The Chinese will ultimately buy the current bosses out and eventually take full ownership.

      grant9 - 2011-07-18 04:58

      I see it coming. The Chinese will bring in their own labourers and Rustenburg will be called Chinatown.

      DeonL - 2011-07-18 08:32

      No one will buy a unprofitable business, unless they pay only R1 for it and make massive labour changes. This is not so easy with our labour laws.

      Captainmorgan - 2011-07-18 10:02

      And then you'll hear the unions squeal

  • Saffer - 2011-07-17 21:38

    No problem .. just bail the BEE failures out by nationalising the mines.

  • Lizelle - 2011-07-17 23:04

    That is the reason why they want to nationalize the mines cause then the government will have to buy the mines from them and run non profitable mines using our taxes and people will be able to steal more money and the poor just gets poorer cause I bet 50% of them will get retrenched!!!!!

  • Octo - 2011-07-18 05:06

    Everything about BEE is a mistake, not only the platinum mines.

  • Jakes - 2011-07-18 07:03

    With current market volatility, a ~10% price change after the conclusion of a large deal in a small cap stock is hardly worth bringing out the doom prophets like Leon Esterhuizen. Has he shorted the stock?

  • Sisie - 2011-07-18 07:45

    And Malema wants to nationalize mining, until they get a better offer from the Chinese.

  • Norman DePluhm - 2011-07-18 10:10

    Guess who either didnt do, or perhaps completely ignored, an Environment Impact Assessment before building Gautrain... Now the entire area's water table is under threat cos their solution is to work against mother nature and just keep pumping, that'll end well.

  • Noname - 2011-07-18 11:01

    Viva BEE, right way how to bring country completely down. Our over inflated salaries and wages seems to be working well. We should start call our country "South Zimbabwe".

  • lebogang - 2011-07-18 12:22

    It appears quiet obvious to me that all this is calculated. All they had to do was joint venture the low grade mines for business potential purposes and a bonus of making it a BEE just to be politically correct. Nationalization of this BEE owned might save them "Oryt" but that will only burden the government with unnecessary pressures deliberately created by "mining giants" let the Anglos sort it out. IT SERVES THEM RIGHT THEY CANNOT EVEN JUST DROP THESE COMPS

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