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.
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