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London - Impala Platinum’s Zimbabwe cave-in is bad news.
The world’s second-biggest platinum miner has agreed to hand
over 51% of its Zimbabwe subsidiary to a gaggle of local investors, including
Robert Mugabe’s government.
The subsequent 1.5% rise in Implats’ share price may have
reflected relief that the assets weren’t seized outright, but for other
platinum miners that will be cold comfort indeed.
An asset-grab in the world’s second-richest platinum
province is the last thing the struggling industry needs.
Striking workers, deadly mines and iffy industrial demand
mean miners have been struggling to make decent returns on the white metal -
despite a fourfold rise in prices over the past decade.
Platinum accounted for about half of employees at Anglo
American [JSE:AGL], the world’s biggest producer, last December. But it
delivered just 8% of the diversified miner’s 2011 operating profit.
That might seem strange for an industry that is basically an
oligopoly led by Anglo and Implats. But scratch beneath the surface, and
platinum miners face knotty challenges.
Demand is one. Diesel-heavy Europe, the world’s most
platinum-intensive auto market, is in the doldrums. High prices have also led
carmakers to reduce the amount of platinum they use in diesel engines’
catalytic converters.
The bigger problem is, literally, structural. About
three-quarters of the world’s mined platinum deposits are located deep
underground in a single rock formation in South Africa’s Transvaal.
Extracting the metal involves back-breaking work in cramped
and stifling conditions. Too often, workers pay the ultimate price.
Of the 17 mining fatalities at Anglo American last year, 12
occurred in its platinum business.
Safety-related work stoppages, labour strikes and a shortage
of skilled engineers have restricted production and sent wages soaring.
The cost pressure is exacerbated by militant South African
unions and the mines’ deep locations. Production cuts are so expensive and
disruptive that even in an effective oligopoly, supply discipline has
historically been lax.
None of these problems will be easy to fix. Anglo, Implats
and other platinum miners had hopes that expansion in Zimbabwe, where platinum
deposits are closer to the surface, would push down production costs. But the
price of doing business there just went up.
Background:
- Impala Platinum has agreed to surrender a 51% stake in its
Zimbabwe business to local investors, the company announced on March 13.
The move marked a reversal by the world’s second-biggest
platinum miner, which had been resisting Zimbabwe’s demand that foreign firms
hand over majority stakes in their operations in the country.
- It was unclear how Zimbabwe’s government would pay for a
31% share of Impala’s 87%-owned Zimplats unit, the country’s biggest producer
of the white metal. Implats said on March 14 that the government would have to
find money to buy the stake or else it would not be transferred.
- The Zimbabwe deal came less than a month after Impala said
it would restart production at its Rustenberg platinum mine. Production at the
mine, the world’s biggest, had been halted for several weeks because of a
strike, costing the company 120 000 ounces of lost production of platinum group
metals.
- Impala’s woes come amid a broader industry trend of labour
disputes and safety stoppages, which have crimped output and increased
production costs for miners.
Announcing its full-year results on February 17, diversified
miner Anglo American, which owns 80% of Anglo Platinum, the world’s biggest
producer by volume, said returns at its platinum business were unacceptable.
Chief executive Cynthia Carroll said the group would review
its platinum exposure.
- Platinum prices were just over $1 675 an ounce on March 15,
up nearly a quarter from December’s two-year lows, but well below 2008’s
record-high price of $2 290 per ounce.
- Reuters
*The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
