The SA platinum industry missed a chance to fundamentally change the market’s supply and demand dynamics, which have kept the price low for a decade, when plans by Lonmin to shut or reduce processing capacity failed to materialise.
Lonmin was the biggest casualty of a decade of low prices for platinum, which made up 60% of its revenue; protracted labour stoppages; above-inflation wage and electricity price increases; ageing mines; and an inflexibility in matching production to market demand. It was also hamstrung by poor investment decisions by previous boards.
Lonmin had, in the words of Johann Steyn, MD of Citi Research, "run out of road".
When it came to options to save the company’s 30,000 employees, "nothing was off the table", including the industry-changing closure of its smelting and refining division, Lonmin’s former CEO Ben Magara said in an interview just days after the company passed into the ownership of Sibanye-Stillwater.
One of the options open to Lonmin, then the world’s third-largest producer of platinum, was to shut its processing division, closing 1.2-million ounces of platinum output capacity, and sending concentrate to another company, he said.
"What made sense for us during the operational review of 2017 was to shut or sell some of our processing capacity. Then the industry would have lost 1-million ounces of processing capacity because we were convinced that the industry needed to shut some processing plants to reduce supply capacity," Magara said.
Lonmin is running its 1.2-million platinum ounce refinery at slightly more than half that level. It was just one of three companies with platinum group metals (PGM) smelting and refinery plants in SA.
While Magara declined to name the other company Lonmin had spoken to about a concentrate supply agreement, it would most likely have been Impala Platinum, the world number two producer, with which Lonmin had tried to effect a merger in the early 1990s. That plan was stopped by the EU competition authorities.
Anglo American Platinum was dealing with the restructuring of its own business and the sale of assets to Sibanye-Stillwater, which was in turn selling its concentrate to the Anglo American subsidiary, ruling it out as a potential processor of Lonmin’s concentrate.
One of the major factors weighing on the global platinum price has been the oversupply of metal from SA and the continued production coming from unprofitable shafts. The Minerals Council SA has said about two-thirds of SA’s platinum mines are marginal or unprofitable, a number that preceded the uptick in palladium and rhodium prices.
Lonmin is now part of Sibanye-Stillwater, the world’s largest platinum producer, and the second-largest source of PGMs behind Russia’s Norilsk Nickel.
Sibanye, which started as a gold miner, has in little more than three years become a powerful force in the global PGMs industry.
Opportunity
"I’m very glad with the transaction we’ve done if I look at the competitiveness and the jobs saved at Lonmin in a diversified Sibanye-Stillwater. As an industry, however, it’s an opportunity lost," Magara said.
"We’ve simply played musical chairs. The concentrate that is going to Amplats from Sibanye will soon be coming to Lonmin and we’ve not changed the supply/demand equation. That moment is gone.
"It would have been a game changer in our discussions with our customers," he said, reiterating a point he had long made that the prices customers were prepared to pay for platinum was simply not sustainable for mining companies in SA, the world’s largest source of platinum group metals.
With Lonmin’s processing division to be filled with Sibanye’s concentrate once it terminates a toll-treatment agreement with Amplats, the Anglo subsidiary looking to fill its own processing capacity with low-cost material from expansions at its own mines. That leaves Implats as the company looking to fill its under-utilised smelters and refineries.
Ivanplats, the platinum division of Canada’s Ivanhoe, is building a large mine and needs to find a partner to process its base-metals-rich concentrate. Ivanhoe chair Robert Friedland has often spoken of the Ivanplats mine as a large, mechanised, low-cost mine.
Additional PGMs coming to the market from a source such as this will not only add to an oversupplied platinum market but will force many high-cost, labour-intensive underground mines around Rustenburg out of business, analysts have said.
This underlines the point Magara made in the interview.
"The wisest thing in the demand and supply situation we have is to not keep the industry’s processing capacity as it is.
"As long as there is another miner or contractor who wants to bring me material I would take it to reduce my unit costs. But that means the market is oversupplied and further reduces platinum prices. That’s a vicious cycle," he said.
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