Challenges facing PGMs: Mining in South Africa, with some reference to gold! 11 November 2014
SA is the world s biggest treasure chest In 2013, South African companies produced 5.370 million ounces of gold South Africa houses 95% of global platinum reserves
South Africa knows how to mine but losing skills base fast World leaders in technology we can go deeper, and extract and recover more ore than ever before Technology can help improve profitability and safety performance Needs investment (and confidence)
Established infrastructure but cracks showing
Do you remember this guy from Montreal 2011?
Productivity is down South Africa s gold production has declined the fastest in recent years Containing costs by being cost-effective and operationally efficient critical to the success of the industry China Canada Brazil Ghana Russia Indonesia Australia total (mine) Uzbekistan Scrap USA Peru Papua New Guinea South Africa Source: Chamber of Mines Annual rate of growth (decline) in gold production from key countries, source: GFMS -8.2-6.4-0.3-0.4-2.0-1.4-1.8-0.7-0.1-0.2 0.2 0.5 0.9 1.5 1.4 3.3 4.1 4.5 6.6 6.6 6.2 5.0 5.7 4.6 5.2 8.5 7.6 7.3-10 -5 0 5 10 % average annual growth rate last 5-years Last Decade
1990=100 Costs are up Productivity has fallen, while real labour costs per unit of output have risen quickly 300 RSA gold mining, labour productivity (kgs produced per employee) and real labour costs per kg of gold produced, based indexed to 1990 250 200 150 100 50 - real labour costs per kg produced indexed Productivity, kgs per worker indexed 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: DMR/StatsSA/Chamber
Costs are up Inflation in input costs has simply been too high (and mostly out of control of the miners) Cost inflation affecting the mining sector, average annual increase in costs, 2007 to 2012 Electricity prices for mining 26 Gold mining cash costs per oz 23 Pgm mining cash costs per 4e ounce 18.1 Diesel Reinforcing steel 15.7 15.3 Labour costs Structural steel 12 11.2 Cement 9.1 Total producer price inflation rate 7.2 Source: Chamber of Mines Mining machinary 4.4 0 5 10 15 20 25 30
Access to water and power Eskom s ability to supply power in the long term in doubt rates rapidly rising, further increasing costs to companies Competing for water resources with communities and other companies leading to higher costs, and risk of undersupply
Legislative red tape Complexity and uncertainty in obtaining necessary licences Time consuming delays in getting licences commonplace BEE...
Corruption SA is ranked as the 72nd most corrupt country in the world Bad law feeds corruption Bureaucracy feeds corruption BEE feeds corruption
Corruption SA is ranked as the 72nd most corrupt country in the world Bad law feeds corruption Bureaucracy feeds corruption BEE feeds corruption
Labour discontent Communities are becoming increasingly antagonistic towards mining Inter-union rivalry has led to violence Marikana horror festers
Who gets the dough? Employees received 33% of value, shareholders less than 5% Source: Citi Research
Do we have a crisis of leadership?
Goldilocks and the three bears apologies to (the late) Robert Southey author of Goldilocks! Gold is lost, and the three PGM bears continue to dig I assume for porridge, not profit!
Platinum Substantial surplus of platinum supply in 2013 supply grew by 2.8% Global demand dropped by 4.7% - Europe! Mirage of the EFT who knows how much platinum exists above ground, or who holds it? 2.7m ounce accumulation into ETFs Weak platinum price lost 7% this year to lowest since 2009 five-month strike didn t affect price!
Platinum continued Above-ground inventory for both metals may be higher than market consensus. In fact, we believe the price behaviour of platinum and palladium is consistent with a market that calls for a PGM basket price that cuts into the cost curve in order to limit mine production. Our estimate of above-ground inventory of platinum is 1,046 days of consumption, and 879 days of consumption for palladium. Source : Walter de Wet LBMA presentation - 2013
Pt has become a commodity In a race to get to the bottom of the cost curve the big firms dig up as much as possible platinum has been commoditised the game has changed Platinum mystique is gone High returns are an illusion take note Unions Since 2008, the top five producers in SA have had to raise US$ 2.8 billion in equity funding, have taken on additional ZAR 15.6 billion in debt! Market capitalisation of these top producers has fallen a staggering ZAR 485 billion or 80%! At today s prices worse must come!
Where too for SA industry? Sell assets... Mmmmmm? Reduce investment and cut costs... Mmmmmm? Shut shafts or shut mines... Mmmmmm? Keep digging... Yeeeeees! We know how to do that! When in a hole...... Keep on digging! Stuff the shareholders!
Challenges facing PGMs 11 November 2014