South Africa eyes platinum’s allure

A star attraction at one of Anglo American’s mines in South Africa’s platinum-rich Bushveld Complex is a gleaming blue locomotive.

The train is a prototype developed by the mining company and powered by platinum-based fuel cells.

If all goes to plan, these trains will be used deep in the mines, demonstrating the potential of fuel cell technology to drive the strategies of both the South African government and the world’s top platinum producer.

Anglo hopes the nascent fuel cell industry, of which platinum is an important component, could help to boost future demand for the metal. It also believes that fuel cells are an area where South Africa – home to 80 per cent of the world’s proven platinum reserves – could develop new industries and create thousands of jobs.

The government, meanwhile, wants to push “beneficiation” – use of the country’s minerals in domestic manufacturing as a core part of efforts to tackle rampant unemployment and poverty.

But South Africa’s recent experience with platinum and other resources shows that large amounts of minerals in the ground does not automatically translate into a competitive manufacturing industry – skills, production costs and distance to markets are all important factors.

“The thing you need for beneficiation is skills development to support it. If you don’t have a strategy for skills development it doesn’t matter,” says Nazmeera Moola, director at investment bank Macquarie First South.

The problem will be debated by the governing African National Congress at a five-yearly policy conference this month. Greater state intervention in the mining sector is on the agenda, amid complaints that the nation should be reaping far greater benefits from its resource wealth.

Several proposals, if adopted by the government, would significantly affect the mining industry as a global trend towards resource nationalism gathers momentum.

A discussion paper for the conference suggests that mining licences for iron ore, copper and coal could obligate local sales at “cost plus” prices to give South African industry a competitive advantage. It also calls for the establishment of a new steel operator to counter ArcelorMittal’s monopoly. South Africa’s unrivalled position with platinum reserves could be used to negotiate local beneficiation deals and supply, the paper says.

The document also suggests platinum be treated like gold under the nation’s exchange control regulations, giving the state the right to market the metal. It is unclear what this would mean in practice, but in theory the government could determine how platinum is exported.

The catalytic converter industry highlights the challenge in seeking to add value to domestically sourced minerals.

Government incentives to the auto industry have helped South Africa produce about 14 per cent of the world’s catalytic converters. But planned changes to these incentives has raised questions about whether South Africa will remain an attractive destination for these plants which employ 5,000 people directly and 30,000 indirectly.

“If the price out of South Africa, including logistics and the incentive programme, is not advantageous to them, they’ll make them in Germany or in Mexico,” says Ken Dewar of the Catalytic Converter Interest Group, which represents global players operating in South Africa such as Johnson Matthey, Umicore and BASF. “We are very concerned that if one of the big players pulls out, it will basically become a domino effect.”

Platinum is easily shipped by air, meaning manufacturers “don’t have to be here”, Mr Dewar adds. CCIG advocates greater state intervention to create a competitive advantage for catalytic converter producers.

Yet platinum mining executives, who complain about policy uncertainty, say that while they support beneficiation they fear the government may place additional burdens on an industry struggling with rising costs, productivity issues and low prices.

“What we should be very cautious about is if you try and get the platinum industry to subsidise local beneficiation all you are doing is effectively applying another tax to the industry,” said Ian Farmer, chief executive of Lonmin.

Platinum prices have fallen from $1,900 a troy ounce in August – and a peak of $2,290 in 2008 – to $1,450.

“If you look at current prices and you look at the state of the industry, there are many who would argue we don’t have producer power or we wouldn’t be in the state we are in,” Mr Farmer says.

Still, he believes the fuel cell industry is one area where beneficiation might work, as this is a developing sector where South Africa could enter at its early stages.

“We are looking at beneficiation where it makes sense,” says Anthea Bath, head of market research and development at Anglo Platinum.

“Nothing that we [South Africa] should be doing should be hindering, or making people less confident in, the supply of metals from the South African market.”