The platinum industry was already in trouble before this week’s tragic events in South Africa. It is beset by overcapacity, soaring extraction and labour costs, deep and dangerous mines and iffy labour relations. With stuttering demand for the metal from the car industry, its main consumer, the platinum price has been sliding for months – down 20 per cent since February. The killing of at least 34 miners by South African police at a mine owned by Lonmin this week puts these problems into perspective. This is a critical moment for South Africa’s mining industry.
The financial rationale for mining platinum is fading. The metal accounted for 9 per cent of Anglo American’s annual revenue in 2010, but barely 1 per cent in the first half of 2012. One reason is rising labour costs. Industry players say wages for miners have risen by 40 per cent during the past five years, yet industrial unrest continues. Shares of Lonmin are down 18 per cent since a strike began at its Marikana complex on August 10. It has lost seven days of production, or about 15,000 ounces of platinum; it says it is unlikely to meet full-year guidance of 750,000 saleable ounces.
The industry’s main producers – Anglo American Platinum, Impala and Lonmin – are struggling to adapt to the downturn. But its structural problems are intimately linked to South Africa’s political and social divisions. So the deaths at Marikana are a problem for the country as a whole. An illegal strike about wages has become a deadly feud between two trade unions, with Lonmin – and the wider mining industry – caught in the middle.
South Africa accounts for 80 per cent of global platinum production. Jacob Zuma, the president, must show leadership in addressing the industry’s chronic social issues. If he does not do so, the entire mining industry – one of South Africa’s great assets – risks being squandered.
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