By Alex MacDonald and Devon Maylie
CAPE TOWN, South Africa--The platinum mining industry is in
crisis and there is no end in sight to the problem of rising costs
and falling demand, leaving little alternative to widespread mine
closures, senior executives in the industry said Tuesday.
The warning comes the day after the world's largest producer of
the metal, Anglo American Platinum Ltd. (AMS.JO), said it lost $753
million in 2012 and found its plan to restore profitability by
shutting loss-making mines obstructed by the South African
government, which wants to preserve jobs.
"This is an unsustainable position," said Cynthia Carroll, chief
executive of Anglo American PLC (AAL.LN), which has a majority
stake in the platinum producer. "We have to restructure the
business to make it viable."
South Africa's platinum mining industry accounts for 80% of
global supply.
"We have seen several years in which levels of demand for
platinum have fallen significantly short of the industry's
expectations--in part because of depressed world economies and the
consequential downturn in the automotive sector," Ms. Carroll said.
Platinum is used mainly in catalytic converters that scrub the
exhaust fumes of automobiles.
Demand problems were exacerbated in the second half of last year
when thousands of mine workers shut down a swath of the country's
mineral production. Mining companies had to increase wages to get
workers to return--by as much as 10% in the case of worst-hit
Lonmin PLC (LMI.LN).
"Costs have continued to rise relentlessly," Ms. Carroll said.
Since the start of 2011, labor costs have risen 8% and the cost of
electricity and diesel increased 19%, but the platinum price fell
about 3%.
Almost 60% of the South African platinum industry is now either
breaking even or making a loss, based on a price for the metal of
$1,600 a troy ounce, said Steve Phiri, chief executive of South
Africa's Royal Bafokeng Platinum Ltd. (RBP.JO).
Platinum traded at just over $1,700 a troy ounce Tuesday, up 11%
since the start of the year. Societe Generale forecasts prices to
average $1,688 an ounce this year.
The highest-cost platinum-producing area in South Africa, called
the UG2 reef, needs to shut down to return the industry to
profitability, said Stuart Murray, the former CEO of Aquarius
Platinum Ltd. (AQP.AU). Anglo American Platinum, also known as
Amplats, has started some closures, saying last month it would shut
four mine shafts and lay off 14,000 workers.
Lonmin shut its K4 shaft last year and has cut back spending.
The company doesn't plan to close any more of its mines but will
cut management, said acting CEO Simon Scott.
There is some evidence that these plans are already having the
desired effect. Platinum climbed to the highest point in almost
four months on Monday after Amplats's full-year loss strengthened
the case for mine closures.
Demand for platinum for automotive catalysts in Europe is likely
to remain flat this year, Johnson Matthey PLC, which makes the
products, said last month. However, Mr. Scott said the mine
closures mean that by the end of the year, supply of the metal
could finally fall below demand.
But Royal Bafokeng's Mr. Phiri said mine closures pose a problem
for the South African economy, which counts on the platinum
industry for 5.5% of its gross domestic product and about 190,000
jobs.
For this reason, South Africa's government is resisting the
plans. It has already pressured Amplats to agree to a detailed
consultation process with unions and government before proceeding
with its restructuring plan, prompting concerns that mine closures
may fall short of targets.
"We need more investment. We can't go back to the past where
assets were frozen for 50 years. How we're approaching Amplats is
what is best for the company and what is best the country," South
Africa's Minister of Mineral Resources Susan Shabangu said
Tuesday.
-Laura Clarke and Francesca Freeman contributed to this
article.
Write to Alex MacDonald at Alex.MacDonald@dowjones.com and
Devon Maylie at Devon.Maylie@dowjones.com
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