PLATINUM MINING IN SOUTH AFRICA - May 2009 - Engineering News
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PLATINUM MINING IN SOUTH AFRICAMay 2009
Platinum Mining in South Africa
Contents May 2009
Sources of platinum 3
South Africa 3
Russia 3
North America 4
Canada 4
United States 5
Zimbabwe 5
Global Market 7
Platinum supply 7
Platinum demand 7
Automotive demand 7
Jewellery demand 8
Industrial demand 8
Platinum investments 8
Platinum price 8
Outlook 9
Legislative and policy environment 11
Major platinum projects currently under development in South Africa 18
Main participants 22
Anglo Platinum 22
Impala Platinum 32
Lonmin 42
Northam Platinum 45
Aquarius Platinum 48
African Rainbow Minerals Platinum 52
Royal Bafokeng Resources 56
The material contained in this report was compiled by Paul Serebro and the Research Unit of Creamer Media (Pty) Ltd, based in
Johannesburg, South Africa. To contact Creamer Media call +27 11 622 3744 or email subscriptions@creamermedia.co.za.
www.researchchannel.co.zaPlatinum Mining in South Africa
Contents May 2009
Junior platinum companies and explorers 58
Jubilee Platinum 58
Lesego Platinum 59
Mmakau Mining 60
Nkwe Platinum 61
Platmin 63
Platinum Group Metals 65
Ridge Mining 67
Wesizwe Platinum 68
Xstrata 69
Main sources 70
www.researchchannel.co.zaPlatinum Mining in South Africa May 2009
Abbreviations
Aim – Alternative Investment Market
AQPSA – Aquarius Platinum South Africa
Arm – African Rainbow Minerals
ArmGold – African Rainbow Minerals Gold
ASACS – Aquarius Platinum South Africa Corporate Services
ASX – Australian Securities Exchange
BEE – black economic empowerment
BFS – bankable feasibility study
Bits – bilateral investment treaties
BMR – base metals refinery
BRPM – Bafokeng-Rasimone Platinum Mine
CTRP – Chromite Tailings Retreatment Plant
DME – Department of Minerals and Energy
DMS – dense medium separation plant
DPF – diesel particulate filter
DTI – Department of Trade and Industry
Ebit – earnings before interest and tax
Ebitda – earnings before interest, tax, depreciation and amortisation
EMPR – environmental management programme report
ESOP – employee share ownership plan
ETF – exchange-traded fund
GFSA – Gold Fields South Africa
HDSA – historically disadvantaged South Africans
ICSID – International Centre for the Settlement of Investment Disputes
IGC – International Gold Fields
Implats – Impala Platinum
IRS – Impala Refining Services
JCI – Johannesburg Consolidated Investments
JSE – Johannesburg Securities Exchange
Kalplat – Kalahari Platinum
Lonplats – Lonmin Platinum
LSE – London Stock Exchange
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1Platinum Mining in South Africa May 2009
MCP – magnetic concentration plant
MMZ – main mineralised zone
MPRDA – Mineral and Petroleum Resources Development Act
MSB – massive sulphide body
NYSE – New York Stock Exchange
oz – ounces
PCMZ – peridotite chromititic mineralised zone
PGM – platinum-group metal
PLA – Platinum Australia
PSA – pool and share agreement
PTM – Platinum Group Metals
PMR – Precious Metals Refinery
RBH – Royal Bafokeng Holdings
RBN – Royal Bafokeng Nation
RBR – Royal Bafokeng Resources
RBMR – Rustenburg Base Metals Refiners
RPM – Rustenburg Platinum Mines
SAHRC – South African Human Rights Commission
Samrec – South African Mineral Resources and Mineral Reserves Code
SavCon – Savannah Consortium
SMC – Selous Metallurgical Complex
TSX – Toronto Stock Exchange
UG2 – Upper Group 2
UK – United Kingdom
US – United States
WBJV – Western Bushveld JV
3PGM+Au – three platinum-group metals – platinum, palladium, rhodium and gold
4E – four element platinum-group elements – platinum, palladium, rhodium and gold
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2Platinum Mining in South Africa May 2009
Sources of platinum
Platinum is produced in five countries in the world. Of ment and addition of existing and new magma as the
these, South Africa is by far the largest producer, ac- case may be, producing a repetitive mineral layering.
counting for over 75% of global output in 2008. In sec-
ond position is Russia, which produced almost 14% of Mining company Impala Platinum, in its review of the
global platinum output in 2008, followed by Canada, geology of the Bushveld Complex, indicates that indi-
the United States and Zimbabwe. vidual layers or groups of layers of the Bushveld Com-
plex can be traced for hundreds of kilometres. This
Platinum supply by region 1999 – 2008 layered sequence, the Rustenburg Layered Suite, com-
million ounces prises five principal zones, the Marginal, Lower, Criti-
South Africa Russia North America Others cal, Main and Upper Zones. The Bushveld Complex, is,
million oz horizontally, roughly clover-leaf shaped, consisting of
8 four compartments or limbs – western, eastern, north-
7 ern and southern ¬– in order of economic importance.
6
The Bushveld Complex is unique in both size, covering
5
an aerial extent of some 66 000 km², and the economic
4 importance of its minerals. Contained within the well-
3 layered ultramafic to mafic succession are two horizons
2 in the Critical Zone that host economically exploitable
quantities of platinum group metals (PGMs), namely the
1
Merensky Reef and the underlying Upper Group 2 (UG2)
0 Reef. These two economic horizons can be traced for
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
370 km around the complex and are the focus of mining
Source: Johnson Matthey Platinum 2008 Interim Review
operations from which the PGMs – platinum, palladium,
rhodium, ruthenium and iridium – are recovered, togeth-
South Africa er with quantities of gold, nickel, copper and numerous
other metals and compounds. Below the UG2 Reef are
Platinum experts Johnson Matthey show South Afri- numerous other chromitite layers that are mined for
ca to have produced 4,78-million ounces of platinum chromium, as their PGM content is too low.
in 2008, which was 5% down on the country’s platinum
production in 2007. A third PGM-rich ore body, the Platreef, which extends
over a distance of 30 km, is found only on the northern
The country’s platinum mining operations are concen- limb, in the vicinity of Mokopane in the Limpopo Prov-
trated on the extremely large, two-billion-year-old, sau- ince. This ore body, first mined in the 1920s, was not
cer-shaped, layered igneous intrusion, known as the exploited on a large scale until 1993.
Bushveld Complex, which occurs in the northern part
of the country, traversing the North West, Limpopo and
Mpumalanga provinces. PGM Supplies: South Africa ‘000 oz
2007 2008
Professor Grant Cawthorn indicates, in a paper on
the platinum and palladium resources of the Bushveld Platinum 5 030 4 780
Complex (published in the South African Journal of Palladium 2 770 2 525
Science), that it is generally understood that the Bush-
veld Complex was formed by the repeated injection of Rhodium 696 620
magma into an enormous chamber. Owing to the huge Source: Johnson Matthey Platinum 2008 Interim Review
volumes of magma involved, cooling and subsequent
mineral crystallisation out of the magma was a slow Russia
process. Different minerals were formed as the magma
cooled. These minerals accumulated into sub-horizon- Johnson Matthey indicates that Russia produced 855
tal layers, building from the base of the chamber. The 000 oz of platinum in 2008, which was down on the 910
processes were repeated by the intermittent replenish- 000 oz produced in 2007.
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3Platinum Mining in South Africa May 2009
Platinum mining in Russia can be traced back to 1823 mined in South Africa, but much more variable in grade
when large alluvial platinum deposits were discovered and composition.
in the central Ural Mountains. By the end of the nine-
teenth century, these alluvial deposits had become the Other sources of platinum production include two al-
world’s dominant source of platinum. luvial mining operations in the Russian Far East. The
first and larger of the two operations, the Kondy-
By the late 1920s, however, the most easily accessi- or mine, is located In the Ayano-Maisk region of
ble high-grade placer deposits had largely been ex- Khabarovsk. Commercial exploitation of the deposit
hausted and mining has since dwindled to a handful of by a local gold mining company, the Amur artel, be-
small-scale dredging operations producing very mod- gan in 1984. The smaller Koryak deposit is situated in
est quantities of platinum. Kamchatka on the Pustaya river system, which drains
an area of PGM-bearing zoned ultrabasic rocks. Full-
Johnson Matthey reports that there is a renewed in- scale mining of the deposit by the Chaibukha mining
terest in the Urals as a potential future source of plati- artel, in conjunction with Koryakgeolodobycha, start-
num. Modern extraction methods may make the ex- ed in 1995.
ploitation of previously overlooked alluvial and placer
deposits possible. In December 2008, it was reported that Russian Presi-
dent Dmitry Medvedev had signed into law a Bill abol-
Almost all of Russia’s PGMs are supplied by three min- ishing state firm Almazjuvelirexport’s monopoly on
ing companies and from state reserves. State PGM exporting PGMs. Previously, all PGM producers and
stocks remain a state secret, and nearly all PGMs in stock holders, including the world’s largest palladi-
state stocks are believed to have been mined Norilsk um miner Norilsk Nickel, the central bank, and State
Nickel. precious metals and gems repository Gokhran, had
to export the metals through Almazjuvelirexport for a
PGM Supplies: Russia ‘000 oz fee. The Russian government believes that the move
was necessary as part of the process of liberalising
2007 2008 Russia’s previously secret PGM market. The Bill took
Platinum 910 855
about four years to pass through both chambers of
parliament.
Palladium
Primary production 3050 2940
North America
State sales 1490 800
Rhodium 90 90 Johnson Matthey reports that platinum production in
Source: Johnson Matthey Platinum 2008 Interim Review North America in 2008, at 340 000 oz, was up on the
previous year’s production of 325 000 oz. However,
palladium supplies fell by 4% to 950 000 oz, reflecting
Norilsk Nickel dominates Russian PGM output, pro-
lower production from Stillwater in the United States
ducing platinum, palladium and other minor PGMs
and North American Palladium in Canada.
from its copper-nickel mining and smelting complex in
northern Siberia. Small volumes of PGMs are also pro-
duced from its copper-nickel mines in the Kola Penin- PGM Supplies: North America ‘000 oz
sula. Norilsk Nickel accounts for 46,3% of the world’s
2007 2008
palladium market and 12% of the market for platinum.
In 2008, Norilsk Nickel produced 2,82-million ounces of Platinum 325 340
palladium and 659 000 oz of platinum. Palladium 990 950
The company’s northern Siberian facilities form the ba- Rhodium 20 19
sis of its Polar Division, which is situated on the Taimyr Source: Johnson Matthey Platinum 2008 Interim Review
Peninsula. This division operates seven nickel-copper
mines and associated metallurgical plants at Norilsk- Canada
Talnakh. Deposits mined at Norilsk-Talnakh are unique
in size and unusually rich in PGMs. Johnson Matthey Historically, according to Johnson Matthey, PGMs
estimates that the head grades at the Norilsk-Talnakh have been produced as byproducts of nickel and cop-
mines are about 10 g/t. In addition, the deposits are per mining in Canada. As recently as the 1940s, the
considerably wider than the narrow, continuous reef nickel deposits of the Sudbury Basin were the world’s
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4Platinum Mining in South Africa May 2009
largest single source of PGMs, and these deposits still United States
produce substantial quantities of metal. Palladium ac-
counts for between 55% and 60% of the PGM con- The United States (US) has only one primary PGM pro-
tent of the Sudbury ores, with the remainder being plat- ducer, the Stillwater Mining Company, which conducts
inum, while the rhodium content is small. mining operations at the Stillwater mine near Nye, Mon-
tana, and at the East Boulder mine, south of McLeod,
Commercial production of PGMs began around 1908 Montana. Both mines are located on the Johns-Man-
when Vale Inco, the largest mining company in the Sud- ville (J-M) Reef, which is possibly the richest PGM de-
bury Basin, opened a refinery in the United Kingdom to posit currently being exploited anywhere in the world.
refine the Sudbury ores. Falconbridge, the other major The mill head grade is typically between 20 g/t to 24
producer in Ontario, produces PGMs at its refinery in g/t, with a platinum-to-palladium ratio of 1:3.
Norway. Both companies were the subject of acquisi-
tions in 2006, with Vale Inco now owned by the Brazil-
ian base metals producer Vale and Falconbridge by the Zimbabwe
Swiss diversified mining company Xstrata.
Johnson Matthey indicates that Zimbabwe produced
Another significant source of byproduct PGMs is Fal- 305 000 oz of platinum in 2008, which was up on the
conbridge’s Raglan mine, situated on the Ungava pe- previous year’s production of 290 000 oz.
ninsula in the far north of Quebec.
Platinum mining in Zimbabwe is centred around the
Johnson Matthey reports that the only existing prima- Great Dyke, a 550 km layered geological intrusion, with
ry source of PGMs in Canada, the Lac des Iles mine mineralisation occurring in four elliptical bodies with a
owned by North American Palladium, is located near total strike length of 350 km, running in a north-south
Thunder Bay in western Ontario. Commercial produc- direction through the heart of the country. The PGMs
tion of PGMs began in 1993 from the deposit known as occur in a layer known as the Main Sulphide Zone,
the Roby Zone, which until recently was exploited ex- which is typically about 3 m thick. However, the eco-
clusively via open pit mining. In 2005, an underground nomic mining width may be as little as one metre, de-
section was developed to exploit a deeper, higher grade pending on grade, metal prices and the chosen mining
section of the deposit. Ore from the mine is processed method.
to a concentrate rich in palladium, while also containing
small amounts of platinum and base metals. According to Cawthorn, PGM grades, at about 3 g/t,
PGM mining in North America
Raglan
VANCOUVER
Lac des lles
Sudbury
MONTREAL
Stillwater
Source: Johnson Matthey Platinum 2001 Special Report
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5Platinum Mining in South Africa May 2009
are lower than in the Bushveld Complex, but the ra- mines continue to operate, although not at full capacity.
tio of platinum-to-palladium is relatively high compared Impala Platinum, the world’s second-largest platinum
with most ores. In contrast, nickel and copper values producer has platinum mining interests in Zimbabwe.
are typically higher than those found in South African The company has a controlling stake in Zimplats, which
platinum ores. Zimbabwe’s platinum resources are es- operates an open pit and underground section at Ngezi,
timated at 143-million ounces. and a 50% shareholding in the Mimosa mine with plati-
num junior Aquarius Platinum. A third platinum mine,
Zimbabwe’s ongoing political instability and the asso- Anglo Platinum’s Unki project, is being developed near
ciated economic crisis have largely brought mining in Gweru. When fully operational, the mine is expected to
the country to a halt. However, the country’s platinum process around 120 000 t/m of ore.
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6Platinum Mining in South Africa May 2009
Global market
Johnson Matthey has indicated that platinum demand ering the challenging operating conditions in that coun-
in 2008 was 6,52-million ounces. Platinum supply for try, producing 180 000 oz of platinum, 10 000 oz more
the year was 6,28-million ounces, resulting in a supply than in 2007.
shortfall of 240 000 oz.
Platinum demand
Platinum supply
Global demand for platinum fell to 6,52-million ounces
Platinum supplies in 2008 were down on the previous in 2008, a decrease of 155 000 oz from the previous
year’s production of 6,55-million ounces. year. Johnson Matthey attributes the drop in demand to
high platinum prices in the first half of the year and the
South Africa, the world’s largest platinum producer, ex- global economic slowdown in the latter part of 2008.
perienced a range of operational problems, which re-
sulted in a 5% reduction in output, to 4,78-million ounc- Automotive demand
es of platinum in 2008. Johnson Matthey attributes the
decline in production to electricity supply constraints, The automotive industry is the largest consumer of
industrial relations problems, and safety and technical platinum. About 50% of the world’s mined platinum is
issues. used in the manufacture of autocatalysts. Auto cata-
lytic converters, which consist of a base metal coated
Electricity supply problems brought platinum mining with platinum particles, purify exhaust gases through
and processing in South Africa to a halt in late Jan- chemical reactions facilitated by these metals.
uary and early February. However, Johnson Matthey
suggests that losses directly attributable to the power Gross auto catalyst demand grew by a modest 85 000
outages only amount to about 60 000 oz. Other fac- oz, to 4,23-million ounces in 2008. Johnson Matthey
tors responsible for reduced output from South Africa’s reports that a heavy fall in North American vehicle pro-
platinum mines include the temporary closure of Anglo duction depressed platinum demand by 305 000 oz.
Platinum’s Amandelbult mine owing to flooding, which However, a healthy rise in platinum use in the European
resulted in the loss of 67 000 oz, and smelter prob- diesel sector compensated for the reduced demand in
lems at both Anglo Platinum and Lonmin. In addition North America.
to lost production brought about by electricity supply
problems, Impala Platinum lost a further 12 000 oz as In Europe, the demand for platinum used in the manu-
a result of Presidential Safety Audits, with some shafts facture of autocatalysts increased by 16,2%, to 2,4-mil-
closed for short periods while inspections took place. lion ounces in 2008. According to Johnson Matthey,
very little platinum is used in European gasoline-fuelled
Russian platinum output form Norilsk Nickel and the cars as substitution with palladium in this sub-sector of
alluvial producers decreased from 910 000 oz to 855 the automotive industry continues to spread.
000 oz in 2008. Johnson Matthey reports that produc-
tion at Norilsk Nickel was affected by severe weather However, demand for platinum in the light duty diesel
conditions on the Taimyr peninsula in northern Siberia, sector remains strong. More than 50% of all light duty
thus preventing the shipment of concentrates to Kras- vehicles sold in Europe now have diesel engines. Fur-
noyarsk for refining. The rebuilding of the Nadezhda ther, in 2008, between 40% and 50% of these vehicles
smelter in the first half of 2008 also curtailed platinum were fitted with platinum-containing diesel particulate
output. In addition, reduced platinum sales by the allu- filters (DPFs), in addition to a diesel oxidation catalyst.
vial producers reflect the gradual exhausting of some The introduction of Euro 5 emission rules in 2009 and
of these deposits. 2010 will drive the use of DPFs higher.
According to Johnson Matthey, platinum production Johnson Matthey indicates that Japan’s automakers
in North America and Zimbabwe increased in 2008. In purchased 590 000 oz of platinum in 2008, a drop of
North America, platinum output grew by 15 000 oz to 10 000 oz. Japanese car makers have historically used
340 000 oz. Zimbabwe’s two operating platinum mines, higher platinum loadings than other car manufacturers.
Mimosa and Zimplats, performed impressively consid- However, the increase in the platinum price in recent
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7Platinum Mining in South Africa May 2009
years has resulted in a move to using more palladium the 2007 total of 1,81-million ounces. Johnson Matthey
in petrol catalysts. indicates that demand the glass, chemical, petroleum
refining industries remained strong, but platinum sales
The North American automotive sector performed to the electric sector fell in 2008.
poorly in 2008, with a corresponding impact on plat-
inum demand. According to Johnson Matthey, plati- Increased demand from the glass and chemical sec-
num purchases by automakers fell by 305 000 oz to tors reflects the addition of significant extra capaci-
540 000 oz in 2008. In addition, the automotive industry ty in both industries in China. Glass fibre production
reduced its strategic stocks of platinum in 2008, further is being relocated from Europe and North America to
cutting demand. China, which now has over 40% of global manufactur-
ing capacity. Similarly, in the chemical sector, China is
Chinese light duty vehicle production climbed from attempting to decrease its dependence on imports of
8,1-million units in 2007 to 9,1-million units in 2008, commodity chemicals, such as paraxylene, by building
with an associated increase in platinum demand of additional capacity, with the resultant increase in plati-
14,3% or 200 000 oz. Further, new emission regula- num demand.
tions also came into effect in 2008, in the form of Euro
3 rules for most of the country and Euro 4 rules in Bei- Although the quantity of hard disks manufactured con-
jing, Shanghai and Guangzhou. This development will tinues to increase, Johnson Matthey reveals that pro-
increase the average platinum content of vehicles man- ducers are successfully able to decrease the metal
ufactured in China. content of an average disk and have reduced working
stocks owing to recycling material more quickly, lead-
Johnson Matthey reports that 97 000 oz of platinum ing to lower net platinum demand in the electrical sec-
were recovered from spent auto catalysts in 2008, an tor in 2008.
increase of 7,2% from 2007. High platinum prices in the
first half of 2008 encouraged collection these catalysts Platinum investments
from scrapped vehicles. In the North American market,
625 000 oz of platinum was recovered in 2008, while Investment interest in platinum fluctuated wildly dur-
in Europe, platinum reclamation increased to 245 000 ing 2008, driven by large flows of metal into and out of
oz, reflecting the increasing number of end-of-life cata- exchange-traded funds (ETFs). According to Johnson
lysed diesel vehicles being scrapped. Matthey, investments in ETFs were much lower than in
2007 – at 130 000 oz compared to 195 000 oz. Further,
Jewellery demand Johnson Matthey reports that large quantities of plati-
num were purchased through ETFs in the first quarter
According to Johnson Matthey, a rising platinum price of 2008 as the price rose rapidly, but sales were equal-
in the first half of 2008 had a significantly negative im- ly heavy in the third quarter as the price fell. In addi-
pact on retail sales and manufacturing volumes in most tion, net physical investment demand for platinum de-
jewellery markets. In response to the high platinum creased in 2008 to 145 000 oz from 170 000 oz in 2007.
price, recycling of old jewellery increased markedly in
Japan, and to a lesser extent, in China, depressing net Platinum price
jewellery demand further.
According to Johnson Matthey, platinum traded at an
The fall in the platinum price in the second half of the average price of $1 583,27/oz during the 2008 calendar
year allowed manufacturers and retailers to rebuild year. The platinum price performed strongly in the first
stocks and also reduced the amount of scrap material half of the year, driven by tight fundamentals. Supply
entering the Japanese and Chinese markets. As a con- disruptions, initially in the form of intermittent electricity
sequence of price volatility and the associated fluctua- supply and the temporary closure of the Amandelbult
tions in demand, the net global demand for platinum mine in South Africa, drove platinum to a record price
in this sector fell from 1,46-million ounces in 2007 to of $2 276/oz in March 2008, with the price remaining
1,12-million ounces in 2008. highly volatile during this period.
Industrial demand However, the global financial crisis led to heavy sales
by investors, forcing the platinum price sharply lower.
Platinum demand in the industrial sector reached two- By December 2008, the metal was trading at a monthly
million ounces in 2008, an increase of 190 000 oz from average of $851/oz.
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8Platinum Mining in South Africa May 2009
Monthly average platinum prices for the 2008 ages and rebuilds may cause platinum supply to fluc-
calendar year tuate in the short-term. In the longer-term, questions
remain concerning the ability of mining companies to
JM Base Prices
US$ Monthly Average obtain sufficient power guarantees to commence new
2080 operations. In addition, at current prices, and with dif-
1950 ficulty obtaining credit, it may prove challenging for
1820 many producers to expand their production.
1690
1560 In the automotive sector, Johnson Matthey predicts
1430 that at current price differentials, palladium will contin-
1300
ue to dominate the gasoline auto catalyst market, and
1170
will take an increasing share from platinum in the diesel
sector. However, new Euro 5 vehicle emission rules will
1040
take effect in late 2009 in Europe, which will force the
910
use of DPFs on almost all diesel cars sold in the region,
780
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec supporting platinum demand despite a worsening out-
2008 look for global vehicle production.
Platinum Period Average $1583.27
Source: Johnson Matthey
Johnson Matthey indicates that the affordability of plat-
Outlook inum jewellery has decreased in recent years, driving
sales down. However, a lower platinum price has al-
Since most major national economies are either in re- ready allowed the industry to restock and should help
cession or suffering a slowdown, it is anticipated that retail sales, as demonstrated by strong physical pur-
industrial demand for platinum will be affected. chasing in China in the third quarter of 2008. Further,
the amount of metal returned to the market from sec-
Johnson Matthey prefaces its assessment of the out- ond-hand jewellery in Japan has recently decreased as
look for platinum, in its Platinum 2008 Interim Review, the platinum price has fallen and consequently net de-
with the observation that extreme uncertainty in the mand there is set to improve. Nonetheless, price vola-
global financial markets makes it difficult to forecast tility affects the trade’s confidence, so a period of sus-
the severity of the current economic slowdown with tained price stability would benefit the industry further
any accuracy, and hence, the outlook for the platinum and help rebuild demand to previous levels. Demand
market is more uncertain than its has been for many for platinum jewellery, as with most luxury items, eased
years. significantly as the global financial crisis intensified in
the fourth quarter of 2008.
As South Africa is the world’s largest producer of plati-
num, it is critical that the country’s producers maintain Investment demand for platinum is dependent on plat-
output from existing mines and add extra ounces from inum’s price performance. Johnson Matthey predicts
newer operations. Johnson Matthey believes that there that investment demand is unlikely to rise significantly
is scope for some recovery in platinum production at in the short-term, as investors seek the safety of low
many established mines in 2009. volatility investments.
However, Johnson Matthey suggests that platinum According to Johnson Matthey, forecasting the plati-
miners in South Africa will encounter operational and num price has become increasingly difficult in the cur-
financial challenges in their effort to maintain and pos- rent economic climate. In addition, platinum is essen-
sibly increase production output. It is feared that the tially an industrial metal and the economic cycle will
mining sector’s chronic skills shortage will undermine influence price expectations. Johnson Matthey indi-
efforts to increase platinum production output. Further, cates that some major economies, including China, will
rising UG2 output from the new generation of platinum escape actual recession, supporting physical demand
mines is already placing increasing technical stresses for platinum and ensuring that the metal’s price does
on smelting capacity in South Africa, and smelter out- not fall significantly.
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9Platinum Mining in South Africa May 2009
Platinum Supply and Demand
‘000 oz 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Supply
South Africa 3 900 3 800 4 100 4 450 4 630 5 010 5 115 5 295 5 030 4 780
Russia 540 1 100 1 300 980 1 050 845 890 920 910 855
North
270 285 360 390 295 385 365 345 325 340
America
Others 160 105 100 150 225 250 270 270 290 305
Total Supply 4 870 5 290 5 860 5 970 6 200 6 490 6 640 6 830 6 555 6 280
Demand by application
Autocatalyst:
Gross 1 610 1 890 2 520 2 590 3 270 3 490 3 795 3 905 4 145 4 230
Recovery (420) (470) (530) (565) (645) (690) (770) (860) (905) (970)
Chemical 320 295 290 325 320 325 325 395 410 425
Electrical 370 455 385 315 260 300 360 360 320 315
Glass 200 255 290 235 210 290 360 405 390 490
Investment 180 (60) 90 80 15 45 15 (40) 170 145
Jewellery 2 880 2 830 2 590 2 820 2 510 2 160 1 965 1 640 1 460 1 120
Petroleum 115 110 130 130 120 150 170 180 210 270
Other 335 375 465 540 470 470 475 490 475 495
Total
5 590 5 680 6 230 6 470 6 530 6 540 6 695 6 475 6 675 6 520
Demand
Average
377 545 529 540 691 846 897 1 143 1 304 1 583
Price (US$)
Source: Johnson Matthey Platinum 2008 Interim Report
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10Platinum Mining in South Africa May 2009
Legislative and policy environment
The background to the development the participation of historically disadvantaged people in
applications for prospecting and mining rights.
of current legislation
Government and industry also drafted a socioeco-
The Mineral and Petroleum Resources Develop- nomic empowerment charter to form part of the
ment Act (MPRDA), which came into effect on May 1, Department of Minerals and Energy’s (DME’s) regula-
2004, was drafted in an attempt to formulate a regula- tions and criteria for awarding prospecting and min-
tory framework for South Africa’s mining and minerals ing licences. The development of the charter was pro-
industry. The aim of the legislation is to correct histori- vided for in section 100 of the Mineral and Petroleum
cal imbalances in the industry caused by the legacy of Resources Development Bill, under the heading ‘Trans-
apartheid, without threatening its attractiveness to do- formation of the Industry’, which stated that within six
mestic and international investors. months of the Bill taking effect as an Act, the Minister
of Minerals and Energy must have developed a char-
The Act follows international trends in minerals regu- ter that sets the framework, targets and timetable for
lation, especially those seen in Canada, Australia and effecting the entry of historically disadvantaged South
North America, and centres around the provision that Africans into the mining industry. The charter estab-
all mineral rights will revert to the State, representing a lishes how to achieve equitable access to South Afri-
move away from the previous system where ownership ca’s mineral and petroleum resources for all South Af-
of mineral resources lay in the hands of private com- ricans, and outlines how the creation of employment
panies. and the advancement of social and economic welfare
can take place through the appropriate use of these
The intention of this development is to ensure in- resources. The charter also sets a framework that en-
creased access to mining activity for historically disad- sures that the holders of mining and production rights
vantaged people, and to enable the State to put an end contribute towards the socioeconomic development of
to the hoarding of mineral rights, with a use-it-or-lose-it the areas in which they are operating.
principle ensuring that if a company fails to use its min-
eral rights it will lose those rights after a certain period. The charter has been the source of much specula-
tion and agitation among many in the industry, but is
This affects mining companies holding unutilised re- considered necessary in order to correct the racial im-
serves, as well as those that own projects that have balance of the South African mining industry, which
been shut down due to unprofitability. In addition, remains white controlled. There has been some confu-
the principle allows the State the discretion to force sion about how the mining charter will be affected by
the holder of mineral rights to abandon development the Broad-Based Black-Economic Empowerment
projects if it is of the opinion that the project is not pro- Codes of Good Practice, which outline what compa-
ducing at its most efficient levels. nies need to do – in terms of ownership, management
control, employment equity, skills development, prefer-
The Act also answers the need for broader access to ential procurement, enterprise development and socio-
geological, geochemical and geophysical information, economic development – to fulfil government’s black
which, in the past, was held by the entity that conduct- economic-empowerment (BEE) policy requirements.
ed the exploration and was protected by restrictions Regarding this, a tentative agreement was reached in
on disclosure. Through this, and improved access to April 2005, between the Department of Trade and In-
mineral rights, the Act is designed to bring an end to dustry (DTI), the DME, and the Chamber of Mines, to
the situation in which a few large companies domi- the effect that the mining charter be left as is until the
nate South Africa’s mining industry, and is intended to rights conversion process is concluded, and the Minis-
stimulate the development of South Africa’s junior min- ter of Trade and Industry confirmed, in December 2006,
ing sector, which is currently small and compares un- that the codes of good practice will not affect the min-
favourably with junior mining sectors in other parts of ing transformation charter until at least 2009. Mean-
the world. while, mining companies have been requested by the
DTI to align their procurement and enterprise-develop-
Junior mining companies are also expected to benefit ment policies with the spirit of the codes of good prac-
from the proposal in the Act that requires evidence of tice.
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11Platinum Mining in South Africa May 2009
The mining charter requires that 15% of the owner- preference to applications from historically disadvan-
ship of existing mining industry assets must be held taged people.
by historically disadvantaged South Africans within five
years, and 26% within ten years. While the charter does The mining rights for established operations will offer
not provide clarity on the issue of new mining projects, security of tenure for an initial 30 years, renewable for
a meeting, held in July 2004, between the DME, labour additional 30-year periods. The Act provides for the
unions and mine resource owners, resolved this issue. provision of a retention permit, allowing the company
Agreement was reached that all new mining projects granted the mineral rights to retain the rights without
where the mineral rights were previously State-owned developing them for a period of three years, renewable
must have a 51% BEE shareholding within the one- for two years, if market conditions are poor. The new
year transitional period, and a 26% BEE shareholding prospecting rights are valid for a period not exceeding
if the mineral rights were formerly privately held. For five years, with a possible one-off renewal for another
pending applications for prospecting rights the same period of a maximum of three years and, once pros-
criteria will apply. All applications for rights not falling pecting has been completed, the company must reap-
into these categories that are in the custodianship of ply to convert these rights into mining rights if it wishes
the State will be subject to a minimum 26% BEE par- to establish operations.
ticipation.
All new mining licences, including those for existing
The targets for the participation of historically disadvan- mineral rights properties, will require evidence of a BEE
taged individuals must be reached by individual com- plan, a social plan, and an environmental management
panies, but companies can earn offset points where- plan.
by the ownership target will be moderated should the
company facilitate value-adding downstream oppor- Under the MPRDA, a transitional period allows current
tunities. This will be clarified in the future promotion holders of mineral and mining rights to convert their
of beneficiation legislation. The charter also requires old-order rights to new-order rights.
companies to procure from BEE companies, engage
in skills upliftment, improve worker housing conditions, Mineral rights holders, which did not hold prospect-
and develop social plans for retrenched workers. These ing permits or mining authorisations and which were
obligations cannot be used to offset equity obligations. not actively prospecting or mining their properties were
given a year from the date on which the Act came into
Further to requiring the involvement of historically dis- effect to apply for prospecting or mining rights under
advantaged people, which will be facilitated through the new legislation. Mineral rights holders, which did
the empowerment charter, the Act also requires that not apply within this period lost their rights, and any
companies consult with government should they wish other persons or groups will be able to apply directly to
to beneficiate locally produced minerals outside the the State for prospecting or mining rights for the areas
country. This provision is designed to promote the use formerly covered by those rights.
of mineral resources for sustainable economic devel-
opment, and to avoid the trap that many developing Mineral rights holders, which were actively prospect-
countries fall into of exporting jobs through the expor- ing or mining on the properties to which their old-order
tation of unbeneficiated minerals. rights related (with the necessary permits or authorisa-
tions from the DME) were given two and five years re-
Based on this, the granting of mineral rights will be in- spectively, from the date on which the MPRDA came
fluenced by the involvement of historically disadvan- into effect, to convert their old-order rights to new-or-
taged people, and by plans to beneficiate the miner- der prospecting or mining rights.
als locally.
An application has to be lodged at the relevant DME re-
To give effect to the charter, a scorecard has been re- gional office, depending on where the land is situated.
leased by which companies will be evaluated to deter- Within 14 days of lodging an application for the con-
mine whether they have complied with the provisions version of prospecting or mining rights with the DME, a
contained in the charter and the Act, and thus to de- decision as to whether or not this application has been
termine whether their old-order mining rights should be accepted will be made by the department. If an appli-
converted to new-order rights. The entire scorecard will cation is rejected, the process ends there. In the case
be taken into account in the adjudication by the Minis- of prospecting rights, if the application is accepted, the
ter of Minerals and Energy. When considering applica- mining company is given 30 days to consult with in-
tions received on the same date, the Minister will give terested and affected parties, and to give the results
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12Platinum Mining in South Africa May 2009
Scorecard for the broad-based socioeconomic empowerment charter for the
South African mining industry
Description 5-year target 10-year target
Human resource development
1 Has the company offered every employee the opportunity to be functionally Yes No
literate and numerate by the year 2005 and are employees being trained?
Has the company implemented career paths for HDSA employees including skills Yes No
development plans?
2 Has the company developed systems through which empowerment groups can be
Yes No
mentored?
Employment equity
Has the company published its employment equity plan and reported on its annual
Yes No
progess in meeting that plan?
3 Has the company established a plan to achieve a target for HDSA participation in
management of 40% within five years and is implementing the plan?
Has the company identified a talent pool and is it fast tracking it? Yes No
4 Has the company established a plan to achieve a target for women participation in
mining of 10% within the five years and is implementing the plan?
Migrant labour
5 Has the company subscribed to government and industry agreements to ensure
Yes No
non-discrimination against foreign migrant labour?
Mine community and rural development
Has the company cooperated in the formulation of integrated development plans and
Yes No
is the company cooperating with government in the implementation of these plans for
communities where mining takes place and for major labour-sending areas? Has there
been effort on the side of the company to engage the local mine community and major
labour-sending area communities? (Companies will be required to cite a pattern of
consultation, indicate money expenditures and show a plan).
Housing and living conditions
6 For company-provided housing has the mine, in consultation with stakeholders,
Yes No
established measures for improving the standard of housing, including the upgrading
of the hostels, conversion of hostels to family units and promoted home ownership
options for mine employees? Companies will be required to indicate what they have
done to improve housing and show a plan to progress the issue over time and is
implementing the plan?
7 Forcompany-provided
For company-providednutrition
nutrition has
has the
the mine
mine established
established measures for improving
improving
Yes No
thenutrition
the nutritionofofmine
mineemployees?
employees? Companies
Companies willwill be required to indicate what
what they
they
havedone
have donetotoimprove
improvenutrition
nutrition and
and show
show aa plan
plan to progress the issue over time
time and
and is
is
implementingthe
implementing theplan?
plan?
Procurement
Has the mining company given HDSAs preferred supplier status? Yes No
Has the mining company identified current level of procurement from HDSA Yes No
companies in terms of capital goods, consumables and services?
8 Has the mining company indicated a commitment to a progression of procurement Yes No
from HDSA companies over a 3˙ 5 year time frame in terms of capital goods,
consumables and services and to what extent has the commitment been implemented?
Ownership and joint ventures
9 Has the mining company achieved HDSA participation in terms of ownership for equity 15% 26%
or attributable units of production of 15 per cent in HDSA hands within 5 years and 26
per cent in 10 years?
Beneficiation
Has the mining company identified its current level of beneficiation? Yes No
10 Has the mining company established its base-line level of beneficiation and indicated Yes No
the extent that this will have to be grown in order to qualify for an offset?
Reporting
Has the company reported on an annual basis its progress towards achieving its Yes No
commitments in its annual report?
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13Platinum Mining in South Africa May 2009
of this consultation to the DME. In respect of a mining lish a central point for the registration and recording of
right, the mining company is given 180 days to consult all mining titles.
with interested and affected parties. Then, depending
on whether it is an application for a mining title conver- The MPRDA represents a significant move away from
sion or prospecting right, the mining company is given the old regulatory regime, and the DME is required by
either 180 days or 60 days respectively to devise an the Act to put in place the necessary supporting infra-
environmental management plan. Once this has been structure to implement it. A Minerals and Mining De-
submitted to the DME, the department has 120 days to velopment Board, consisting of no fewer than 14 and
assess the application. The applicant is informed within no more than 18 members, was established in 2005 to
30 days for prospecting rights, and 180 days for min- advise the Minister on the sustainable development of
ing rights, as to whether the application is granted or the country’s mineral resources, as well as on the trans-
rejected. If granted, the applicant is called to come and formation and downscaling of the industry. The board
execute the right, which takes place prior to the reg- also plays a role in dispute resolution, and in partner-
istration of the relevant right. The applicant must then ship with the Mining Qualifications Authority, promotes
lodge the right granted and executed for registration the development of human resources.
within 30 days of the execution date. This closes the li-
censing process. To facilitate the passage of the new regulatory environ-
ment, the Act provides for transitional arrangements
The impact of the legislation that will be used to phase in the new framework. These
will ensure that security of tenure is protected, and will
Mining companies are discontented over the time taken give the holders of old-order rights and OP26 rights the
to be awarded new-order rights, and the lengthy appli- opportunity to comply with the Act.
cation process has been identified by some as causing
widespread uncertainty among mining and exploration In spite of the transitional mechanisms, however, un-
companies operating in South Africa. Towards tack- certainties remain regarding the practical implementa-
ling such concerns, the Director-General of the DME tion of the Act, and business has expressed concerns
indicated in September 2006 that mineral rights would over this.
be granted to mineral explorers within six months from
the date of application lodgement, while mining-rights In late-2006, the DME launched a review of the MPRDA
applications would take 12 months to finalise. In May and, based on submissions made by the mining indus-
2007, the Minister of Minerals and Energy, in her budg- try, is developing certain amendments to the legisla-
et vote in Parliament, reported that the DME had re- tion, although it has stressed that such amendments
ceived 11 447 applications for prospecting and min- will not alter the spirit of the law, but will rather seek
ing rights since the new legislation was introduced, and to remove identified obstacles to mining investment.
that there was no longer a backlog in the processing One such amendment will see mining companies hav-
of these. However, figures continue to show that de- ing a period of 180 days after April 30, 2009, in which
cisions on whether to grant or refuse a number of ac- to lodge claims with the DME before mining rights are
cepted applications remain outstanding. expropriated.
Legislation, separate from the MPRDA, aimed at over- Other concerns that have been voiced by business with
hauling the registration of mining titles and setting up regard to the MPRDA include what they have identi-
a central office to regulate all mining and prospecting fied as broad discretionary powers granted to the Min-
rights has been passed. Known as the Mining Titles ister, and the absence of clearly defined recourse to the
Registration Amendment Act, this law seeks to bring courts in the event of having to challenge a ministerial
registration in line with the MPRDA, and aims to estab- decision made by virtue of these powers.
Progress on rights applications made between May 2004 and November 2007
Received Accepted Rejected Granted Refused Withdrawn
Prospecting rights 7 703 6 019 1 539 2 835 2 067 281
Mining rights 1 807 1 596 182 336 309 105
Permit applications 3 990 3 339 559 1 374 822 207
Source: Compiled from the DME’s monthly update on applications (November 2007)
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14Platinum Mining in South Africa May 2009
Government, however, holds that, in comparison to the to protect foreign investments from expropriation, ex-
Minerals Act of 1991, the Act limits the extent of dis- cept in the case of prompt and effective compensation,
cretionary power by containing objective statutory re- and require foreign investments in South Africa to be
quirements that will be used to determine whether a subjected to fair and equitable treatment.
company is granted prospecting or mining rights. Gov-
ernment also emphasises that, as a fundamental right Based on this, under international law, a €266-million
contained in the South African Constitution, recourse claim has been brought by the Italian investors in Marlin
to the courts is implied, and is not excluded under the Holdings Limited, Marlin Corporation Limited, and Red
new Act. Graniti SA (Pty) Limited. These investors have lodged a
request for compulsory international arbitration against
Concerns have also been raised over what is perceived the South African government under the World Bank’s
as overregulation of the industry, demonstrated in the International Centre for the Settlement for Investment
Act’s requirement that companies consult with govern- Disputes (ICSID) in Washington. The ICSID granted the
ment should they wish to beneficiate locally produced request in January 2007.
minerals outside the country. Government feels justi-
fied in this, however, as it provides incentives for the lo- The request for international arbitration was made un-
cal beneficiation of minerals. der South Africa’s bilateral investment treaties (Bits)
with Italy and the Belgo-Luxembourg Economic Union.
Further, business is concerned that, through the use- The request points out that by extinguishing the owner-
it-or-lose-it principle, mineral resources previously held ship of the investors’ South African mineral rights with-
by companies that were likely to exploit them over a out providing prompt, adequate and effective compen-
long period, may now be developed in the next few sation, the entry into force of the MPRDA constituted
years, increasing supply to the market and disrupting an unlawful expropriation of their investments. Like-
the delicate supply-and-demand balance, thereby ex- wise, the mining charter’s forced divestiture of 26%
erting downward pressure on metals prices. of the investors’ investments to historically disadvan-
taged South Africans, as a condition of the conversion
The amendment Bill is introduced of the investors’ old-order rights to new-order rights
under the MPRDA, constitutes a violation of the Bits’
The Mineral and Petroleum Resources Develop- requirement that the investors receive fair and equita-
ment Amendment Bill of 2007 has been criticised for ble treatment. In the investors’ view, the Mining Charter
worsening regulatory uncertainty in South Africa’s min- discriminates against foreign investors in favour of his-
ing industry, with some experts indicating that the Bill torically disadvantaged South Africans, and thus vio-
fails to introduce any measurable objectives into the lates the Bits’ equitable treatment requirements.
MPRDA’s licensing requirements and contains certain
legislative proposals that will aggravate the MPRDA’s Mining and the environment
underlying problems.
The environmental policies of the MPRDA are expected
An example of this is the empowerment of the Minister to ensure responsible mining practices, to some extent,
of Minerals and Energy to refuse to convert an old order although the enforcement of these policies will be the
mining right, as an applicant must now provide docu- ultimate determinant of their effectiveness.
mentary proof as to how it intends giving effect to the
MPRDA’s empowerment, social and labour objectives. Everyone applying for a prospecting or mining right
must lodge an environmental management programme
As at August 31, 2007, 94 judicial review applications report (EMPR) evaluating the impact of the proposed
had been instituted against the DME’s refusal to grant operations on the environment and on the socioeco-
either a prospecting or mining right, and, as of the same nomic conditions of affected people. For this EMPR to
date, the High Court had only refused to grant one judi- be approved, applicants must make the prescribed fi-
cial review application. nancial provisions for the management of environmen-
tal impacts, and for rehabilitation.
In a legal challenge to the MPRDA, the consequenc-
es of which remain unclear, mining lawyer and vice- The Act empowers the Minister to force a permit hold-
chairperson of the International Bar Association Peter er to take urgent remedial action to deal with an envi-
Leon, contended in February 2007 that the MPRDA is ronmental hazard, and the Minister is even authorised
in breach of 42 international investment treaties signed to use State funds to pay for this, although the money
by South Africa since 1994. Such treaties are intended must be recovered from the permit holder.
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15Platinum Mining in South Africa May 2009
Although certain other environmental provisions are The Cabinet-approved amendments introduce a dis-
made in the Act, it does not represent a definitive piece tinction between the royalties imposed on refined min-
of environmental legislation, and the interrelationship erals, such as gold, and unrefined minerals, including
between the Act and other environmental laws remains diamonds, gas and oil, which will have separate formu-
important. las. Platinum group metals could fall into either catego-
ry depending on whether they had been refined before
Firstly, environmental rights are included in the Con- they are sold. For refined metals the tax base for the
stitution, which requires that environmental considera- formula is gross sales minus the cost of transporting
tions are accorded appropriate recognition in the South the final product to the buyer.
African economy.
The amendments also alter the tax base of the royalty
To substantiate these environmental rights, the Nation- to earnings before interest and tax (Ebit) and not the
al Environmental Management Act explicitly outlines previous earnings before interest, tax, depreciation and
principles for cooperative environmental governance, amortisation (Ebitda), which have a much higher value.
and mining companies find themselves subject to this The mining industry had objected to the use of Ebitda
piece of legislation. claiming that it took no account of considerable capi-
tal investment, particularly by deep-level gold mines.
One of the most significant environmental challenges Under Ebit, the mines will be allowed 100% capital ex-
faced by the mining industry relates to water and, in or- pensing, as is the case for income tax.
der to define responsibility in this area, companies fall
under the National Water Act. In terms of the final draft of the bill, marginal mines
would get automatic relief as their royalty rate will de-
As a result of this, it has been noted that environmental cline as their profitability falls. However, the government
law in South Africa appears fragmented and, on occa- will also enjoy the benefit of commodity price booms.
sion, contradictory, with the result that uncertainty ex-
ists as to what is required of mining companies with re- The Treasury has taken steps to protect the integrity of
gard to environmental protection. the Bill in the light of the move to the lower value Ebit,
by introducing a minimum rate of 0,5% into the formu-
Introduction of royalty payments las.
South Africa’s mining sector will soon fall under a roy- Refined formula rates will typically range from 1,7% to
alty regime. The Mineral and Petroleum Royalty Bill 2,5%, depending on the profitability of the mines, and
was released in early 2003, and since that time has there will be a maximum rate of 5% in cases of high
been revised, taking into account consultations with profitability. Unrefined formula rates will range from
the sector. 2,2% to 3,3%, with a maximum of 7%.
The first two drafts of the Bill proposed that royalties Impact of the economic downturn and other factors
be levied on turnover, and set specific royalty levels for
specific minerals. Miners strongly rejected this system, Enacted in 2008, the Mineral and Petroleum Resourc-
claiming that it would reduce the viability of existing op- es Royalty Act was initially set to be implemented in
erations, increase pay limits and, consequently, cause May 2009. However, in an effort to mitigate job losses
job losses. Further, the industry claimed that the legis- in the mining sector, the government has decided to
lation could substantially increase hurdle rates for new postpone the implementation of the new mineral and
and organic growth projects and, ultimately, threaten mining royalty regime until March 2010.
the long-term viability of the industry.
It has been suggested that about R1,8-billion in mining
The third version of the Bill, tabled in December 2007, royalties would have been raised by the National Treas-
proposed a levy based on profitable earnings. The ury, and it is believed that the deferred royalty payment
approach incorporated the use of a single formula in will assist the mining industry through the current eco-
terms of which the royalty rate for each company would nomic slowdown and thereby minimise job losses in
vary depending on the ratio of earnings to sales. the sector.
Final amendments to the Bill were released in May The mining sector’s production and sales output has
2008, and the royalties were to become payable on been curtailed by the country’s electricity supply prob-
minerals transferred as of May 1, 2009. lems, shutdowns related to mine safety, retreating com-
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