Aug 17, 2012
Lonmin killings hurt SA as mining destinationBack
Construction|Johannesburg|Rustenburg|Africa|Environment|Industrial|Liberum Capital|Lonmin|Mining|Nomura International|Platinum|Safety|Africa|South Africa|USD|Marikana Mine|Electricity Tariff Increases|Maintenance|Platinum Producer|Fairfax|Ian Farmer|Mohamed Seedat|Peter Attard Montalto|Power|Roger Phillimore|Tyler Broda|Operations
© Reuse this
On Thursday, 34 striking workers were killed and 78 injured in a police shoot out near the North West province mine, while ten people died in separate violent clashes earlier in the week.
Liberum Capital noted that the shooting, in addition to the week-long illegal strike, would place another barrier to investing in South Africa-oriented stocks, such as Anglo American, as well as the platinum sector as a whole.
Nomura International director of emerging markets economist Peter Attard Montalto stated that the “complex and delicate” situation, which intermingled a key sector of the economy with politics and union power, has received international attention. “Rating agencies have also been commenting that incidence[s] like this undermine investor confidence and are the kinds of social breakdown they have been highlighting as a driver of the negative bias to the rating,” he said.
Fairfax added in a statement that current margins did not provide sufficient returns to attract capital to the industry, given the riskiness associated in mining platinum-group metals (PGMs).
Cash costs in the platinum industry have quadrupled since 2002, while competing unions, industrial action, safety stoppages, continued electricity tariff increases, productivity decreases, nationalisation and supertax debates, as well as a lack of skilled labour continued to place added pressure on mining companies.
Nomura International analyst Tyler Broda earlier this month questioned the survival of certain participants in the platinum industry, as many South Africa producers were in a difficult position with existing operations becoming less profitable and investment less attractive.
Liberum commented that, despite Lonmin’s loss of 15 000 oz over the past seven days, owing to the ongoing disruption at the mine, it was unlikely to dent the chronic oversupply that faced the industry, as the producer only accounted for 12% of world supply.
The loss, however, was estimated to have cost Lonmin $21.7-million in revenues and $2.7-million in earnings before interest, taxes, depreciation and amortization (Ebitda).
Currently, the PGM sector held a cumulative oversupply in excess of 750 000 oz, on the back of a 4.2% fall in demand to 7.8-million ounces in 2012. It was forecast by Nomura that 2015 would see a cumulative surplus of over one-million ounces.
In the current “political/labour environment”, Nomura did not believe that Anglo American Platinum, which produced 45% of world supply, would “dare” make the deep production cuts that the market needed to balance.
Nomura, earlier, pointed out that, Lonmin, as the highest-cost producer, needed a material fundraising or growth push, or it could be the first of the South Africa platinum producers to “break”. Tyler also noted that Lonmin was likely to follow “broken” Aquarius Platinum in a game of “industrial chicken”.
Aquarius experienced a 86% year-on-year fall in shares, compared with Lonmin’s 46% year-on-year share decline, and Aquarius was trading at option value. Aquarius also placed a number of its mines on care and maintenance.
“There is some concern that if the situation at Marikana persists the company could start losing headroom on the covenants on its debt [which is] estimated around $380-million,” Fairfax noted.
The group noted that Lonmin’s Ebitda for 2012 was estimated at about $216-million, with revenues of $1.72-million. A loss of three to four weeks of production could see Ebitda drop 5% to $205-million.
Production across the platinum producer’s mines has been halted, with no indication as to when the volatile situation near the mine would ease, or when workers would start returning to work.
Workers were informally demanding a pay raise to R12 500, up from R4 000 a month – an amount that Fairfax said the company could not support with Ebitda margins of 12.5% and estimated net margins of 2.5%
In February, Impala Platinum’s (Implats’) Rustenburg operations were disrupted as workers downed tools in an often-violent six-week-long illegal strike that cost the lives of three.
The strike, which was said to be the result of union rivalry between the National Union of Mineworkers and the Association of Mineworkers and Construction Union, cost Implats 120 000 oz in lost platinum production and almost R2.4-billion.
Lonmin is currently without its CEO Ian Farmer, who was hospitalised this week owing to a serious illness. The executive committee, temporarily headed up by Roger Phillimore, would undertake the day-to-day responsibilities, and director and former COO Mohamed Seedat would step in to assist.
Edited by: Mariaan Webb© Reuse this Comment Guidelines (150 word limit)
Other Mining News
Diversified giant Rio Tinto on Friday announced that it would streamline its business, condensing its assets into four product groups namely; aluminium, copper and coal, diamonds and minerals, and iron-ore. The miner said that the new copper and coal product group...
Gas has the potential to account for more than 40% of the electricity generated in sub-Saharan Africa (SSA) from 2020 onwards, a new report by McKinsey & Company shows, adding that, by 2040, gas-fired capacity could be responsible for more than 700 terawatt-hours in...
International consulting engineering company Royal HaskoningDHV (RHDHV) has appointed Salani Sithole as South African MD, effective March 1. Sithole has been with the company for six years and, prior to joining RHDHV, held various positions in engineering consulting,...
Recent Research Reports
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
This Week's Magazine
National flag carrier South African Airways (SAA) is in an advanced stage of renegotiating its deal with European airliner manufacturer Airbus to acquire A320 single-aisle (or narrow body) aircraft. The aim is to replace ten of the aircraft still on order with five...
Worldwide, the main thrust in the ports industry over the past decade or more has been to increase efficiency. Traditionally, ports have been run by engineers and mariners and, in the past, increasing a port’s capacity was achieved by expanding the harbour. “That has...
What do you do when an elephant has a toothache? You call Dr Gerhard Steenkamp from the University of Pretoria’s (UP’s) faculty of veterinary science, Onderstepoort, one of only two elephant ‘dentists’ in the world.
The 2015 Sanlam/Business Partners Entrepreneur of the Year (EOY) competition was launched earlier this month in Johannesburg, with the main focus on creating and inspiring entrepreneurs to create jobs and boost the economy.
In a recent letter to the editor that I sent to Engineering News (Concerns regarding South African portion of Square Kilometre Array) and in a follow-up article elaborating further (We must start preparations to build our own synchrotron light source), I stated my...