JOHANNESBURG (miningweekly.com) – The long-term fundamentals of South Africa’s platinum mining industry remained attractive, despite labour unrest, increasing electricity prices and high operating costs, research firm Frost & Sullivan has indicated.

The growing global vehicle fleet and the improving performance of the US and European Union economies were expected to result in growing demand for platinum in the medium term.

Frost & Sullivan stated that a market correction was inevitable in the medium to long term, which would reverse the current trend in the local industry.

South Africa accounted for about 70% of global platinum supply, while growth in the jewellery and medical sectors, which currently constituted 40% of total platinum demand, was anticipated to increase, thus elevating the 6.24-million ounces of demand in 2012.

“With South Africa responsible for producing a large percentage of global platinum output and key end-markets driving demand for the resource, there are more reasons why platinum has a positive outlook for the future.

“The global automotive sector will look to South Africa for the supply of platinum when demand for vehicles increases. It is important, however, that key stakeholders, including government, mineworkers and mining companies, reach a middle ground to mutually benefit from the mining of platinum as a resource,” Frost & Sullivan mining research associate Neelofar Shariff said.

The firm futher said that the Platinum Sector Peace and Stability Accord signed by government, labour unions and mining houses, in February, to create a mutual forum where uncertainty plaguing the platinum sector in South Africa could be eradicated, created a platform where major stakeholders could discuss and share opinions on matters within the platinum industry.

Frost & Sullivan warned, however, that conflict between the Association of Mineworkers and Construction Union and the National Union of Mineworkers had the potential to reverse the progress the platinum sector had made in resolving challenges.

The new accord stated that only the majority union in certain workplaces had authority to enter into wage negotiations, which presents a power struggle between the two unions and increases the risk of further violent action.

Last year, strikes in the sector resulted in a production loss of 500 000 oz, a repeat of which would negatively impact on investor confidence and raise questions about the sustainability of platinum operations in South Africa.

“The violence that occurred at Marikana [platinum mine] in 2012 proved that labour uncertainty can have adverse effects on the overall sector. Going forward, labour challenges are bound to have a [significant] impact on future platinum supply,” stated Shariff.

Frost & Sullivan further pointed out that a fall in platinum production would increase platinum prices, raising the cost of inputs for key end-user markets. Given that platinum follows a cyclical production trend, exacerbation of this situation could possibly lead to a decrease in forecast demand.

“The decline in demand from end-users will lead to a decrease in revenues for platinum mining companies. South Africa will, therefore, be negatively impacted, as 21% of the country’s mineral revenues in 2012 were generated from the platinum sector,” the firm stated.

South Africa’s mining activities contribute about 3% to gross domestic product (GDP) in direct activities and 10% in second-round multiplier effects to the economy. The exit of platinum companies would, therefore, have a much greater impact in terms of revenue and job losses, and ultimately negatively impact South African GDP.

“Frost & Sullivan believes it is crucial for the alignment of objectives of key stakeholders to take place, hopefully leading to the adjustment of investor sentiment of the South African platinum industry,” she said.