Friday saw the inaugural RBC Capital Markets conference on platinum held in London and attended by representatives of a number of financial institutions and bankers who heard some very interesting presentations from the platinum sector.
The scene was set by RBCCM platinum analyst, Leon Esterhuizen, from Johannesburg, who will be moving to the bank's London office in July. Opening the PGM conference Esterhuizen said: We are dealing with an industry in distress. While the world needs more platinum the producers are being prevented from delivering by challenges such as restricted electrical power supply, limited and shrinking skills pool and sharply increasing capital and operating costs. However junior companies who are able to succeed in this climate and capitalise on the very high metal prices will potentially become prime take-over targets for larger companies, enabling them to break into the select group of only a handful of major global PGM producers. The race is on!
Esterhuizen's view on the power situation was not encouraging for the miners, and with every presenter putting their own views on the situation, pessimism reigned as far as Eskom's capability of extricating itself from its self-inflicted problems. However, again virtually all are now resigned to the possibility of power shortages continuing for the next four to ten years or longer and it is significant that again virtually all have now built in back-up power plant into their capital investment programmes and into their predicted cost structures. Even with these added costs, there are some extremely robust projects out there, and with banks insisting on bankable feasibility studies being undertaken at platinum prices of between $800-900 for the most part, there would seem to be a huge degree of flexibility available to the miners - in particular as the general consensus seemed to be that the platinum price is likely to remain at or above two-times the banks' conservative reference levels.
Speakers presented from across the junior and mid-sized platinum sector - but largely restricted to companies in, or near, production and all with their prime mines or prospects located in South Africa, the source of close to 80 percent of the world's platinum supply.
What was apparent though, is that there may not be a serious disruption in the schedule of bringing new platinum projects on stream as had originally been thought, due to the incorporation of alternative power arrangements into the development plans - although some of the less robust projects out there may fall by the wayside as a result. However there are still likely to be shortfalls from the existing operating majors who will likely be held to power levels 5-10% lower than their existing levels, not their projected needs which could well be higher. This could be particularly significant for Anglo Platinum and Impala which are both beginning to mine at depths where refrigeration of the intake air becomes necessary - and refrigeration requires a lot of power.
The problem with the Bushveld Complex rocks is that they are young geologically and there is a high temperature gradient which increases air temperatures at depth such that it would be dangerous to work because of heatstroke potential. This is at a far shallower depth than in the country's gold mines for example.
The other factor which will come into play is that those lucky enough to get main grid power from Eskom are likely to have to pay considerably more for it. Currently Eskom provides industrial power at the lowest cost in the world. This means the cost base will rise which could eat into profits - and certainly into project economics for some proposed new developments. It is also likely to contribute to more consolidation in the sector - a point addressed strongly by Esterhuizen in his opening and closing remarks.
Those speaking at the conference included Eastern Platinum, Mvelaphanda Resources, African Rainbow Minerals, Braemore Resources, Platmin, Platinum Australia, Platinum Group Metals, Ridge Mining and Wesizwe Platinum.