Commodity Trade Mantra

Number Of Existing Gold and Platinum Mines In South Africa Will Close

Number Of Existing Gold and Platinum Mines In South Africa Will Close

Number Of Existing Gold and Platinum Mines In South Africa Will Close

The South African mining industry is being racked with strikes once again. Since police cracked down on striking miners at the Marikana mine, which left 34 people dead, strikes and violence have continued to erupt at South African mines.

Just recently, the mining union AMCU threatened to resume strikes at key platinum-producing deposits over plans by Anglo American Platinum to lay off miners.

The tensions are exacerbated by a historically fraught relationship between mine owners and the workers, the majority of whom are poor blacks. A spokesperson for the National Union of Mineworkers recently called South Africa a “white man’s economy with no benefits for poor black mineworkers.”

Andy Jackson, a key member of our research team at Sprott Global Resource Investments Ltd. is originally from Zimbabwe and worked in South Africa as a young geologist. His experience with Africa makes him a great person to talk to about the state of mining in South Africa. I asked him why the situation had deteriorated recently, and what this means for mine production going forward.

“The main mining strengths of the last 120 years in South Africa have been gold, and, slightly more recently, platinum. The gold and platinum deposits in South Africa are unique. Not just because of their size – which is massive – but also their structure. Both the gold and platinum mineralization occurs as gently dipping narrow ‘reefs’ that are a meter or less thick. The main platinum reefs, the Merensky and the UG2, are both well under a meter thick,” said Andy.

The shape and orientation of the deposits makes mining very tough work. Because of the narrowness of these ore bodies, Andy explained, you cannot mechanize the mines. It takes mine workers descending to depths of up to 4,000 meters below surface, crouching in narrow stopes, with a jackhammer drill, to get the ore out. At these depths, temperatures are so hot that it requires refrigerated air and water to be able to touch the newly exposed rock. Humidity is close to 100%.

“It’s a really nasty job for the guys in the mines. It’s hot and it’s cramped. It’s also dangerous – there are rock falls and ‘rock bursts’ simply because of the pressure. All kinds of things can go wrong at that depth.”

Despite the severe work conditions, these miners are paid ‘peanuts’ by Western standards.

“The mining companies are caught between ‘a rock and a hard place’,” Andy explained. “They cannot afford to raise wages, or the mine simply becomes uneconomic and they have to close it down. That’s what they’re doing now – closing certain mines or reducing the number of operating shafts.”

But closing down mines in South Africa won’t please anyone – especially mine workers.

Andy explains that traditionally, the National Union of Mineworkers represented mine workers in South Africa. They were aligned with the ANC, which currently runs the government. In response to the perception that they are in cahoots with the government, a more radical union has surfaced, called AMCU.

AMCU takes a more hard line approach, with some even calling to nationalize the mines. Certain politicians outside the ruling ANC have fostered this desire for nationalization of the mines.

An example is Julius Malema, the ex-leader of the ANC youth league, who fell out with South African president Jacob Zuma and was ousted from the ANC. Mr. Malema is now starting a new political party, which would be aimed at the disenfranchised youth in South Africa – poor blacks under 30 who have seen little progress despite repeated promises made by politicians since the end of Apartheid.

“Many things have actually gotten worse for those guys,” Andy explains. “They’ve seen the new government elite rising up high, but nothing trickle down to them. For them, promises to ‘shake things up’ from people like Mr. Malema can resonate strongly.”

What’s going to happen to platinum and gold mining in South Africa going forward?

Andy says there is reason to be optimistic for platinum production. One deposit, called the ‘Plat Reef’ has now been mined for ten or fifteen years using open-pit mining, and may have another sixty years of production to go. Anglo American Platinum Limited’s Mogalakwena Mine located on the reef still has 89.1 million ounces of gold, platinum, palladium, and rhodium4 in resources.

“Until recently, it was the only mine of its kind,” says Andy, “but there have recently been two new discoveries of a similar nature.”

One is owned by Ivanplats Ltd., now Invahoe Mines Ltd. “What’s remarkable is the thickness of these discoveries, which appears to be many tens of meters in the case of the Ivanplats discovery. This allows you to mechanize the mine. You don’t need to have guys doing hard manual labor to mine the reef. You can bring in big machines and mine relatively cheaply, paying a much better wage to a smaller number of workers.”

The other discovery is from the small Canadian junior Platinum Group Metals Ltd., who recently discovered platinum in a previously unknown area. The area was hidden under younger sediments, which stopped it from being discovered previously, says Andy. What’s interesting is that the deposit appears to be almost as thick and could probably be mechanized. It also comes very close to surface which helps the economics enormously.

“These new deposits, which may be able to produce at a much lower cost with fewer workers and higher wages, could change the whole platinum industry.”

What about existing mines and their workers?

“If it plays out this way, a lot of the smaller platinum mines that rely heavily on manual labor will probably fall by the wayside, which would change the outlook of the whole industry.

“On the gold side, there hasn’t been anything similar discovered, and I don’t think that there will be,” Andy explains, “because the gold deposits are of a different nature. For the gold industry, I would foresee a steady decline over the coming years. In the case of platinum mining, I would predict a rise of new mines, with a progressive closing of the deeper and narrower mines – those that have been at the root of discord in South Africa for over a century.”

 

Courtesy: Sprott Group

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