despotism disguised
Loss-making platinum and gold mines with ultradeep reserves are unlikely to survive, says Indigo Ellis, head of Africa research at Verisk Maplecroft in London.
Top of the list, she says, is likely to be the Implats Rustenburg mine, already under pressure from extended strike action in 2019 and depleting platinum reserves.
READ MORE: Eskom woes cast long shadow for South African mining
Impala Rustenburg CEO Mark Munroe has appeared in court for alleged lockdown violations after calling on some employees to return to work. Some who tried to do so were turned back at police roadblocks. The matter remains under investigation, with Implats saying it has acted legally and responsibly.
Mining operations in South Africa are allowed to restart and produce to a maximum of 50% of normal capacity, subject to having COVID-19 health protocols in place. Ellis says that production levels at 50% is a “pie in the sky target”.
- This would mean the larger open cast mines opening fully from 1 May, and underground mines resuming 50% of production immediately, she says.
- “Such a fast ramp up is unrealistic with social distancing measures and negates the fact that a return to Level 5 restrictions, curtailing mine production, is liable as South Africa approaches the peak of the crisis.”
- The country will move from Level 5 to Level 4 lockdown on 1 May, with some businesses allowed to reopen.
READ MORE: Coronavirus: South Africa to ease lockdown to level 4 as of 1 May says Ramaphosa
Marathon Ahead
South Africa’s Minerals Council says that mining production could return to production levels of over 50% while still containing coronavirus.
- Yann Alix, head of Ashurst Africa in London, points out that the country’s mining industry is labour-intensive, with workers often operating in relatively confined spaces.
- Peter Major, director of mining at Mergence in Cape Town, says the idea that production can reach 50% without spreading the virus is “not well thought out, nor justified with any logic.”
- The figure doesn’t differentiate between underground, open, mechanized and non-mechanized pits, he says.
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Ramping up production in South Africa’s deep mines could take a while, as a large number of workers return and need to be tested for COVID-19, says Alix. He sees the possibility of further lockdowns, which may lead to future production disruptions. “With ‘flu season fast approaching, this is a marathon, not a sprint, for South Africa’s miners.” says Ellis.
Gold
Marginal and loss-making gold mines “may find it hard to reopen or keep going,” Alix says. “Especially if they do not have sufficient liquidity to withstand an interruption to operations.”
READ MORE: South Africa: Why Gold has not risen more on Coronavirus
From the perspective of the small-scale producer, higher gold prices can be illusory.
- Despite the increase in global prices, border restrictions and flight cancellations have created surpluses in many local markets, driving prices down for small-scale miners, Alix says.
- “Smaller suppliers and service companies are likely face the same if not worse difficulties as the miners themselves.”
Small miners of all kinds don’t have strong enough balance sheets to survive a prolonged lockdown, Major argues. Mining legislation since 2002 has loaded companies with “masses and masses of documentation and administration” and made life even harder for them, he says.
Major sees little hope for consolidation. Normally consolidation is carried out by larger, better financed companies. “But this is not a natural environment in South Africa. The remaining larger companies want to leave or dis-invest, Major says. “They don’t want to pick up more assets in South Africa. At any price.”
Bottom Line: The partial lifting of restrictions is likely to be a false dawn for South Africa’s smaller miners: only the strongest players are likely to survive.
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