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MINING INDUSTRY

Lay-offs in PGM sector are ‘inevitable’ as prices sink and costs soar – Sibanye-Stillwater CEO

Lay-offs in PGM sector are ‘inevitable’ as prices sink and costs soar – Sibanye-Stillwater CEO
Sibanye-Stillwater CEO Neal Froneman. (Photo: Halden Krog / Bloomberg via Getty Images)

Sibanye-Stillwater CEO Neal Froneman has warned of ‘inevitable’ lay-offs in South Africa’s platinum group metals (PGMs) sector in the face of prices which have collapsed from record highs two years ago.

Two years ago, South Africa’s PGM producers were raking in record profits from record prices. 

In hindsight, the red-hot price rally for the likes of palladium and rhodium may have been a classic case of “irrational exuberance” which saved marginal shafts from the chopping block. 

Prices have since crashed back to earth. Combined with surging costs, a perfect storm has been created that, in the view of Sibanye CEO Neal Froneman, will lead to lay-offs.  

“The PGM sector, at these basket prices, is probably going to have to go through a restructuring, and not just us. We’re one of the lowest-cost producers, so if we have lossmaking areas, others must as well,” Froneman told Daily Maverick in an interview on the sidelines of the Joburg Mining Indaba organised by Resources 4 Africa. 

Asked if he meant potential lay-offs when he said restructuring, Froneman said: “Correct.” 

Sibanye is a diversified metals producer with an asset base that includes gold and PGM operations. 

“And when I look at our portfolio, we have some shafts which are coming to the end of their lives, some of the Lonmin shafts which we kept open. So it’s a combination of high-cost shafts now becoming loss-making and some shafts just coming to the end of their life,” he said. 

Sibanye acquired Lonmin in 2019 and preserved thousands of jobs which were on the line at the time. 

“The high basket price gave a reprieve to some companies that were planning restructuring before Covid. I think it’s inevitable,” Froneman said. 

Froneman also noted the escalating costs and the challenges posed by South Africa’s withering state.  

“It’s not just commodity prices. We are suffering the consequences of load shedding and increases in electricity tariffs, which is a good 20% of our cost,” he said. 

And while PGMs are not moved by rail and so not affected like iron ore and coal by the unfolding train smash that is Transnet, the byproduct chrome does move by rail. 

“Our chrome is a bulk commodity and it’s a big offset against our costs because it’s a byproduct,” Froneman said. 

In its annual report on South African mining released this week to coincide with the indaba, the accountancy firm PwC said PGM revenue results in the year to June fell by 33%. 

Concerns about global economic growth and the sluggish recovery in China have been among the factors that have undermined PGM prices. 

The rhodium price has fallen by 66% so far this year, extending a downward spiral which has taken it from close to $30,000 an ounce 2½ years ago — when it was the most valuable precious metal in recorded history — to around $4,100 an ounce this week. 

Red rag to labour

The potential for lay-offs in South Africa’s PGM sector will be a red rag to labour and a setback to the significant progress that has been made in recent years in improving the historically tense relationships between unions and mining companies. 

Most of South Africa’s big PGM producers have multiyear wage agreements in place with organised labour that were reached without tools being downed. 

A round of big retrenchments could be the spark for a fresh flare-up in labour unrest, which has cooled as former archrivals the National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (Amcu) buried their hatchets. 

Sibanye is already in mandatory Section 189 talks which could see close to 3,000 jobs lost at its Kloof 4 gold shaft near Westonaria. 

Read more in Daily Maverick: Sibanye signals 3,000 lay-offs at Kloof as operational woes trump sky-high gold prices 

And NUM spokesperson Livhuwani Mammburu told Daily Maverick on Wednesday that Kumba Iron Ore had sent a notice signalling that it might cut up to 183 jobs at its head office. 

In an economy with an unemployment rate of more than 32%, the Kloof and Kumba notices may prove to be the tip of a big retrenchment iceberg with PGMs written all over it. DM

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  • Robert Pegg says:

    As a supplier to mining companies in Africa we have seen a slow down in orders. Business in central and west Africa is still ongoing but nothing is happening in South Africa. Mining companies are not willing to invest in new mines in South Africa that take years to show a profit, with the uncertainty of government policies, electricity supply and labour costs are taken into consideration. The government and labour unions in South Africa don’t see the big picture.
    Mines usually have a fire truck and ambulance on site for obvious reasons. Every country in Africa allows the import of used fire trucks and ambulances, but not South Africa. Regulations prohibit the import of any used vehicle and the DTI will not give an exemption for emergency vehicles. No wonder mining companies stay clear of South Africa.

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