Rustenburg's road to recovery

Once the envy of the mining world, platinum-rich Rustenburg seems to have lost its lustre. But there’s hope, writes Leon Louw.

At the height of the mining super boom about 10 years ago, the town of Rustenburg was thriving. Rustenburg is situated on the western limb of the Bushveld Igneous Complex — the richest platinum ore body in the world. As demand for platinum group metals (PGM) increased in the early 2000s, more shafts were sunk in search of the abundant ore hosted by the UG2 and Merensky reefs. These reefs are not easy or cheap to mine. They are extremely narrow and occur at deep levels, making unearthing the PGMs a very costly endeavour. However, the inflated price of the metal at that stage made any costly undertaking look viable. The result was that mineworkers flocked to Rustenburg and as stockpiles grew, so did the workforce. Rustenburg, once a tiny backwater called the ‘town of rest’, became a boomtown overnight.

In stark contrast to the tangible abundance and signs of prosperity along the platinum belt a decade ago, empty shops and dusty shanty towns define the landscape today. The labour strikes and Marikana broke Rustenburg’s back, but those tragic events were only a symptom of a graver illness: the world’s waning appetite for platinum. According to Andries Rossouw, PwC’s partner in Assurance, supply has been on a downward trend since 2006. Rustenburg’s gradual decline started way before Marikana and culminated in the tragedy, not the other way around. “The levels of investment in the platinum industry started decreasing before 2008, in contrast to capital expenditure by the overall global mining industry that only started decreasing in 2013,” says Rossouw.

The negative effect of strikes

As platinum prices plummeted and operations were under pressure to break even, worker expectations became more ambitious. A significant decrease in production since 2012 was largely due to industrial action and the big strike of 2014. According to Rossouw, a number of smaller platinum producers have been put on care and maintenance since the 2008 market crash, which has negatively impacted the overall supply. Since then, South African mines have not been able to bring production back up to the pre-2012 levels.

According to PwC, the low prices and increased cost base resulted in platinum miners struggling with low margins. “A number of companies had no option but to reconsider marginal mines, which has resulted in closures or early retirements of shafts. In addition, mining and development projects were put on care and maintenance,” says Rossouw. These factors, exacerbated by the happenings at the Marikana koppie, had a devastating effect on Rustenburg and the rest of the platinum belt.

According to Gideon du Plessis, general secretary of the trade union Solidarity, the people and the workers in and around Rustenburg are faced with a number of additional challenges that add to the tension in the region. “One of these challenges is poor municipal service delivery,” says Du Plessis. Unfortunately many community members expect mining companies to perform government responsibilities. “A platinum mine close to Rustenburg told me that they were on the receiving end of 38 service delivery related marches to their mines over the past 12 months,” says Du Plessis.

Decline of the local economy

According to the Rustenburg Chamber of Business, the local economy suffered irreparable damage due to Marikana and Amcu’s strike in 2014. The loss of R450-million in wages as a result of the ‘no work, no pay’ principle that applied during the 2014 strike and that was divested from the local economy, is lost forever to local businesses. About two-thirds of local businesses depend on mining and because of the combined effect of weak prices and ongoing labour unrest, the cash reserves of those businesses that had survived — as well as of individual households — diminished substantially. Du Plessis says that Lonmin’s cash reserves had been depleted during the strike and that capital projects, which would have created 6 000 new jobs, had been cancelled.

In addition, the Chamber of Business says that the employment rate in Rustenburg has dropped noticeably since 2014; banks are now charging homebuyers a risk premium; the rental market collapsed due to the downsizing of contractors’ services by mines; the revenue of local municipalities fell sharply (impacting service delivery); and ethnic tensions rose. There has also been an increase in the crime rate, which perhaps directly correlates with desperate miners who had been retrenched. “Being retrenched and not being able to take care of one’s family is traumatic; but crime can never be justified and workers will have to consider the folly of negotiating or striking themselves out of jobs,” says Du Plessis.

Therefore, Du Plessis believes that yet another protracted platinum strike has to be averted at all costs. “Although a variety of external factors contribute to the crisis in the sector, another strike would mark the death knell of investment in much needed capital projects. Investors are really concerned about labour stability and the perception that employees are acting as if their employer’s survival is of no concern to them,” says Du Plessis. A Lonmin representative recently said that if the mine experiences another strike in the near future, the life of mine will drop from the current estimation of between 30 and 50 years, to less than 20 years.

Change in business focus

According to Gavin Chamberlain, regional director for African mining at engineering company Amec Foster Wheeler (Amec), the nature of business in the Rustenburg area has changed significantly over the past few years. “Five years ago, most of the work in the platinum belt involved large projects related to underground development and expansions, or the building or upgrading of processing plants, which were undertaken by the big mining companies like Anglo Platinum, Impala and Lonmin. Today, work involves much smaller projects around the stabilisation and consolidation of existing mining assets, as well as ensuring the sustainability of the operation,” says Chamberlain. So while Chamberlain says there is still a lot of work to be done in Rustenburg, future projects will be more focused on improving efficiencies as opposed to big extravagant projects like sinking shafts or building new plants. The company, which recently acquired MDM Engineering, has just completed a project that involved the upgrading of the processing plant at Bafokeng Rasimone Platinum Mine (BRPM) close to Rustenburg. The contract was initially awarded to MDM, which through the acquisition became part of the Amec Group.

The downward market trend and weak commodity prices have forced most mines to become more cost effective. Andrew Macnamara, operations manager at Johannesburg-based MTE Exhibitions that recently hosted a very successful exhibition in Rustenburg, confirms this shift. “Almost everybody that we speak to in the mining industry is talking about containing costs, new technology, and the efficient use of energy and water. Even small savings like different shower heads and energy efficient lighting, or the installation of renewable energy sources like solar panels are on the agenda,” says Macnamara. MTE Exhibitions delivers a unique service to mining companies and suppliers. They take their roadshow — that includes a range of suppliers and exhibitors — to the mining hotspots around southern Africa, and they then introduce these products and services to the various mining companies active in a specific region. If there is anybody who can gauge the trends in mining at grassroots level, it will be Macnamara and his team at MTE. In preparation for their 38 yearly exhibitions that take place throughout southern Africa and includes an exhibition in Tanzania next year, Macnamara speaks to a large number of mine and procurement managers to determine what exactly is needed in the area in terms of products or services. “We ask the mines what they are struggling with, which products they would like to see, and what they need to be supplied with,” explains Macnamara.

“For this year’s Rustenburg expo, the most common requests were conveyor belts, accessories and transformers. Pumps are of course always in demand, as is new technology. This year there was quite a lot of interest in new products for cleaning stopes,” says Macnamara.                

More than 560 people attended MTE’s Rustenburg exhibition this year, and about 100 suppliers showcased their products and services. That there is a steady increase in interest to attend and exhibit at these events is a sure sign that the mining cycle — and especially the platinum price – has bottomed out and is on the way up, which is encouraging for the Rustenburg area.

Optimism over upturn

Macnamara believes there might be an upturn on the cards. “We’ve been doing annual exhibitions in Rustenburg for more than 10 years. We have seen the boom times and the downturn coinciding with the strikes. Rustenburg — the industry and the town’s economy — will take a while to recover after a devastating two or three years,” says Macnamara.

“Two years ago, MTE had an extremely tough exhibition. There was very little local support as nobody really had money, but last year things started improving. Last year, the exhibition took place on the day that Sibanye bought the Anglo Platinum shafts and MTE had a fantastic turnout compared to the year before. The industry has definitely picked up — we can see it in the support of the local suppliers. People are really positive, especially about the changes that Sibanye might bring,” says Macnamara.

Du Plessis agrees that the rampant Neil Froneman and his charges might inject a new vigour into the troubled platinum belt. “Froneman is bringing in a renewed energy and it may lead to a surprising revival of the Rustenburg mining industry. Nevertheless, to increase the profitability of the old Anglo Platinum mines, he may have to reduce overhead costs, and that could possibly lead to retrenchments. For us as a union, that is the biggest concern about the increasing Sibanye footprint,” says Du Plessis.

Despite many positive signs, Du Plessis remains cautiously optimistic about the outlook for Rustenburg. “Although one needs to remain positive, there is a reality that we need to contend with. For now, role players — not only in the Rustenburg area but also across the country — need to slow down the pace at which the mining industry is shrinking. One way to do this is having sound labour relations,” says Du Plessis.

Looking north

For Wickus Botha, African mining and metals leader at EY, the key for mining companies in the Rustenburg area is to focus on the real profitable ounces, instead of mining every available ounce. Botha believes that the glory days of Rustenburg are over, and that the future of platinum lies on the northern limb. The ore bodies in the Rustenburg area are difficult and expensive to mine, and they are not amenable to mechanisation. This is in stark contrast to the northern limb where the ore body is located close to surface and can be accessed by means of open-pit methods. 

“There is a migration of blue chip companies to the northern limb. This is where the future lies. The question is whether Rustenburg can become the hub from where you remotely operate the mines on the northern limb, or whether you need to maintain and refurbish the existing mines on the western limb. The mines in Rustenburg are bound to reach the end of their life eventually; many of those shafts have been extended and extended. To close a shaft is extremely costly and there are a lot of challenges. It is costly to backfill and close shafts, or if you discover new deposits, to sink new shafts,” says Botha. 

Despite Botha’s rather bleak outlook for the western limb, he is bullish about platinum. “Robert Friedland’s big bet on platinum is that if Japan wants to remove all the cars from the road that have combustion engines, then that is going to consume a substantial amount of platinum — a lot more than what is currently being used in the exhaust systems,” says Botha. Friedland’s Ivanhoe is developing the Platreef Project on the abovementioned northern limb, close to Anglo’s crown jewel: the massive Mogalakwena open-pit mine in Limpopo.

Good fundamentals

Du Plessis says that international demand for platinum is still low. “The oversupply of platinum to the market is what mining companies should be focusing on. Despite the fact that cartel formations are unlawful, the supply of platinum to the market needs to be managed better in the short term for everyone to benefit in the long term.

“The fundamentals for platinum are good, and there will be a continued demand for platinum in the future,” says Botha. Whether that will revive Rustenburg remains an open question. Botha believes that to sustain the industry in Rustenburg, it would mean capitalising on those mines with the greatest potential and the lowest on the cost curve. Rustenburg has seen the good times and the bad, and although the mining industry in the area is embroiled in a fight for survival, many positive signs suggest a major revival.