South Africa accounts for about 96% of all known global reserves of platinum- group metals (PGMs); therefore, stability and sustainability in its mining sector are essential for the platinum industry, says law firm Hogan Lovells partner and mining head Warren Beech.

“The mining industry, in general, remains a substantial contributor to the South African economy and the platinum mining industry makes a significant contribution, and will continue to do so with the vast reserves that remain in the ground,” he states, highlighting that, after gold, PGMs are the second-largest export generator for South Africa.

Beech notes that, over the past few years, stability and sustainability have been lacking in the country’s platinum mining industry. The industry has been severely affected by several factors, such as the downturn in global demand, low commodity prices, labour and community unrest, regulatory uncertainty and health and safety concerns, as well as energy and infrastructure challenges.

However, the three key challenges facing the platinum mining industry are the lower- than-expected commodity prices, global demand and regulatory uncertainty.

Beech explains that, unfortunately, the platinum mining industry cannot control the downturn in global demand, where the focus is on marketing PGMs to the jewellery sector and continued focus on expanding the auto- catalytic and fuel cell technology sectors.

He illustrates that the medium- to long-term effects of the downturn on demand and prices continued into 2016, with several mines being marginal or lossmaking. This resulted in production rates at various mines being downscaled and, in several instances, shafts being placed on care and maintenance, contributing to general undersupply and reduced stockpiling.

He notes that large-scale retrenchments also impacted significantly on employment figures, which consequentially impacted on small to medium-sized businesses, many of them those which the Mining Charter intends to support.

Beech stresses that the decline of the platinum mining industry in late 2015 and 2016 is generally worrying because of these impacts and because extraction and beneficiation cannot be treated “like a light switch” that can be switched on and off when the market demands. “Restarting operations takes careful planning and the implementation of comprehensive programmes aimed at safe extraction.”

Regulatory uncertainty, he comments, is also largely outside of the control of the platinum mining industry. South Africa’s constitutional processes will need to be followed to finalise the amendments to the Mineral and Petroleum Resources Development Act, after which the industry can move towards the ensuing transitional and compliance phase.

Beech asserts that, unfortunately, the amendment process has not gone as quickly as stakeholders expected and this contributes to the ongoing uncertainty regarding the regulatory environment.

Similarly, the ongoing process regarding the next version of the Mining Charter has impacted on the stability of the industry.

However, over the past 12 months, it seems that the platinum mining industry has been edging towards some stability, states Beech, pointing out that a good example is the conclusion of the October 2016 multiyear wage agreements, as this was done without industrial action.

He highlights that movement with regard to PGMs prices has been nominal and lower than expected, despite the recent downturn in production and supply to the global market. “This is also despite the need for PGMs in autocatalytic production and developments in medical and fuel cell technology driving demand.”

Although the positive momentum resulting from the settled wage negotiations, and the delivery of housing and other social projects have contributed to a level of stability, there is still a long way to go to achieve sustainable levels of production, and the positive spin-offs that this brings, he notes.

Beech says, with the remaining reserves, there is significant potential for the platinum industry to continue its role as a major employer, an export revenue generator and contributor to the development of small to medium-sized businesses, and the communities in which it is active.

“The use of PGMs in autocatalytic and fuel cell technology remains a key point of growth in the foreseeable future,” he concludes.