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Northam eyes place among top mining ranks
From the Financial Times of Mon, 22 Dec 2014 17:07:21 GMT
Striking Lonmin miners demonstrate in Marikana©AFP

The area deep underground where miners drill and blast the rock seam at the Booysendal mine in Mpumalanga is dark, hot and noisy. Conditions there have changed little throughout the long history of deep-level mining in South Africa.

Yet for Northam Platinum, a midsized South African miner that harbours ambitions of joining the ranks of top producers, Booysendal represents the future of mining as the sector enters what industry officials are predicting will be a period of restructuring and consolidation.

The mine, which began producing in April last year, is fully mechanised and should reach annual output of 160,000 ounces of platinum group metals (PGM) in 2015.

While Booysendal bears some similarities to deep-level labour intensive operations that have been the bedrock of South Africa’s gold and platinum industries for decades, the area is far wider and higher than in conventional mines.

Typically mines have teams of rock drill operators who spend hours bent over large handheld drills in cramped tunnels too small for them to stand upright. But at Booysendal one man sits at ease in the cab of a state of the art R7m rig as two huge hydraulic booms drill faster, more efficiently and deeper into the rock seam, significantly enhancing the mine’s productivity.

Paul Dunne, Northam’s chief executive, says mechanised mining is not a “panacea” for the woes of South Africa’s battered platinum industry as it is only viable at some shafts. But he says that for new mines where the ore is suitable, mechanised mining is “almost a no-brainer”.

Northam is hoping to take advantage of consolidation opportunities arising from the difficulties faced by some of its rivals.

Anglo American Platinum, Impala and Lonmin — the world’s top three producers of the precious metal — are licking their wounds from an unprecedented five-month strike, and at the same time struggling with rising costs and depressed prices.

In July, a month after the strike ended, Amplats announced plans to sell its labour-intensive deep-level Rustenburg assets that were at the heart of the strife as it looks to shift its business towards mechanised mining. It has also put its Union mine complex on the market.

Impala, which runs mechanised operations at all its mines except its older Rustenburg shafts, is also reviewing its assets. Meanwhile, Aquarius Platinum has put its Blue Ridge mine up for sale and is weighing the future of its Everest mine.

This area is a good mining area, and it’s an area where we can apply mechanised mining in a shallow ore base . . . there are opportunities for consolidation

- Paul Dunne, Northam chief executive

Meanwhile, Northam is looking to expand, with an ambition to increase its annual platinum group metals from about 400,000 ounces to 1m by 2020.

“There is opportunity because the industry’s under stress, which brings parties closer together, and there are more willing buyers, willing sellers potentially,” Mr Dunne says.

Last month, Northam announced plans for an innovative deal that will increase its black ownership — as mining houses have been obliged to under industry guidelines — to 35.4 per cent and also raise R4.6bn ($399,000).

Under the deal, its two largest shareholders, the state-owned Public Investment Corporation and Coronation Asset Management have agreed to underwrite and finance the transaction that will give Northam a R4bn war chest to fund its growth plans.

The deal will have to be approved by shareholders in the first quarter of next year, but Northam is already on the lookout for opportunities.

Mr Dunne says Northam is not discounting “any possibilities just yet”. But with an eye on mechanised mining he says “you may find it difficult to see relative value that favours the older mine, without being conclusive on the issue”.

That would suggest Amplats’ high-profile Rustenburg operations are less likely to appeal to Northam. But Aquarius’s Everest mine, which is mechanised and lies close to Booysendal in the eastern limb of the Bushveld Complex — the world’s richest resource of platinum — would appear a suitable fit.

“This area is a good mining area, and it’s an area where we can apply mechanised mining in a shallow ore base . . . there are opportunities for consolidation,” Mr Dunne says. “Amplats is certainly the most high-profile and potential asset sales, but there certainly are others that are available.”

Northam is also likely to expand the Booysendal with a second shaft, Mr Dunne says.

The company’s growth plans come at a time when the platinum price is trading at five-year lows, hovering around $1,220 an ounce.

But Mr Dunne believes the commodity cycle is close to the bottom. He is confident that labour unrest will not continue at the levels that have dogged the industry for the past two years.

But he also acknowledges that the company’s wage talks with workers next year will be critical. In 2013, Northam endured an 11-week salary strike.

“All parties have realised that that’s an absolutely untenable situation, and must be avoided going forward. I think it will be, to be honest,” Mr Dunne says. “I think attitudes have probably, I use the word softened, on all sides.”

Northam’s two assets

A comparison of Northam’s two assets highlights the differences between conventional and mechanised mining.

Booysendal will produce 160,000 ounces of platinum group metals next year with a workforce of about 1,200 but the older, deeper, conventional Zondereinde mine produces 300,000 PGM ounces with about 9,000 workers.

At the new mine, almost half the miners have high school certificates and 61 per cent come from local areas. The working language is English rather than the pidgin Fanagalo used widely in South African mines.

The belief is a smaller, better educated workforce lessens the risk of labour strife and offers a better chance of higher productivity — a serious concern as productivity falls. Mechanised mining is considered safer — another important issue in South Africa where there were 93 mining fatalities last year.

Production costs at Booysendal are expected to be about 20 per cent lower than Zondereinde, the world’s deepest platinum mine. Labour accounts for about 45 per cent of production costs at Booysendal, but 50-60 per cent at conventional mines. Productivity is also higher with blasting more frequent at the mechanised mine.

“It’s nice to stand up straight,” says Willem Boshoff, a team supervisor at Booysendal. “It’s much easier.”

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