- Zimbabwe’s platinum output surged to 133 koz in Q4
- A record production anchored by Unki Mine
- Unki is fully-owned by Amplats
Harare- Zimbabwe has achieved a remarkable milestone in its platinum production, with quarterly output reaching an unprecedented high of 133,000 ounces (koz), representing an estimated 8% year-on-year increase.
This information comes from the latest Q4 report released by the World Platinum Investment Council. The surge in platinum production is attributed to the exceptional performance of Unki Mine, which is fully owned by Anglo-American Platinum (Amplats), the global largest producer of platinum group metals (PGMs) based in South Africa.
South Africa, known for its significant PGM production, particularly platinum and palladium, ranks as the largest producer globally, second only to Russia on palladium. Meanwhile, Zimbabwe holds the position of the second-largest platinum producer worldwide.
Unki Mine’s association with the country started in 2008. The mine development and concentrator construction were completed at the end of 2010, soon followed by the building of employee housing.
On a global scale, mine supply witnessed a 1% and 6% year-on-year increase in 2023, amounting to 5,636 koz, primarily driven by South Africa and Zimbabwe. Amplats, the owner of Unki Mine, experienced the most significant surge in production, while Unki Mine itself led the pace in Zimbabwe.
The substantial increase in supply from Zimbabwe has coincided with the substantial deficit of 878 koz in the global platinum market in 2023, marking the largest deficit within the data series of the World Platinum Investment Council.
Platinum supply declined by 2% in 2023, and a further 1% decrease is projected for 2024, leaving the supply in 2024 approximately 6% below the average annual supply over the previous five years. The global market is expected to continue experiencing a deficit of 418 koz throughout 2024.
Despite poor pricing, the soaring market deficits have led to record-high sales during the quarter, according to the Council's report.
However, this begs the question: why are large platinum companies, such as Sibanye, Zimplats, and Amplats, scaling back their projects, downsizing their workforce, and considering restructuring, even in a period of high demand and sales for platinum?
The increase in demand for platinum cannot be solely attributed to economic forces but rather to artificial forces constructed by human intervention. The Council engaged in a deal with China to deplete the surplus in platinum supply.
China, one of the largest buyers of platinum, reduced its buying prices to exceptionally low levels. Given the high production costs associated with platinum, companies are reluctant to sell their produce at such low prices, resulting in an artificial shortage.
The production of platinum, amid global economic challenges compounded by geopolitical fragmentation, proves to be costly and necessitates better prices.
However, it is crucial to understand why China has opted for low pricing as well. Market estimates suggest that these companies were compelled to sell at very low prices to eliminate excess supply. China's reduced uptake is attributed to global economic fragmentation, which has been exacerbated by the Hamas attack on Israel and the imperialistic Russian war on Ukraine.
These events have disrupted global supply chains and free trade, leading nations to tighten interest rates to combat rising global inflation. Consequently, major powers like the USA, France, and the UK have shifted their focus toward escalating wars, diverting industrial resources to the conflict.
Given the production challenges under severe economic conditions and the prospect of selling at below-average prices, engaging in such ventures may prove detrimental and betray the interests of the platinum companies.
Only companies with excess production have managed to secure a share of the market under these unfavourable conditions. In 2023, platinum prices experienced a decline of over 35%. Although prices showed signs of improvement in March 2024 when platinum surpassed the threshold of US$900 per troy ounce, they are still significantly below the record high of US$2000 per troy ounce reached in November.
However, the poor performance has taken a toll on Zimplats, which accounts for nearly 80% of Zimbabwe's platinum production, as the company reported a loss in over a decade and scaled down its expansion operations. Consequently, Unki, owned by Amplats, has emerged as the leading producer in Zimbabwe's Q4 production statistics.
Moreover, Tharisa has postponed its Karo Mine project to June 2025, despite its initial commissioning date set for June 2023. Similarly, Zimplats and Mimosa have faced delays in expanding their operations, such as Mimosa's US$100 million North Field project.
It needs to be understood that despite gold accounting for 25% of exports and 60% of foreign currency receipts, the implications of a decline in platinum mining are far-reaching for Zimbabwe.
Until 2019-2020, platinum held the top position in contributing to Zimbabwe's economy ahead of gold, with Padenga joining the gold sector and Caledonia showing improvements in production.
Currently, platinum ranks second, closely behind gold, but the major implication lies in the fact that a significant share of taxes and royalties is derived from the platinum subsector, surpassing the gold sector.
The platinum group metals sector in Zimbabwe is primarily composed of large corporations with transparent operations and strong corporate governance. In contrast, the gold sector is dominated by small-scale and artisanal miners who often evade taxes and engage in informal trade.
The performance of key players in the platinum industry indicates that the sector is facing significant challenges, resulting in unprecedented effects on an already unstable economy.
Zimplats, for the first time in ten years, recorded a loss due to declining revenue resulting from poor operations. Amplats, the world's largest platinum producer accounting for about 38% of global supply annually, also reported a substantial 71% drop in earnings.
To survive the global challenges facing the PGM sector, restructuring efforts are necessary, albeit with severe consequences.
One commonly used method for restructuring is workforce reduction, which involves downsizing the workforce through layoffs or voluntary separation. This approach has been adopted by tech giants like Amazon and META. Mimosa, for example, has already implemented workforce reductions by terminating 33 managerial personnel to reduce costs.
However, reducing the workforce inevitably leads to a decrease in production.
Another popular strategy is asset rationalization and cost reduction initiatives. These methods aim to alleviate costs and improve financial performance. Companies may divest non-core or underperforming assets to generate funds, reduce debt, and focus on their most profitable and strategic operations. This can be seen in examples such as the delayed Karo project and Zimplats projects. Cost reduction initiatives involve implementing measures to cut expenses across various areas of the business, such as reducing discretionary spending, optimizing supply chain management, renegotiating vendor contracts, and streamlining operational processes.
When executed effectively, these restructuring efforts can yield positive results. Anglo American, for instance, faced financial challenges and a bloated cost structure in the early 2000s. To address this, the company implemented a comprehensive restructuring plan that involved divesting non-core assets, reducing debt, and focusing on its core mining operations.
The company also pursued operational improvements, cost reductions, and productivity enhancements, which ultimately helped it transform its financial performance and regain profitability.
However, Zimbabwe's economy remains in a precarious state due to other local factors. Government intervention is necessary to alleviate the stress on mining companies, particularly in terms of costs, which have been a major challenge. Currently, mining firms lose more than 20% (estimated at 22%) of their revenues to electricity costs, with ZESA increasing electricity tariffs three times in 2023.
Other cost factors include the depreciation of the Zim dollar, the taxation regime, and export surrender requirements. There is a need to create a more favourable market environment to address these issues. Zimbabwe is the second-largest platinum producer in the world, with South Africa and Russia holding firs and third positions.
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