South African producers of most of the world’s platinum group metals (PGMs) are unlikely to invest heavily in new projects due to the unfavourable investment environment in the country and tough lessons learnt from the past, says Sibanye-Stillwater CEO Neal Froneman.
Despite a global surge of commodity prices, including iron ore and copper, South Africa’s investor-unfriendly environment discourages producers of the PGMs from committing to major new projects, despite more than a decade of underspending on mines, Froneman said.
“I don’t think the environment, despite the improved fundamentals, actually allows for capital investment to happen because the hurdle rates in SA are still too high, because of risks associated with the lack of an investor-friendly environment,” Froneman said.
Froneman was asked in a webcast discussion with asset manager Ninety One about the prospect of South Africa’s PGM producers pouring money into growth to take advantage of a strong medium- and long-term outlook for the supply and demand fundamentals for these metals. Froneman said it was unlikely.
“We have many projects that are good projects in a normal environment, but when [we] can’t predict the price of electricity, which is 20% of your costs, or the reliability of supply, or the legal tenure of ownership because there are outstanding court cases, those investments are difficult to get board approval,” he said.
Froneman is one of the most outspoken CEOs about the operating environment in SA, incurring the wrath of mineral resources & energy minister Gwede Mantashe, who has attacked him on public platforms.
Rapid price increases for inputs such as electricity and other consumables, as well as above-inflation wage increases and labour unrest squeezing profit margins, were pushing companies such as Lonmin to the wall.
[Picture: BLOOMBERG/WALDO SWIEGERS]