| LEDIG, South Africa
LEDIG, South Africa Feb 1 China's scramble for
resources is breaking new ground on South Africa's platinum
As older and less profitable shafts face closure, Chinese
money is bank rolling one of a handful of new platinum mines
being built in South Africa, which sits on about 80 percent of
known global resources of the white metal.
Wesizwe Platinum's Bakubung mine, which aims to
start production in 2018 and churn out 350,000 ounces of
platinum group metals a year by 2023, is China's first direct
investment in the sector and it likely won't be the last.
A Chinese consortium headed by mining giant
Jinchuan has a 45 percent stake in Wesizwe
and the China Development Bank (CDB) last week provided a $650
million loan, providing the project with the capital needed to
complete the mine.
Platinum is primarily used for catalytic converters in motor
engines and for jewelry. Demand for both is seen soaring in
China as its car production goes into overdrive and its
burgeoning middle class consumes luxury items.
The rugged hills of the Pilanesberg Game Reserve rise up
just to the east of the site, where bulldozers move earth and
shafts slowly sink toward the reef which lies between 600 and
800 metres below.
In some ways, this Chinese foray into Africa's resource
sector follows a similar pattern.
Wesizwe's chief operating officer Paul Smith told Reuters
the loan's interest is Libor plus 350 basis points - an
exceptionally low rate for a South African company that
highlights one advantage of having Chinese shareholders.
At current Libor rates, this would be around 3.8
percent against the 8 percent or more South African companies
would normally expect, especially in the wake of the country's
sovereign credit ratings downgrades triggered in part by a wave
of mine labour unrest Last year.
"I think this is typical of the Chinese model. The terms and
conditions they are offering are extremely generous and
competitive. And they would be looking for some long-term
benefit for their outlay at the moment," said Gary van Staden, a
political analyst with NKC Independent Economists.
Competitive debt conditions are the norm for Chinese
financing when it comes to resource-related projects in the
region. Examples include the soft loans China has provided to
Angola, Africa's second-largest oil producer.
Smith also told reporters who visited the mine site this
week that Wesizwe would "make use of the Chinese supply base" -
which follows a well-worn script of companies from there
sourcing equipment from their home base.
But Wesizwe also represents a departure from other Chinese
approaches to Africa, as Jinchuan has partnered with local
investors and is making use of domestic expertise.
The prevailing stereotype of Chinese investment in Africa is
that its companies snap up the assets and then bring in their
own skilled labour forces to get the stuff out of the ground.
But if you want to mine platinum, then it is best to have
South African accents on your engineering team, as few other
countries have experience in this area for obvious reasons.
This was driven home in Zimbabwe, where South Africa's
Impala Platinum acquired Zimplats and made a
success out of platinum assets in the country after companies
such as BHP Billiton were stymied by the geology.
Chinese companies also have tended to swallow assets in
Africa and then delist them, which was the case when Jinchuan
acquired Johannesburg-listed cobalt and copper producer Metorex.
Smith told reporters who visited the Wesizwe mine site this
week "there is no way we are going to delist," so that approach
is off the table for the moment.
The mine is one of the few being built in South Africa's
platinum belt at a time when Anglo American Platinum,
the world's top producer of the precious metal, is planning to
mothball two unprofitable operations and cut 14,000 jobs in the
face of stiff government and union resistance.
"People are shutting shafts on old ore bodies, but here we
have a virgin ore body," Smith told reporters.
Amplats is also tentatively planning to sell its Union mine
as part of a restructuring process to return to profit and Smith
said Wesizwe and its shareholders would "look at it" if it came
up for sale.