August 14, 2014 / 3:25 PM / 4 years ago

AFRICA INVESTMENT-Gold mine's reboot shines light on challenge facing platinum

* Reboot process frought with difficulty -Harmony Gold CEO

* Amplats says has reached 60 pct of pre-strike output

* Implats making “reasonable progress”

* Lonmin rows back on original target

By Ed Stoddard

JOHANNESBURG, Aug 14 (Reuters) - The experience of Harmony Gold provides a stark warning for investors and metals traders banking on South Africa’s platinum sector making a swift recovery from the crippling five-month strike that ended in June.

The world’s top three platinimum producers, Anglo American Platinum (Amplats), Impala Platinum (Implats) and Lonmin, boldly predicted in June that it would take three months to restore production to pre-strike levels.

However, Harmony’s trials and tribulations in the 18 months since reopening its Kusasalethu mine, which was shut down for three months because of union violence, suggest that the platinum trio’s estimates were wildly optimistic.

Talking to reporters on Thursday, Harmony Chief Executive Graham Briggs said that Kusasalethu is still falling short of the quarterly 1,500kg to 1,600kg of bullion it was producing before the conflict forced its closure.

Harmony’s protracted restart illustrates the unexpected consequences of the fraught labour environment in South Africa’s mining sector, which is rooted in a vicious turf war between the once-dominant National Union of Mineworkers (NUM) and the Association of Mineworkers and Construction Union (AMCU).

Briggs said that merely getting a large mine up and running after a long shutdown is a complex process in which things can and will go wrong.


“You get back to work and it takes you three months to get people in the right place, the training done again, safety checks, health checks and everything,” he said.

“You haven’t been doing all the maintenance on the pump because the pump hasn’t been working. So now the pump breaks down. So there is this continuum of excuses.”

Briggs said that a peak of sorts is then reached, making it difficult to push productivity back to pre-stoppage levels.

“You get up to a plateau of 50 or 60 percent and then you have to do something completely different. Once you have been producing for three or six months at a certain level, then everyone gets used to it,” he said.

Kusasalethu has now reached production levels of more than 1,300kg a quarter, but Briggs said it would take another two quarters to reach 1,500kg to 1,600kg - a full two years after the mine west of Johannesburg was closed.

Platinum industry executives also say the biggest challenge in hitting former production levels kicks in when you reach the halfway point.

A senior Amplats’ executive said the company was back to about 60 percent of its pre-strike output “but the hard part will be getting back to 100 percent”.

Implats spokesman Johan Theron said that it is an “enormous undertaking” to restart these huge mines and that the company’s guidance has been that it would take at least three months to restore production.


“We are making reasonable progress, but the last bit is always going to be the most difficult,” he said. “To go from zero to 50 percent is easier than going from 50 to 100 percent.”

There are also festering personal issues between NUM and AMCU members, which constrain productivity.

“I would think it would take at least six to nine months in platinum, not least because of all the safety checks they have to make and the tens of thousands of guys they have to get back,” one mining analyst said.

Lonmin has already rowed back a little from the original targets set in June, saying that it expects to be at 80 percent of normal production levels by September.

For the country as a whole, meanwhile, getting the platinum mines running at full capacity is crucial.

Data on Thursday showed that South Africa’s production of platinum group metals fell 37 percent in the year to June, robbing Africa’s most advanced economy of a key export that brings in hard currency.

The five-month wage strike took 1.2 million ounces of platinum out of production, close to 20 percent of annual global output, and cost the companies more than $2.5 billion in revenue.

Employees lost more than $1 billion in wages and the economy shrank in the first quarter, largely because of the strike.

Amplats now wants to sell several of its mines - a task that will be made harder if they are not running at full capacity.

All these factors make the stakes in the platinum belt much higher than they are at Kusasalethu, where the long slog back bodes ill for the journey Amplats, Implats and Lonmin are now taking. (Editing by David Goodman)

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