Going platinum in South Africa

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For decades, South Africa's legendary platinum reefs were so rich that few miners bothered to explore for more. The philosophy, says Canadian platinum miner Michael Jones, was simple: "Why bring a sandwich to a smorgasbord?"

Everything changed when the industry was shaken up by a new mining act, with its new rules to strengthen black empowerment and force the use of idle mining licences. Today there are at least five Canadian mining companies in the Bushveld, the main platinum field in South Africa, and they're helping create a new era of investment and exploration.

South Africa's platinum industry, which generates $7-billion in annual production and provides about 75 per cent of global platinum output, was a "closed shop" for most of its 85-year history, according to Mr. Jones, president and chief executive officer of Vancouver-based Platinum Group Metals Ltd. , which is building a $443-million platinum mine in the Bushveld and exploring for more at other sites.

"The smorgasbord is getting consumed," Mr. Jones says. "It was great for 60 or 80 years, but now you've got to be more creative. The known reefs are getting deeper and tougher, and Canadian expertise is playing a role in finding the new stuff. Canadian companies are making a huge difference in looking in new places that aren't along the conventional reefs."

Under the new mining legislation that took effect in South Africa in 2004, mining companies were required to find "black economic empowerment" partners for a significant share of their business. They were also required to use their existing mining licences - or lose them.

Canadian entrepreneurs were among the first to win access to the new licences and partnerships that became available. "The lid on the treasure chest opened," Mr. Jones said. "It was a once-in-a-lifetime opportunity."

Since then, Canadian mining companies have jumped in with both feet, investing hundreds of millions of dollars in South Africa's platinum industry.

"The use-it-or-lose it policy has broken up the sector and created a huge amount of opportunity," said Joel Kesler, head of corporate development at Toronto-listed Anooraq Resources Corp., which controls the third-biggest platinum resource in South Africa.

"There was a sense that a lot of companies were just sitting on assets, effectively sterilizing the country's natural resources base," Mr. Kesler said.

"Exploration was not a key focus for the majors, because they had resource coming out of their eyeballs. The Canadians have come in here and they've done a lot more exploration. The Canadians have shaken up this industry nicely. It makes for a more competitive market."

Anooraq, which began its mining history in the Northwest Territories and took its name from the Inuit word for a winter jacket, eventually moved into South Africa and became the first platinum miner to become majority-owned by its Black Economic Empowerment (BEE) partners. Many Canadian miners have the advantage of experience in sharing ownership with indigenous people in places such as the Northwest Territories, Mr. Kesler said.

"This was familiar to them, because this was exactly what was done with some of the aboriginal people in Canada," he said. "Turning Anooraq into a BEE company was the key to unlocking our opportunities. The BEE card has been the ticket that allowed us to play in this space."

Mining tycoon Robert Friedland is another Canadian-based entrepreneur who has plunged into the South African platinum sector. One of his companies, Ivanhoe Nickel & Platinum Ltd., has made what he calls a "Tier one discovery" in the Bushveld, which he plans to unveil soon.

Among the other Canadian companies active in the South African platinum sector are Eastern Platinum Ltd., which describes itself as the sixth-biggest producer of platinum group metals in South Africa, and Toronto-listed Platmin Ltd., which is developing a mine on the western limb of the Bushveld.

South Africa's platinum is also attracting substantial Asian interest. Platinum Group Metals has found financing from a Japanese state company for its exploration work in the Bushveld. And its joint venture partner, Wesizwe Platinum, is being acquired by Jinchuan Group Ltd., a Chinese state company.

"South Africa is still wide open for exploration," Mr. Jones said. "I think there's a whole new era of mining in South Africa where exploration will take place away from the traditional areas into new places like where we're working."

Mining in South Africa does have disadvantages. Continued rumours of nationalization stirred up by populist politicians, combined with the lack of certainty over black empowerment rules, have created a "South Africa discount" in the valuations of many mining companies operating here.

Community relations is another challenge. With 40-per-cent unemployment in the area around its mine, Platinum Group Metals is under heavy pressure to provide jobs and basic services such as water and electricity for thousands of people. "You have to be careful in managing expectations," Mr. Jones said. "We're not the government. You can't employ the whole town."