The past year has flung up one contradiction after another in the platinum industry. The metal moved above US$900/oz, its highest in more than 20 years. And this created exactly the market conditions that the platinum groups wish to avoid - a spike in the price.
These prices cannot be sustained in the medium to long term. They are high enough to hit jewellery demand for the metal and to encourage important users such as car manufacturers to intensify their search for alternatives.
Despite this near-50% jump in the platinum price from the average level in 2002, the three major SA platinum groups all reported sharp plunges in profits. This is because of the strength of the rand against the US dollar, which more than cancelled out the benefits of the rising dollar platinum price.
One of the consequences was cutbacks in the industry's planned expansion programme and particularly that of sector leader AngloPlat. Those cutbacks in turn triggered consumer worries over future availability and thus contributed to the price spike.
Yet, at the same time, a flood of Australian, Canadian and UK-listed junior mining and exploration companies are piling into SA, looking to set up new platinum operations.
While all these hopefuls are coming here to seek their fortunes, some of our biggest mining groups are looking for platinum outside SA.
Impala Platinum (Implats), the world's second-largest producer, has committed itself to expansion in Zimbabwe. Implats started on the strategy about three years ago and completed it last year, through a formal bid which gave it control of Australian-listed Zimplats.
Zimbabwe has the second-largest known resource in the world and Implats now controls more than 80% of it, after the Zimplats deal and the purchase of 50% of another Zimbabwean platinum operation, Mimosa.
Canadian company Placer Dome, one of the world's top five gold producers, is investing in SA as part of its plan to diversify into platinum.
Another company diversifying into platinum is SA gold heavyweight Gold Fields. Last year it bought 100% control of the Arctic Platinum project in Finland. It did so despite the fact that development of Arctic Platinum is being held back because its fortunes will depend mainly on the market for palladium, which is nowhere near as favourable as the platinum business.
Feeling confused yet? You should be, but there is some sense underlying the apparent contradictions.
The exploration and junior mining companies are coming here because platinum is booming. Not only does SA host by far the world's greatest platinum resource, but access has been opened up to newcomers by changes to mining legislation.
SA platinum heavyweights, especially AngloPlat, have been sitting on these mineral rights since the 1930s but are now opening them up to outright ownership by third parties, or looking for joint venture partners to meet the mining charter requirements on black economic empowerment.
Why are our mining majors looking elsewhere? In Zimbabwe, Implats saw and grabbed the opportunity to get hold of a huge resource, offering it the kind of long-term life that only AngloPlat has enjoyed up till now. That kind of opportunity simply did not exist in SA. Given Zimbabwe's economic and social meltdown, it's a high-risk play but one that Implats is prepared to go for because it bought in cheaply enough.
Gold Fields wants to diversify further out of SA. It is developing into countries such as Australia, Peru and Finland which have favourable mining codes and are not subject to currency volatility on the scale experienced in SA.
The most notable development of the past year has to be the humbling of AngloPlat. It is still the largest platinum producer in the world but in terms of investor appeal it has been dethroned by Implats, which has also outperformed AngloPlat operationally.
It took a change of CEO at AngloPlat to confirm what many analysts had suspected: the group's expansion programme was in trouble.
In July last year, former Sasol executive Ralph Havenstein took over as CEO from Barry Davison, who became nonexecutive chairman. For nearly two years before the change, Davison had been insisting that AngloPlat's expansion plans were on track. But within a month of taking office, Havenstein said the programme was under review.
In December he delivered his verdict. AngloPlat would be forced to drop its intended 2006 annual production figure from 3,4m oz to 2,9m oz, compared with current annual production of 2,3m oz.
Havenstein blamed the strength of the rand, but analysts believed there were other factors, including cash flow problems and poor operational management.
JP Morgan analyst Steve Shepherd was damning in his overall assessment: "On our numbers, [AngloPlat's] cost control has been the worst in the peer group. All major mining projects have failed to deliver, in time, quantities of metal anywhere near design output. We think management's failure to deliver optimum efficiency from operations and projects is a key reason why the group's strategy appears to be unravelling."
AngloPlat's results for the year to December showed the damage from both the strong rand and the financial demands of its capital expansion programme. Gross profit margin fell from 46,5% the previous year to 23,7%; borrowings rocketed from zero to R7,2bn.
At Implats the focus of investor attention has been more on the group's strategic position than its operating and financial figures, which have met or beaten expectations.
The move into Zimbabwe has been widely hailed, because it can transform Implats' production levels and the estimated life of operations.
Back in SA, Implats' main issue is how it will meet the black economic empowerment requirements of the mining charter. Implats' obvious partner would appear to be the Royal Bafokeng Nation (RBN), which receives a 22% royalty on income generated from Impala's mining operations near Rustenburg. Implats is mining on ground to which the RBN owns the mineral rights.
The RBN was keen to be that partner and had been negotiating for the swap of the royalty into equity in Implats, but the two sides were unable to agree on terms. The RBN apparently wanted a 20% stake and influence in Implats' affairs as the "shareholder of reference".
It is understood that Implats was offering only a 12% stake and that CEO Keith Rumble was getting concerned about the RBN's corporate ambitions.
That is probably one of the main reasons why, in September, Implats announced the sale of its 27,1% stake in Lonmin subsidiary Lonplats for $800m. The basic structure of the deal is that 9,1% of Lonplats will be sold back to Lonmin, while the remaining 18% will go into a new black empowerment company which will eventually be listed on the JSE Securities Exchange. The key condition for the deal to go through is that both Implats and Lonplats get full empowerment credits from the sale of the Implats asset.
The deal has been widely viewed as Rumble's way of countering undue pressure from the RBN, though he plays this down.
Royal Bafokeng Resources Holdings (RBR) chairman Steve Kearney (who died of a stroke in April this year) was unhappy with the development when it was announced last year, saying: "It could be interesting to see what happens when Implats actually applies for new-order mining rights to be awarded on the Rustenburg lease. The Bafokeng might not accept that. It's something we will have to look at."
Something else it seems the RBN is looking at is the fine print in the royalty agreement. Kearney told delegates to this year's Indaba mining conference held in Cape Town in February that the RBN was auditing the royalty agreement payments.
He and Implats management played down outsiders' speculation over the motives for this action, saying it was just normal business practice, given that the RBN had the right to conduct an audit.
If the Lonplats/Implats deal comes off, the clear winner will be Lonmin. The UK-listed group will be rid of the Implats burden that has troubled it since the mid-1990s, when Implats failed in its attempt to merge with Lonmin. With former BHP Billiton and Implats CEO Brian Gilbertson now advising Lonmin on future corporate developments, the next steps could be fascinating.
