'Wesizwe Platinum had a bit a journey to where it is now," says Hamlet Morule, the executive of corporate affairs and investor relations at the platinum mining company.
It was listed in 2005 but found itself unable to get the necessary funds for a flagship project, the Bakubung platinum mine in the western limb of the Bushveld Complex, close to Rustenburg.
"We had to get funding from somewhere to fund the [eventually 800m] shaft from an investor who was willing to accept that they would not get any returns after some time as one shaft will only begin operating in 2018," he said.
Enter the Chinese mining group Jinchuan, the third-largest mining company in that country, which formed a consortium with the Chinese government development body, the China-Africa Development Fund, to buy 45% of Wesizwe Platinum. Anglo American Platinum (Amplats) also bought a 16% share in the Bakubung project.
In its first investment in the platinum sector, the Chinese consortium, seemingly undeterred by market sentiment and the fact that platinum had lost it sheen, agreed with Amplats and other smaller investors to provide a total cash injection of $207-million.
Wesizwe then got a second boost in January when the China Development Bank provided the mining company with a $650-million loan to fund part of the construction of the Bakubung mine for the next five years.
Bridging loans approaved
As part of the $650-million project funding, the bank has also approved two bridging loans of $100-million each, of which one $100-million drawdown has already taken place. These short-term loans will be refunded in part by the $650-million long-term loan.
Amplats, the world's biggest platinum producer, announced this month that, because of lower platinum prices, it will cut 6 000 jobs as part of a restructuring plan to slim down. Mining companies are under severe pressure from shareholders to cut costs in a weak commodities environment.
Amplats intended to cut its staff by 14 000 and close some older shafts, but reduced that number after pressure from the South African government and organised labour, which were concerned about the impact of the large number of job losses.
As a result of the revision, Amplats will cut production by 250 000 ounces this year, and an additional 100 000 ounces in the medium term. Baseline production has been revised to between 2.2-million and 2.4-million ounces a year in the short to medium term.
Morule said the consortium viewed its investment in Wesizwe as long-term. "The Chinese government believes there will be demand for platinum in the future and wanted to buy equity in the sector," said Morule. "China intends to become the lead manufacturer of automobiles, not only to satisfy world demand but also their local demand. They are bound obviously by regulations that restrict emissions and so require catalytic converters, and for these you need platinum.
"The deal gives the Chinese access to platinum and it makes sense to have a share at source if you want to compete in a way that is viable. This way you also cut out the middle man and added costs."
More cars from China
Recent projections conducted by the Financial Times, based on data by IHS, LMC Auto and PwC consultancies, together with investment banks UBS and Credit Suisse, conclude that China will produce more cars than Europe for the first time this year.
China will make 19.6-million cars and other light vehicles compared with 18.3-million in Europe. Last year, Europe, including countries such as Russia and Turkey, made 18.9-million motor vehicles against China's 17.8-million. Although China's vehicle sector has grown 10 times since 2000, it is still small relative to the United States.
Morule said, with the global economy stabilising, the future for the sector was more hopeful. "We are convinced that the mining sector will become more stable as well. By the time this mine is operational, the unrest caused by disputes between the National Union of Mineworkers and the Association of Mineworkers and Construction Union will hopefully be over," he said.
Morule said the Chinese investors had little involvement in the day-to-day running of Wesizwe, despite the fact that the chief executive officer, Jianke Gao, and five nonexecutive directors have links with the Jinchuan Group and the China-Africa Development Fund Amplats's investment is represented by Barend Johannes van der Merwe. Its chairperson, Dawn Mokhobo, is also a member of the boards of Engen and Sasol. William Eksteen, a former Gold Fields mining engineer, Nosipho Molope, a former chief financial officer of the Financial Services Board, and Lincoln Vumile, a former ANC MP, make up the remainder of the board.
Morule chuckled: "You have not asked me the question I expect to be asked: Will the Chinese be bringing their own workers for work on the mines? And the answer is no; everyone will be employed locally, with the bulk of the staff coming from the nearby Ledig area, where a skills training programme is already in place."
The mine is expected to employ about 3 200 full-time employees once it is fully operational. As of April this year, the mine had 53 full-time employees and 921 contract workers while construction is under way.
"We just find that it provides more stability at a mine when you source from the community," he said.
"A lot to learn"
Artisan and training programmes and a housing estate to accommodate 2 700 employees are underway. The mining experience and operational efficiencies of the Jinchuan Group, which mines nickel, copper and cobalt, has influenced how the mine develops, with the mine meeting its first deadline when it came to sinking its main shaft and ventilation shafts.
"There is a lot we can learn from them, but we also have a lot of experienced South African people."
Wesizwe was also looking at new investments, Morule said. "There is one presently on the table that we are looking at. New deals would involve existing operations which could begin to yield results immediately, rather than a long-term project like Bakubung."
Morule said most of the platinum mines, particularly in the Rustenburg area, were reaching the end of their lifespans. "The Bakubung platinum mine will have a lifespan of about 35 years and will produce 350 000 ounces a year by 2023."
The yield of the shaft is expected to be 63.2% platinum, 27.1% palladium, 7.3% rhodium and 2.4% gold.
Wesizwe is not only dependent on the Bakubung mine. Through its wholly owned subsidiary, Africa Wide, it has a 26% interest in two projects on adjoining land.
According to Morule, project one is a large-scale, high-grade shallow platinum mine that saw production begin in 2011, with full production projected for 2014.
China's interest
The deal, although concluded before the Brics (Brazil, Russia, India, China and South Africa) conference, it is seen as an indication of the potential future investment could have for South Africa.
China's interest in a fledgling South African mining company is in line with its investment history. By the end of 2011, it had invested $15.6-billion in Africa, compared with $1.5-billion by the end of 2010. The China Mining Association reported that, worldwide, Chinese companies invested in 284 mining companies during 2011.
Its hunger for much-needed commodities has seen it continue to seek new acquisitions, including in Australia where its interest has been in iron ore supplies.
Although China's investment in a fledgling South African mine, which will continue to bring development to the struggling Rustenburg area has been welcomed by some investors, others are warning about South Africa's dependence on China as an export destination. The concern, as demonstrated towards the end of last year in particular, is that any slowdown in China's growth will have a direct impact on South Africa.
In 2012, China dominated South Africa's non-gold exports — minerals worth R60-billion were sold to it, with iron ore, for which China has an almost insatiable demand, comprising about 47% of South Africa's exports.
Wesizwe Platinum's financial director, Wenliang Ma, believes that projects such as these have many benefits, and not only for job creation. In Wesizwe's annual report, he said it was hoped that the project "would [create] a precedent for the establishment of a model for successful Chinese and South African co-operation in the minerals sector". He said China could also offer assistance with beneficiation.
Wenliang said the key challenge for the South African mining sector had been finding the funding that it needed to develop new projects. "Although Wesizwe does not anticipate a dramatic recovery in 2013, the company is confident that concerted international efforts and co-operation to improve the global climate will eventually bear fruit."
The benefit of dollar loan deals, he said, was that they were not influenced by the fluctuation of the rand because gold mining revenue would be dollar-based.