Friedland touts South African platinum play despite obstacles

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Robert Friedland could not have chosen a less auspicious day for his latest bid to persuade investors to take a chance on an unorthodox mining dream.

Mr. Friedland, the Canadian billionaire founder of Ivanhoe Mines Ltd., is planning a huge mine in South Africa's famed platinum belt.

But even as he touted the project at Africa's biggest mining conference, the platinum sector was besieged by a prolonged strike by 70,000 workers, with producers warning of escalating losses and the growing likelihood that the strike will lead to major restructuring and job cuts.

To make matters worse, South African miners are deeply worried by a planned overhaul of the country's mining laws, which could force the producers of "strategic" minerals to limit their exports and sell their products at discounted prices to domestic companies.

Many of South Africa's top mining executives were in a gloomy mood on Wednesday at the Mining Indaba conference, complaining of a hostile government and a poor investment climate. The platinum strike is entering its third week, following the collapse of wage talks on Wednesday.

But Mr. Friedland told them to ignore their fears. His counterintuitive gamble on South African platinum could become as profitable as his earlier multibillion-dollar payoffs from Mongolian copper and Labrador nickel, he said.

He acknowledged the "tensions" in the platinum sector. "It is clear that the current labour turmoil is disruptive to industry and quite unnerving to some international investors," he said. "These are short-term problems, which come with the territory, and we're profoundly optimistic for the long-term prospects."

Mr. Friedland, whose planned mine would create 10,000 jobs and could be the biggest mining project in South Africa over the next few years, argued that the labour unrest is a result of the "volatility" of politicized unions in the runup to a national election, expected in April or May. A year from now, this volatility will be gone, he said.

Many analysts here would disagree. They cite a wide range of reasons for the mining strikes, including a rivalry among unions and long-term issues of wages and housing benefits. Government leaders are warning that the era of "cheap labour" in the mining industry must come to an end.

In a later panel at the same conference, Mr. Friedland said the platinum strike is legal and should not alarm anyone. "There are lots of grounds for optimism and certainly no grounds for panic."

But while he praised the "tremendous advantages" of the South African mining sector, local mining executives were telling the same conference that the investment climate was "tough" and the government was "unwelcoming."

Ben Magara, chief executive officer of major platinum producer Lonmin PLC, told the conference that South Africa has 80 per cent of the world's platinum reserves, yet has only a 53-per-cent share of the platinum market – a sign of its lagging performance. Even before the strike, about 45 per cent of South African platinum mines were losing money, according to a statement by the leading companies.

In the back of everyone's mind is the risk that the latest platinum strike could trigger violence. A previous platinum strike in 2012 led to the notorious "Marikana massacre" in which 34 protesters were killed by police.

On Tuesday, violent clashes erupted again when police used rubber bullets and stun grenades to disperse about 3,000 striking workers near an Anglo American Platinum shaft.

Lauren Patlansky, a business adviser in the South Africa office of Grant Thornton, said the platinum and gold industries have suffered "dramatic losses" from strikes in recent years.

"There is no doubt that our unions scare off foreign investors," she said. "Many investors choose to face the many pitfalls in other African countries, including political instability, rather than risk industrial unrest with its financial and reputational costs."