Strategic drivers of consolidation in South Africa’s junior platinum mining sector

Abstract

The South African platinum mining industry has been characterised by an influx of small exploration and mining companies over the past few years. This was in a way attributed to regulatory changes which required holders of unused mineral rights to either forfeit them to the State or sell them to smaller developing companies, mainly black owned. Furthermore, the hike in the platinum price between 2007 and 2008 triggered a rapid increase in exploration programmes leading to the junior platinum sector expanding at an unprecedented rate with over 75% growth in the junior platinum index during the first 6 months of 2007. A change in market conditions and the impact of the global economic crisis in 2008 started to raise questions about the sustainability of this junior platinum mining sector and some discussions on consolidation were raised. Consequently, this study is mainly focussed on investigating strategic drivers of consolidation in the South African junior platinum mining sector. The research methodology used was qualitative in nature and conducted in a simple interpretive paradigm context in efforts to understand the respondents’ perceptions relating to the phenomena being researched. The main finding of the study was that the following key consolidation drivers are present to a large extent in this sector: synergies and cost savings; and economies of scale and scope. Therefore, if consolidation is to happen in this sector it will be driven to a large extent by these key factors. Market conditions albeit being present to a relatively smaller extent are also an important consideration. Important to note as well was that strategic drivers of consolidation can’t be considered in isolation. They have to be considered under the broader strategic intent of each company, thus whether it wants to be an exploration company or to grow into a producing mining company, the latter of which is more capital intensive.