Johannesburg - The Competition Tribunal has described the market for platinum group metals (PGMs) as anti-competitive and has urged competition authorities to ensure the market does not permit its small number of major participants to manipulate supply and thus dictate the price.
In giving reasons why the tribunal approved, without conditions, the merger between Two Rivers Platinum and Assmang, chairman David Lewis said the transaction did not on its own substantially lessen or prevent competition, and prohibiting it or imposing conditions upon it would not promote competition.
Lewis noted earlier mergers and acquisitions in the industry had consolidated an essentially oligopolistic market for PGMs.
The various mergers and acquisitions had also resulted in vertical integration between the mining and refining stages of the production process.
He believed that while both the market structure and the vertical integration limited competition, they could not be reversed by prohibiting or imposing conditions upon the transaction.
The structure of the PGMs market was comprehensively anti-competitive, and competition could only be promoted through vigilant monitoring of the participants' conduct in the market.
In terms of the transaction, Two Rivers was a joint venture created to bid for the PGM rights owned by Assmang, in an area of Mpumulanga.
Avmin holds 55 percent of Two Rivers and Implats the other 45 percent. The two joint venture partners have entered into management and marketing agreements whereby Avmin was appointed the manager and sole marketing agent of Two Rivers.
Two Rivers has signed a purchase, sale and tolling of metals agreement with Impala Refining Services, which is a wholly owned subsidiary of Implats.
In terms of this agreement Two Rivers is obliged to sell and supply its PGMs and base minerals for toll refining to Impala.
Lewis noted that Avmin did not possess the requisite infrastructure, skills or expertise to mine and refine PGMs and so had elected to undertake this activity in a joint venture with an experienced partner.
Implats, which claims its refining operation as the most efficient in the industry, is interested in the transaction partly because of its desire to make more efficient use of its considerable processing and refining infrastructure.
Lewis described the transaction as having both a horizontal and vertical dimension and noted that in general it appears that Implats was not much engaged in prospecting but rather maintained a careful watch over prospecting activity across the world with a view to furthering its ability to acquire the mineral rights originally staked by others or to toll refine PGMs mined by others.
The market in question is described as highly concentrated with the two largest South African producers - Implats and Angloplats - being world players. Both are taking steps to consolidate their positions.
Implats claims there is intense competition although there is no price competition in the market and all the participants are price takers. Both Avmin and Implats claim the transaction is pro-competitive because Avmin is a new entrant and because it will help to prevent Angloplats from occupying large market share.
However, the tribunal questioned Avmin's intentions to actively participate in the market and also suggested co-operation rather than the competition that characterised the relationship between Angloplats and Implats.
Lewis described the crossownership and joint projects involving the major players in the industry as startling and said that it did not appear as though the major PGM producers competed with each other.
On the face of it, the degree of co-operation, read together with Angloplats and Implats increasing domination of refining, appears to point in one direction: it reflects the persistent desire on the part of participants in world commodity markets to control the supply, and hence influence the price, of their product.
For all of these reasons Lewis urged vigilant monitoring of the conduct of the participants in the market.