Officials of the world’s largest platinum mine want to stake a bigger claim in your showcase.
Jewelry manufacturing accounts for an estimated 1.7 million ounces of platinum yearly worldwide, up 25% from five years ago. But there’s still room for growth, says Rustenburg Platinum Holdings Ltd., the South African company that supplies 80% of the platinum mined each year worldwide.
During a mine tour by U.S. jewelry manufacturers, retailers and trade press in November, Rustenburg officials made clear they want to take advantage of improving economies around the world. They also recognize South Africa’s trade environment has improved since Nelson Mandela and his African National Congress took the reigns of government last year, abolishing the apartheid system that had dissuaded many would-be trade partners.
The tour, arranged by the Platinum Guild International, was designed as an information exchange, not as a forum to hammer out concrete policies. Mine officials wanted to establish closer ties with representatives of the U.S. jewelry industry and help them to understand the challenge – and expense – of mining and refining platinum. The jewelers saw it as a chance to learn more about platinum mining and to discuss their goals and concerns, including the need for more financial support to market platinum jewelry.
Past and future: The concerns of both groups arise from platinum mining’s unsteady history and uncertain future.
Platinum was discovered in gold-bearing deposits in Colombia in the early 1700s and was named platina, the Spanish word for silver. Over the years, its properties have been found to include a high melting point, resistance to corrosion and chemical attack, catalytic activity and malleability. For these reasons, platinum has such diverse uses as jewelry, biomedical research and pollution abatement (see “Platinum Uses,” page 74).
Significant amounts of platinum weren’t used in jewelry until the early 1900s, with Russia the major supplier. Canada became the dominant supplier in the mid-1930s, followed by South Africa in the mid-1950s. While South Africa didn’t dominate until the 1950s, platinum was discovered as early as 1923 in the country’s northeastern Transvaal province. The narrow veins of ore that contain platinum run through a geological formation known as the Bushveld Igneous Complex, today regarded as one of the world’s richest mineral areas.
In 1928, Johannesburg Consolidated Investments (the parent company of Rustenburg Platinum Mines Ltd. and an associate company of Anglo American) warned that the platinum industry’s success depended on controlled production and marketing. But that advice went unheeded in a rush for quick profits and in the face of economic and technological change.
In the early years, for example, a rapid increase in the number of new mines resulted in overproduction at the same time the Great Depression sent jewelry sales plummeting. The entire South African platinum industry was forced to close for 18 months, and many of the operations never recovered. When recovery seemed imminent, governments started to claim platinum production for munitions during World War II. By the time the war ended, much of the jewelry industry had virtually forgotten about platinum, and technological advances had reduced the amount needed in oil refining. Rustenburg was left as South Africa’s only significant platinum producer. Prices – and competition – grew in the late 1960s, but the market collapsed by 1971 because of overproduction, only to begin a recovery soon after. Today, the platinum industry faces new concerns because of increasing production in South Africa and fear that Russia will dump its platinum on the market – as it has done with diamonds – to gain much-needed currency.
When suppliers of any commodity fear lower prices from oversupply, they limit supplies, increase demand or both. Limiting supplies seems an unlikely option for platinum because the number of mining operations is growing and the reserves in South Africa are huge. Instead, producers have focused on boosting demand.
Reaching out: Jewelry is a prime target. “It has been conclusively demonstrated over the years that investment in market development represents very good business in the platinum jewelry industry,” says Rustenburg’s 1994 annual report.
Twenty years earlier, Rustenburg conducted a study that resulted in formation of the Platinum Guild International, a marketing agency with headquarters now in London and offices in Milan, Frankfurt, Tokyo and Newport Beach to promote platinum jewelry and New York City to promote platinum investment. PGI is funded by Rustenburg and some other mines (not all participating producers fund all PGIoffices).
PGI’s success is without doubt, based on platinum industry reports by Johnson Matthey, a principal refiner, marketer and supplier to the jewelry and watch industries. Demand for platinum to be used in jewelry has grown from 1.1 million troy ounces worldwide in 1980 (the first year for which JM has figures) to an estimated 1.7 million in 1994. That 52% increase for jewelry compares with an 8% increase in overall platinum demand in the period.
PGI opened its U.S. jewelry promotion office in Newport Beach in 1992. Since then, platinum demand for use in jewelry in North America has increased dramatically, from 20,000 troy ounces in 1991 to an estimated 60,000 in 1994 (see chart).
“What’s happening with the American economy is very good for platinum jewelry,” says PGI-USA President Laurie Hudson, who spoke to South African journalists and metals analysts during a Rustenburg/PGI presentation that coincided with the U.S. jewelers’ visit to South Africa.
Hudson cites numerous economic and demographic reasons for the positive outlook, including low inflation (2.4%), low unemployment (6%), healthy growth in the gross domestic product (3.8%), more widespread affluence (thanks to more multi-income households, women climbing corporate ladders and baby boomers entering their peak earning years) and higher education levels (which translate into more demand for intrinsic-value items such as platinum jewelry).
These factors should indicate to retailers why the U.S. market is ripe for platinum jewelry, says Hudson. And the best entry point, says PGI, is the bridal market. “Our studies found these consumers recognize platinum is precious,” says Hudson. “Their parents and grandparents wore platinum, and that connection is important.”
But not everyone who likes platinum likes every style. “We found that one-third like traditional designs, one-third like avant-garde and one-third will look at both, so jewelers should show a range of styles,” she says. And platinum jewelry doesn’t end with the bridal market, says Rudolph Erdel, a tour member and president of OE Design, New York City. “As correct as it is to start with the bridal market, a lot of consumers I tested were excited to go further.” Other good targets for platinum jewelry include anyone who is looking for “a very romantic gift that says `this is forever'” and women who buy jewelry for themselves and want something of value.
Hudson agrees. “Our earliest advertising campaigns, which targeted the bridal consumer, have been enormously successful and will continue,” she says. “[PGI] decided to include other consumer groups in our advertising since research found that platinum appealed to men and women and to three distinct market groups: bridal consumers, men’s and women’s gift-giving markets and the self-purchase woman. “Based on consumer research and the strong growth being experienced by the American platinum market,” she says, “PGI-USA is confident the U.S. market will continue to develop to its full potential, with the proper financial support of the mines.”
Financing promotion: Developing interest in the U.S. – or any market – can be expensive. In 1994 alone, for example, PGI-USA advertised in the trade press to attract retailers’ attention and in every issue of Bride’s and Modern Bride magazines to attract consumers. In fact, 21,000 consumers responded in writing or by telephone to the bridal ads; an estimated 12,000 visited retailers identified in the ads.
PGI-USA also conducted a national campaign featuring four-page, four-color ad inserts in the November and December 1994 issues of Vanity Fair, Town & Country, Architectural Digest and Departures magazines. The inserts featured jewelry by 12 manufacturers and listed more than 300 retail jewelers in regional editions. More than 6,000 consumers called a toll-free telephone number listed in the ads to request a brochure explaining platinum’s properties and its advantages.
Exposure in consumer magazines is critical to building business in platinum jewelry, says Scott Kay, a tour member and president of Winward, a Hackensack, N.J., company devoted to platinum jewelry. “When a consumer mentions my name to a jeweler,” he says, “the jeweler is much more likely to want to carry my line than if I asked him myself.” Kay reports good results from the PGI campaign: “We opened many new retail accounts, sold more product to new and existing accounts and saw very effective sell-through at the retail level.”
PGI-USA’s other activities include:
Consumer brochures (new ones focus on bridal and celebration jewelry, designer jewelry and the benefits of platinum jewelry).
A technical telephone hotline that averages six calls a day from retailers and manufacturers.
An annual catalog of jewelry (the latest edition showcases the work of 87 manufacturers/designers) and the Platinum Source Book (a compendium of tools, services, equipment and material needed to work in platinum).
Planning in-store co-op events, participating in trade shows and offering support, education and development to retailers, designers, manufacturers and industry organizations.
This all costs money, and retailers and manufacturers on the South Africa tour say they can’t foot the bill themselves. They depend on PGI, which depends on producers. (PGI-USA is funded primarily by Rustenburg, as well as Impala Platinum Mines and Western Platinum Mines. Rustenburg’s parent company approved a $22.7 million contribution to PGI’s worldwide effort for 1995, for example.)
PGI wants all platinum mines to contribute because they all benefit from platinum promotions. PGI Managing Director David Cullen says his goal is to make existing platinum markets strong so all producers decide to invest in further expansion of marketing. “We tell them `Come with us, invest some funds and we can develop markets,'” says Cullen. “But the long-term horizon has been very difficult to sell to the platinum producers.”
U.S. reactions: The retailers and manufacturers who were part of the tour feel positively about their interaction with mine executives.
Marion and Lula Halfacre, owners of Traditional Jewelers, a high-end operation based in Newport Beach, Cal., were eager to learn more about the mining process. He says the mine and refinery tours gave him a greater appreciation of the work involved.
Rudolph Erdel of OE Design, meanwhile, recalls the mine executives’ curiosity about what he does with their raw material. “I think our world was as strange and new to them as their world was to us,” he says. “I have more respect for platinum now than ever – from the dangerous but incredibly organized mining to the high-tech computerized refining process.”
The designers/manufacturers say they also appreciated a chance to meet with other platinum enthusiasts. (Other designer/manufacturer representatives on the tour – in addition to Kay and Erdel – were Kay’s wife Regina, Geri Bondanza of Michael Bondanza, Chuck Lein of Stuller Settings, Cap D’Amato of Frederick Goldman, Hans and Ruth Clapper of Wright & Lato and Hudson’s husband, David Thaler of Mayers Jewelry Co. The other retailer on the tour was Robert Harrison of Harrison’s Jewelers, Puerto Plata, Dominican Republic.) “It was good to meet my competitors and build relationships with them,” says Erdel. “[Platinum jewelry manufacturers] are still a small group and we can build our own niches.”
Chuck Lein, president of Stuller Settings, Lafayette, La., also found the tour beneficial: “It was educational and I established some lasting relationships. It’s helpful to know where people are coming from.” He says the company got involved in platinum jewelry in the first place because of Chairman Matthew Stuller’s vision for innovation and anticipating retailers’ needs. “Platinum jewelry is one of those products that’s growing in demand, and we want to stimulate that,” he says. The reasons for growth:
A segment of society wants something more, something better.
An increase in beautifully designed platinum jewelry, some of which incorporates gemstones and/or 18k gold.
Trendsetters influencing public opinion and revitalizing Americans’ interest in platinum. “This shouldn’t be perceived as replacing a very substantial market for gold – which will continue to be the metal of choice for the masses,” he says. “But we’re now seeing an interest in platinum from a broad base of customers.”
Labor, government: Some in the U.S. group were interested in the effect on platinum mining of long-term labor strife in South Africa. Over the years, labor unrest has turned violent on occasion – even to the point of closing mines for prolonged periods – as black workers sought better working conditions, protested white minority rule and brought long-simmering tribal wars to the workplace. Even today, the country’s employers face strife stemming from employee demands, warring tribes and a national unemployment rate of 40%. Last year, however, work stoppages at Rustenburg were few and short. Rustenburg’s parent company, JCI, successfully completed wage and working condition negotiations with various trade unions.
JCI works to provide low-cost housing, water and electrical service, solid-waste and sewage disposal services, health programs, literacy programs and other educational services from preschool to community college. At the work site, the company created safety and team-building programs to identify and solve problems. What does JCI get out it? “I don’t think that being a good employer is going to insulate us from growing pains,” says Barry Davison, managing director of JCI. “But I would like to think the things we do will be understood and appreciated. I don’t mean appreciated in a paternalistic sense; I mean appreciated in the sense that we are making an effort to uplift our employees.”
Employee relations aren’t the only concern. Producers were wary when Nelson Mandela came to power because the ANC had previously pushed for nationalization of mines, new methods of dispensing mineral rights and “unbundling” of large companies into smaller ones to give blacks a better chance at owning and managing businesses. JCI does plan to sell two divisions – mining finance and industrial finance – to the black business community but will keep its platinum division, including Rustenburg. “We now don’t believe we’ll experience anything which is going to inhibit our long-term ability to grow the market, to supply that market and to operate profitably,” says Davison.
Adds Derek Engelbrecht, worldwide marketing manager for Impala Platinum Mines: “The mood in the country is much improved.” He does note two concerns:
Citizens should give the new government’s Reconstruction and Development Program time to work. “It will be a slow process, and there may always be strife among the black tribes.”
Mandela’s health. The president turns 77 this year and at times has appeared frail. “The picture could change with a new leader.”
GOING THE DISTANCE FOR PLATINUM
Half giddy, half uneasy, we pull on white coveralls, lace up bulky black boots and stuff our heads into hard hats with battery-operated headlamps. On the way out of the changing room, we check the mirror to see how professional we look, or not.
Across the street, we board a cable-car-sized elevator. Those of us at the front of the herd rush in to claim the perimeter, hoping the half solid/half open-grate sides will hold us steady. The rest step aboard gingerly, find a spot in the center and pray they won’t embarrass themselves by losing their balance, their breakfast or their consciousness. The door closes. It’s too late to turn back. We’re headed down more than 4,000 feet into the Turffontein shaft of Rustenburg Platinum Mines Ltd.
Slowly, the descent begins. We begin to chat and laugh and wonder why we were concerned. Then through the grating, we notice that the flashes of light marking different elevations start to come faster; our perception of how far into the earth we’re going blurs along with the sides of the mine shaft. What if the elevator doesn’t stop in time? Will it flatten – the way cartoon character Sylvester does when Tweety Pie slams a door in his face – or just come to rest as a half-submerged memorial on the mine floor? Will we live to enjoy the trips to a game reserve and Cape Town planned for us later in the week?
The questions subside in a few minutes when the elevator comes to a smooth stop and we’re safely ushered onto the mine floor and into rail cars for a lateral trip into the mine. It’s then we realize mine employees do this every day – it’s perfectly safe. But what if we take a wrong turn in the maze of underground tunnels? What if the lights go out? What if we run out of air?
Deeper, darker: Guides split us into two groups, one for the polite, appearance-conscious crowd that will take a limited tour and the other for those who don’t care who they poke while crawling through the mine or how they look drenched in sweat and dirt. The single-file walk through the long dark tunnel is accompanied by the drip, drip, drip of a water-based cooling system that makes mining this far underground possible. After two left turns and three rights (or was it three lefts and two rights), we reach our destination, a horizontal crevice that we navigate – one by one – by wriggling on our backs and elbows. We’re guided only by what we can see of the hard hat in front and an occasional and unintentional kick from the big black boots behind. Off to the side is the real show: miners aim big air hammers at a 2″ vein of light gray platinum ore, making holes that will hold dynamite for blasting when this work shift ends.
There, lying like so many helpless ladybugs on their backs, we understand the ore vs. platinum computation with reverence. To get just one ounce of platinum, those miners have to extract 10 tons of that ore!
Those figures replay in our heads as we crawl out the other side of the crevice and circle around to a tunnel, the rail cars and the safety of that elevator we once viewed with trepidation but now welcome with open arms.
Daylight never seemed so white or the sky so vivid blue. As we cross the road back to the changing room, a few mine workers scrutinize us, maybe wondering how we can see their day-in/day-out hard labor as a once-in-a-lifetime opportunity.
From mining to refining: The job’s not done yet. Once the ore is removed from the mine, it goes on a long trip to a smelter, base metal refinery and precious metal refinery. At the smelter, the ore is turned into molten format in the first step of separating its various components.
The separation continues at Rustenburg Base Metals Refiners (Pty.) Ltd., a wholly owned subsidiary where copper, lead, cobalt and nickel are removed. The process continues at Precious Metals Refiners (Pty.) Ltd., which is owned by Rustenburg Platinum Mines Ltd. and managed by Matthey Rustenburg Refiners, whose shares are held by RPM and the Johnson Matthey group. Here, different members of the platinum group of metals (platinum, palladium, rhodium, ruthenium, iridium and osmium) are separated from each other.
The separation is accomplished with chemical processes that vary from company to company and, thus, are secret. To ensure the process is kept secret and to guard against theft, security is tight. At Rustenburg’s precious metals refinery, for example, workers and visitors alike must change clothes upon entering and leaving and must walk naked through an airlock chamber past a guard to ensure that no platinum is smuggled out in the mouth, under the arms or between closed toes. We had to wonder how anyone would obtain any metal in the first place because the refining takes place in miles of iron pipes that reach several stories high and in huge closed cauldrons, everything controlled by a computerized process that keeps humans at arms length.
The ultimate reward of the refining process: powder (used as a catalyst), sponge (used to absorb gases and as a catalyst) and compact (used in jewelry) platinum, each ounce of it derived from 10 tons of ore in a five-month process.
PLATINUM DEMAND FOR EWELRY GROWS
(in thousands of ounces)
|Rest of WesternWorld||55||75||105||100||115||115|
*Estimated Source: Johnson Matthey
Platinum has a variety of uses besides jewelry. Here are examples:
Because of its very high melting point (1,772°C), platinum is used for crucibles, furnace thermometers and other heat-resistant instruments.
Industrial uses include petroleum refining and the production of nitric acid (used in nitrogen-based fertilizers), catalytic converters that reduce harmful auto emissions and MTBE (methyl tertiary butyl ether), a gasoline additive that enhances combustion and reduces emissions.
Computer disks are coated with platinum to increase data density.
Fuel cells with platinum generate electricity from chemical reactions. This source of pollution-free power has drawn considerable attention, though workable, affordable fuel cell systems are still in the development stage.
In the glass industry, platinum and its alloys are used to contain, stir and convey molten glass.
In the investment industry, platinum is used in bars and ingots weighing less than 10 ounces and in bullion coins such as the Canadian Maple Leaf, Australian Koala and Chinese Panda.
Biomedical and health-care industries use platinum group metals in numerous ways, including cancer treatment, catheter and pacemaker production, dental alloys and the manufacture of drugs for asthma, epilepsy and bacterial infections.
A KNACK FOR MARKETING, A TASTE FOR ADVENTURE
David Cullen is always looking.
Born in the United Kingdom and raised in India, Cullen got a taste for exploring early in life. His father’s military service in various countries separated the two at times, but Cullen says it gave him “tremendous independence and a desire to always be looking beyond the horizon.”
A career in marketing with food giant Nestlé eventually expanded Cullen’s horizon to Switzerland,
Jamaica and Canada. But then he chucked his business successes and decided to spend some time with his father, who then lived in South Africa. “It was tremendously exciting; there was a sense of adventure,” he recalls.
Cullen found a job with a cosmetics company, but soon found himself on the losing end of a merger/layoff. The same day he lost that job, he noticed a help-wanted ad for a platinum marketing position and felt the job description had been written just for him. “I applied with tremendous confidence that it was going to be my job,” he says. “But the interview process was extremely difficult; they gave me a tough time.”
Cullen eventually was hired to head the brand-new Platinum Guild International – a marketing agency funded by various platinum mines – and no one has been sorry since.
Growth: PGI developed out of a 1974 study by executives of Rustenburg Platinum Mines Ltd. into the opportunities to expand demand for platinum. Cullen’s job as managing director is to identify the best markets and develop offices there to promote platinum. He now oversees PGI headquarters (which recently moved from Lucerne to London) and offices in Italy, Germany, Japan and the U.S. (The first marketing office, in England, closed after a few years as the country’s jewelers headed downmarket.)
By any measure, PGI has had phenomenal success in its 20-year history. While platinum demand for jewelry was fairly static before 1970, it has grown more than 50% to an estimated 1.7 million troy ounces since then, according to industry reports by Johnson Matthey, a principal platinum refiner, marketer and supplier.
The growth wasn’t always easy. “I was super-confident that I could transpose the skills I learned through mass marketing of food and cosmetics, but I was to learn a very difficult lesson,” says Cullen. “Mass-market manufacturers have the resources to mount huge marketing campaigns and motivate the entire trade. In the jewelry business, though, I found that every manufacturer was run by the owner, every retail shop was run by people who had been in the business forever, and no one was about to be marshalled into an overall marketing plan.”
In addition, there was a stark lack of product and a limited willingness to work with platinum, which requires longer production time than gold. “The skills had never been lost, but we wanted more manufacturers to consider platinum for the shank of the ring, not just the prongs,” he says. “Obviously, we wanted to move more metal into the market.”
PGI worked with Johnson Matthey to find solutions to the technical challenges of working with platinum, with manufacturers to use these solutions to create more platinum jewelry and with retailers to stock the finished products. “We had to bring all these points of the circle together at the same time,” says Cullen.
And there’s the cost. “Jewelers at first found platinum to be a risk because it was hard to justify the difference between a gold ring that cost $X and a similar platinum ring that cost twice that much,” he says. “We had to teach sales staffs that platinum, in addition to being beautiful, is also more durable, is harder to mine and takes longer to polish than gold.”
PGI’s goal is not to displace gold, however. “This would be a wild dream considering the difference in levels of production between gold and platinum,” says Cullen. “Our wish is to build on top of the market, to make platinum something extra, to give the jeweler an opportunity to sell something new.” In fact, PGI’s strategies include promoting platinum combined with gold, as well as with diamonds and with colored gems. “Platinum doesn’t need anything else to help sell it,” he says. “But the combinations allow an expression of individuality.”
The future: Cullen is still looking to expand PGI’s horizon – big time. “The Far East – particularly China – offers vast potential to expand the market for platinum,” he says. We’ve been visiting China on a regular basis and there is a great deal of white jewelry on display. It’s not going to be an overnight miracle, but they are a 1 billion population and we’ve already identified there’s a market that finds platinum attractive.”
In addition, countries that produce platinum jewelry for Japan – including South Korea, Hong Kong, Malaysia and Thailand – are likely springboards for local platinum markets and deserve attention, he says.
“The only thing that holds us back is the allocation of resources,” he says. “The last thing we want to do is divert our resources from existing outlets.”
Personally, Cullen is looking ahead also. He plans to leave PGI this year. “I love this job so much that it’s very unusual for me to spend as much time as I should with my family,” he says. “My daughters have grown up and left home [one works for Nestlé in Switzerland, the other is studying languages at the University of Lucerne]. And rather than spend all my time rushing around the world, I want to spend more time with my wife.”
But the word retirement doesn’t enter the picture. “It would drive me crazy to sit at home with no goal,” he says. “I haven’t decided what I’ll do, but there is so much exciting development in terms of communication to the consumer, the new channels of communication, that we as an industry should address. I really want to do some work in that area. What I love about promotion is always looking to the future.”