Platinum upheaval warning as price precipice threatens producers
If low prices persist, local sector could shed up to 600,000oz in a couple of ‘pretty violent steps’, says miner
The South African platinum industry could shed up to 600,000oz of metal in "one or two pretty violent steps" if low prices persist, as Sibanye-Stillwater grows into one of the leading sources of the industrial and precious metal, company executives said on Thursday.
Sibanye has switched from a gold producer to a company vying for second place among global platinum producers and number three in palladium, hoping to wrap up its all-share takeover of Lonmin before the end of 2018.
This would give it a rare mine-to-market platinum group metals (PGM) business, one that is able to shape the market.
If the average price in the year to date of R13,000/oz for the four metals making up the basket of metals sold persisted, then 600,000oz would be lost within six years from local production, Richard Stewart, the executive vice-president of business development at Sibanye said during an analysts’ day. Sibanye would not invest in growing production at its existing assets or those of Lonmin as long as the platinum price was low, he said.
SA’s platinum output is forecast by Thomson Reuters GFMS to continue falling in 2018 to 4.1-million ounces — the lowest level in at least a decade apart from the 3.2-million ounces in 2014 when there was a six-month strike. Platinum’s key use is to make autocatalysts for diesel engines.
Palladium is forecast to enter its ninth year of deficit, with demand exceeding supply by more than 1.3-million ounces and it was this situation that would "inevitably" lead to some palladium used in autocatalysts for petrol engines replaced with platinum, Stewart said.
"We have to manage PGMs as a basket. We believe substitution from palladium back to platinum is inevitable. It has to happen in order to balance the markets that we have and the quantities of these metals," Stewart said.
Some makers of autocatalysts have wanted a sustained price gap of $400 between palladium and platinum, while others say it will take two years to make the switch.
Platinum is trading at $900/oz against palladium’s $1,012/oz, a rare occurrence where palladium is more expensive than platinum.
Meanwhile, in the gold business, Sibanye is coming close to selling its four mothballed Cooke mines near Randfontein, with CEO Neal Froneman suggesting the sale could be completed in the next three months.
The Burnstone gold mine in Mpumalanga, which Sibanye bought out of liquidation as a partially built operation, is not a core asset and it too is a candidate for sale or a joint venture, Froneman said.
With Sibanye bringing its high debt levels under control within the next couple of months, Froneman forecast that Sibanye could return to paying cash dividends in its 2019 financial year after a hiatus because of high debt levels when it opted to pay investors shares instead of cash.
Speaking on regulatory issues dogging the mining industry, Froneman, who is the deputy president at the Minerals Council SA (formerly Chamber of Mines), said the industry would fight the Department of Mineral Resources all the way to the Constitutional Court to ensure the continuing consequences of past empowerment deals rather than perpetually topping up empowerment ownership levels, as the department has demanded in the past.