Platinum miners invest in keeping the good times going
Focus areas give insight into the steps taken by SA’s major producers of platinum group metals to become more resilient
After a number of challenging years in which the SA platinum group metals (PGMs) industry was in crisis, its leading producers posted record results in 2020. But while a fortunate confluence of strong prices and a weak exchange rate was fundamental to the turnaround, a far deeper resilience is being built by better strategies and significant investment to keep the winning streak going.
These interventions can be grouped into four major focus areas, each of which gives a specific insight into SA’s major PGM players, including Anglo American Platinum, Impala Platinum and Sibanye-Stillwater.
Over the past decade, the price of platinum has halved, that of rhodium has increased 10-fold and the price of palladium eightfold. While some may view specific producers’ relative exposure to these metals as a lucky outcome, companies such as Sibanye-Stillwater had clearly identified palladium as a priority and are now reaping the rewards.
The benefits of a more diversified basket of metals than that targeted by the more focused single-commodity producers is not limited to the traditional PGMs. A number of producers enjoy additional revenue streams from the base metals they are able to mine and recover with PGMs, such as nickel, copper and cobalt. Projections on some upcoming projects that have higher base metal content on their ore compared with other producing mines suggest base metal sales alone would be sufficient to financially sustain operations.
For many industry players, these varying commodity revenue streams have been supplemented with revenue from the sale of chrome, which is recovered incidentally to their primary pursuit of PGMs. While the chrome price is notoriously volatile, it has contributed to sustained operations over the past decade at least.
As the major producers and new project developers focus on their ability to extract the maximum value from their assets, the fact that PGM producers can potentially draw on a wide array of metals to drive their revenues introduces a dimension into the industry that can only enhance its response to current market conditions.
The Minerals Council SA says the PGM industry is SA’s largest mining employer. However, new producers point to the labour-intensive nature of older operations in SA as a fundamental risk to their sustainability. Their low productivity compared with emerging mining approaches, coupled with higher-than-inflation wage increases, makes them more vulnerable to becoming uncompetitive from a production cost perspective.
This cost pressure is worsened by the fact that recycling has been a significant contributor to downward pressure on PGM prices in recent years, as supply from recycling competes with supply from primary production.
The response of the industry to these challenges has been to maximise the operating and production flexibility of individual producers. There is a significant focus on moving to more mechanised operations and, in the case of the newest projects, on “bulk mechanisation”, which will enable new producers to achieve world-class productivity.
Some of the more innovative producers have taken an “if you can’t beat them” approach to the threat of recycling by investing in recyclers and recycling capacity, thereby improving their ability to participate in the PGM value chain at more than one entry point.
With SA positioned as the world’s leading PGM producer, it seems unthinkable that major industry players would seek to diversify geographically beyond SA and Zimbabwe’s Great Dyke. Yet this is exactly what some have done. Two of the biggest producers, Impala Platinum and Sibanye-Stillwater, have ventured into North America. For an industry that was nearly brought to its knees by an extended strike in SA in the recent past, this is one more step towards ensuring sustainability.
The greatest anticipated threat to the industry now lies in the prospect that internal combustion engines — which require PGM-laden catalytic converters to meet stringent emissions standards — will be replaced by battery electric vehicles that require no PGMs. This challenge is being met by the SA industry with a pivot to “new” markets that would drive continued metal demand.
There is an intense focus on hydrogen-powered platinum fuel cells for vehicles and other uses — and the intellectual property supporting them — to ensure that PGMs continue to play a significant role in the future of vehicle production. The Minerals Council SA estimates that this transformation alone could drive the platinum industry to generate $35bn a year by 2025. A nuance of this strategy is that the industry is endeavouring not only to be a supplier to an industry that innovates elsewhere, but to drive innovation itself. In this way it will seek to also develop new uses for other metals across the PGM basket.
It continues to look for new ways to drive jewellery demand for PGMs. Several innovative campaigns have already caused platinum, palladium and rhodium to emerge as desirable metals, particularly for men’s jewellery. It furthermore continues to seek to position platinum as a store of value to rival gold, through funds, physical metal, coins and other means.
• Du Toit is EY Africa leader & corporate finance partner.
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