Structurally inflexible, the PGM sector can only watch and wait

ONE question put to Anglo American Platinum (Amplats) by a US investor on a recent roadshow was whether South Africa’s platinum group metals (PGM) miners could somehow work together to regulate supply. “I don’t know how that would work, especially in the US — but it was a question,” says the firm’s CEO, Craig Miller.Amid a wave of critical mineral permitting in the country, partly to feed the electric vehicle and hybrid vehicle industries, the strategic value of the PGM suite of metals — platinum, palladium and rhodium principally — is beginning to be understood, especially in the US. After Anglo American’s R7.2bn bookbuild in Amplats shares last month, US shareholders comprise the third-largest pocket of investors after South African institutions and Anglo itself, says Miller.But the depressed state of the basket price of the metals, especially when physical supply deficits are developing, is a mystery and a frustration to new investors. Impala Platinum (Implats) says it has a full order book with customers on contract, but the spot prices continue to languish. Palladium is 2.2% down this year.The metal staged an 11% recovery in September, but at less than $1,100 per ounce, the price is still challenging to North American production. The PGM markets are relatively small and illiquid in mining terms. Forecast at about 7.09-million ounces by the World Platinum Investment Council, this year’s supply, including recycling, is less than the combined production of the world’s two largest gold producers.On top of that, PGM miners are constrained from cutting supply too steeply owing to its impact on unit costs. The ability for these miners to expand into the widely expected supply deficits is also constrained. Implats CEO Nico Muller said at his firm’s annual results presentation in August that he doubted whether South Africa would host a new project. “It’s highly improbable that you’re going to see material investment in new PGM production in South Africa,” he said.Says Northam Platinum’s Paul Dunne: “Current prices remove the incentive price for new mines, which will see a depletion of South Africa’s resource base. The damage has been done and depletion is inevitable.” A proposed second phase expansion of Platreef, a project now in development by Toronto-listed Ivanhoe Mines, is also unlikely, says Dunne.Price weakness has damaged the collective balance sheet of the PGM industry. On a net basis (cash/debt), the industry was at 0.01 times earnings before interest, tax, depreciation and amortisation (ebitda) last year compared with 0.24 at the start of 2022. But on a gross basis, it has less flexibility, with debt to ebitda swinging up to 0.89 at the end of 2023 compared with 0.19 at the beginning of 2022, according to a report by auditor PwC. “Overall balance sheet health in the PGM sector is still acceptable with increasing stress indicators. The longer prices remain at their current depressed levels the more drastic measures will be required to preserve balance sheet integrity,” it says.Refining capacityA shortage of refining capacity also constrains PGM production. If PGM prices were to improve over the next few years, it’s questionable whether miners would be able to meet the demand. According to PwC, total PGM concentrate supply is about 13.75-million ounces in South Africa, which can be handled by precious metal refineries. But a shortage in the capacity of base metal refining is causing an overall bottleneck.This is the reason Platreef’s second phase is unlikely. Even its first phase concentrate can’t be processed at present by Northam or Trafigura — both of which have offtake agreements — if it were supplied today instead of next year as planned, says an industry source. It’s also a factor in the proposed development of the Waterberg joint venture, a large palladium-dominant mining project planned by Canada’s Platinum Group Metals (PTM).Implats has a 15% stake in the project, which PTM controls, and a right of first refusal on concentrate from the project. But it wants the scale of the project to be modified down, whereas, based on PTM’s recently published definitive feasibility study, the $946m project would produce annual steady state average concentrate production of 353,208oz and peak annual production of 432,950oz.PTM is assessing the viability of exporting the concentrate to Saudi Arabia in terms of a memorandum of understanding with a local business which wants to build a refinery. But it would need South African government approval.Despite these difficulties, and Muller’s comments that new PGM projects from South Africa are unlikely, Implats is not a seller of its 15% stake in the Waterberg JV.Johan Theron, head of corporate affairs at Implats, says the project is “an operating footprint” that ought to be retained. Miners also call it a resource option. “Zimbabwe will always take precedence with us,” says Theron of Implats’s 850,000 oz in PGM concentrate last year from the country. “After that it’s the northern limb,” referring to the Waterberg JV.There is so little structural flexibility in PGM production that the industry is largely about demand, and about whether hybrid vehicle development and hydrogen technology will give the metals a reliable, permanent level of demand.A version of this article was first published in the Financial Mail.The post Structurally inflexible, the PGM sector can only watch and wait appeared first on Miningmx.Weiter zum vollständigen Artikel bei Mining.com Weiter zum vollständigen Artikel bei Mining.com