The price outlook for platinum group metals (PGMs) is strong for seven years, but there are fundamental obstacles that will prevent SA mining companies rushing headlong into growth, including the state of the global market in the 2030s.
SA is the world’s largest source of PGMs, which are heavily used in industrial functions, most notably in automotive catalysts for petrol and diesel engines to scrub out pollutants. Platinum is the only metal that is used for jewellery.
In SA, all six metals making up PGMs are mined of two packages of reefs and cannot be extracted separately underground.
Over the past decade, SA producers have not invested heavily in growth or replacement of mined-out reefs, despite growing demand for the metals, with low PGM prices, rising domestic costs of mining and severe labour unrest deterring long-term spending decisions.
“I don’t think we’ll see supply response in the short to medium term and, therefore, I believe the market fundamentals are going to remain strongly in favour of prices for five to seven years,” Nico Muller, CEO of Impala Platinum, the third-largest source of SA’s PGMs, said at a Ninety One conference.
There are a few tick boxes being met for boards to make investment decisions now, including the high prices for the medium term to incentivise growth investment, and sound balance sheets to fund capital projects, said Muller.
However, there remain significant hurdles that will curb widespread investment in new projects, Muller said.
“There are other structural elements that have to be considered, in particular, water and power security, and processing capacity. All three elements represent significant hurdles and will act as a mitigation against ill-discipline in abundant investment in new growth,” he said.
Out of all the recently announced investments in SA, and from Russia’s Norilsk Nickel, the largest palladium miner, only the latter can be said to have true growth rather than just life extensions or replacement of extracted ounces, he added.
Another hurdle is the decision to return money to shareholders after a lean decade, which will play a big factor in capital-allocation decisions, Muller said.
Sibanye-Stillwater, the biggest source of mine-to-market PGMs, and Impala are two companies that have unveiled investments this year, while Royal Bafokeng Platinum (RBPlat) is nearing the end of its R13.5bn Styldrift project.
Northam Platinum has revived its expansion plans this year after shelving them during the height of the Covid-19 pandemic in early 2020.
RBPlat CEO Steve Phiri agreed there is a clear medium-term view of prices and demand for the next seven years, but it is opaque beyond that, which renders decisions to invest in large projects over 15 years nearly impossible for his board to approve.
“The reason for the lack of visibility is where battery electric cars are going to fit in and what disruption they will bring to the market. If you don’t know, then it’s a big risk to invest a lot of money in big capital projects,” Phiri said.
RBPlat estimates that a third of the car market will comprise battery-powered vehicles by 2040, with internal combustion engines comprising the balance but with stricter compliance with emissions controls, he said.
Bernard Fuchs, a senior vice-president at Umicore, a Europe-based metals recycling and technology group, said carmakers’ stated strategies around battery electric vehicles “becomes pretty scary for the PGM industry because their ambitions sound really, really big”.
However, considering the timing, this would be a long-term strategy that, well into the late 2030s and 2040s, would still leave two thirds of the market for internal combustion engines that would need high loadings of PGMs to scrub exhaust gases, he said.
The growing use of hydrogen fuel cells, mainly in trucks, would provide an additional source of demand for platinum, iridium and ruthenium beyond 2030, Fuchs said.
The SA PGM industry has an obligation to users of the metals that supply is reliable and sustainable. “We have got the resource and we’ve got the responsibility to make sure our investments support assurances to customers there will be constant supply,” Muller said.
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