Companies mining SA’s unique platinum group metal (PGM) deposits are pouring billions of rand into spurring additional uses and demands for these metals to proactively position themselves against future demand shocks.
It may seem strange to a casual observer of the PGM market to create extra demand when palladium and rhodium have been in deficits for years because of rising demand from makers of anti-pollution devices for petrol engines.
Why the need for SA’s PGM miners to invest tens of millions of dollars in research & development (R&D) for additional uses for all six metals that make up the PGMs, as well as funding organisations that punt platinum jewellery and investment?
There’s a long-term view that petrol and diesel engines will increasingly be replaced by battery-powered or hydrogen fuel cell drivetrains.
This will theoretically bring the metal supply and demand fundamentals into balance at some point, then result in a surplus. On top of this dynamic is the flow of metals — palladium, rhodium and platinum — coming from recycling of these automotive catalysts, which already contribute more metal than large mines.
PGM miners in SA, the world’s largest source of these metals, are actively investing in potential sources of alternative demand. The big ones are jewellery, the hydrogen industry, automotive catalysts using a better spread of the metals, investment and industrial applications.
PGMs aren’t really precious metals but industrial ones and that’s a distinction Sibanye-Stillwater CEO Neal Froneman and his team are keen to underscore as they pulled out of the World Platinum Investment Council and have largely gone it alone in funding R&D work in the PGM sector.
Froneman was typically blunt when assessing the traditional areas of investment to create demand, which was the Platinum Guild International and the council driving investment in platinum. As their names suggest, they focus purely on platinum but there are five other metals to consider for SA producers, which have to mine all six regardless of what supply and demand fundamentals underpin them.
The traditional focus on platinum was because it constituted about 60% of the metal coming out of the PGM reefs, but the strong demand for palladium and rhodium against limited supplies has meant the revenue contribution from these two metals enormously outweighs that of platinum.
Iridium and ruthenium are also becoming sought after and expensive, with the former used in the hydrogen-generation industry.
A relatively simple matter, such as the National Treasury clearing the way for platinum coins along the lines of Krugerrands from the SA Mint, has dragged on for years
“Driving jewellery demand or investment demand are things of the past, in our view,” Froneman said at the PGMs Industry Day conference recently. Together with Impala Platinum (Implats), Sibanye funded R&D work with German chemicals company BASF to develop an automotive catalyst that uses platinum, palladium and rhodium.
BASF estimates this will create an extra 1.5-million ounces of platinum demand as the metal is substituted in place of palladium, while there is work under way to reduce rhodium use by partially replacing it with palladium. Sibanye has also teamed up with the world’s biggest automotive catalyst company Johnson Matthey to develop PGMs research and products.
The BASF investment filled an R&D funding gap that car makers didn’t have time or money to seriously consider because of alternative demands on their cash for investigating electricity-powered vehicles.
For companies such as Sibanye, a newcomer in the global PGM industry, it delivers a more tangible demand profile and ounce-per-dollar investment in demand for the metals than, for example, pushing investment. The argument goes that if the prices and fundamentals are positive for platinum, the investment side of the market should essentially take care of itself.
The platinum jewellery investment market remains an important side of the demand equation, which is made up of the four pillars of automotive, industrial, jewellery and investments. The first three pillars are above 2-million ounces each.
The PGM companies have historically seen that investments in creating jewellery demand through advertising, particularly in China, delivers tangible results and it is something that Anglo American Platinum (Amplats) strongly advocates, going so far as to solely invest in platinum jewellery advertising in India.
Amplats has increased spending on creating demand to R871m from R788m in 2019. Implats spends about R250m a year and it will spend $61m over eight years in the AP Ventures private equity business Amplats spun off to stimulate the hydrogen economy. Sibanye declined to give a figure for its investments.
The point is there is no right or wrong position to take. Every extra ounce of demand for SA’s PGMs created from these investments benefits the entire industry, its employees and the country.
SA owns a unique mineral deposit. Nowhere else is a PGM deposit as big and defined as the one in this country. As the custodians of this resource, the mining companies have a responsibility to ensure maximum value is generated from it to the benefit of the whole country.
There is a good argument to be made for the government to back the industry and also invest in demand creation seeing as it holds the resources on behalf of the nation. But this is an argument that has come and gone.
A relatively simple matter, such as the National Treasury clearing the way for platinum coins along the lines of Krugerrands from the SA Mint, has dragged on for years and there is still no sign of it happening despite other countries churning out these investment products. What can possibly be so difficult?
This is just one example of an easy, government-sanctioned action that would cost very little to create a fresh source of demand for one of SA’s most important mineral exports, yet it’s stuck in bureaucracy and unfathomable time-wasting.
Compare this stodgy disinterest with the proactive and dynamic role companies are playing in doing it for themselves and it’s clear that corporates take their responsibility very seriously despite the disagreements about how best to invest in the future demand for these metals.
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