They’re called the green metals, the transition materials or the decarbonisation commodities. And as the world prepared this week for the landmark COP26 climate change conference in Glasgow, two SA miners announced transactions at opposite ends of the green transition.
First, Sibanye-Stillwater’s Neal Froneman continued on his battery metal buying spree, announcing the $1bn acquisition of the Santa Rita nickel and Serrote copper mines in Brazil. Just five years ago, Sibanye was a gold miner. Then it bet big on platinum group metals (PGMs), buying into the sector in the US and SA with spectacular success. Now it is moving swiftly into the raw materials — lithium, nickel and copper — needed to power battery electric vehicles (BEVs) and renewable energy storage.
Second, Impala Platinum announced last week it is in talks on a deal that would extend the life of its PGM mines, with Impala and smaller producer Royal Bafokeng Platinum (RBPlats) announcing they are contemplating a merger that has the potential for all sorts of synergies between the two.
The PGMs — mainly platinum, palladium and rhodium — are needed for the autocatalysts that cut emissions in vehicles with petrol- or diesel-powered internal combustion engines (ICEs).
And the ICE versus BEV mix is where the big question is for the “green” sector. How far and how fast electric vehicles (EVs) will displace petrol/diesel cars and trucks over the next decade is key to the longer-term outlook for the battery metals versus PGMs, and to the investment case for the Sibanye and Impala deals.
In the shorter term, however, there is much uncertainty about the outlook for PGM prices, in particular.
The global semiconductor chip shortage has dented global auto production, and hence the demand from the auto manufacturers for PGMs. The metals’ prices had soared amid tightening emissions standards and short supply. But the PGM basket price is now a third or more off its peak of April/May this year because of the chip shortage.
It’s not clear how long the shortage will persist, nor how strong vehicle demand will be once the supply chain recovers. But prices are still way higher than they were three years ago. And the fundamentals, said Implats CEO Nico Muller, “remain robust”.
How long that robust picture lasts depends crucially on the ICE versus BEV timelines, though it also depends on how fast the technology and market develops for hydrogen fuel cells, which will in time become an alternative to batteries to power at least some vehicles — and which need PGMs.
Meanwhile, demand for EVs in recent months has been speeding up, supporting a lively debate in the market about where the electrification of passenger cars and light-duty vehicles is headed over the next five to 10 years.
EVs’ global market share is no more than 5%-8%, but the battery bulls reckon this could climb to 20%-30% by 2030.
China, with its pollution issues, is already the market where EVs have the largest market share, followed by Europe, and is expected to be the biggest source of demand over the next decade. By contrast, electrification of passenger cars is lagging far behind in emerging markets such as India, and the battery bears see electrification playing out more slowly, especially given uncertainties over whether the world will have enough of the battery metals needed to support the transition at the pace the COP26 is targeting.
All of which bears on the two deals announced last week. Sibanye, which spent two years researching battery metals, has done four deals in hardly four months. However, last week’s Brazilian acquisitions are the first nickel- and copper-producing mines it has bought, adding to a lithium project in the US and nickel processing in France.
Analysts say Sibanye’s ambition is a portfolio that is one-third gold, one-third PGMs and one-third battery metals. It is funding the latest deals using the cash pile it has been able to build up thanks to the huge rally in PGM prices since it took on large quantities of debt to buy US-based Stillwater for $2.2bn in 2017, followed by Lonmin in 2019.
Investors are hoping Froneman can repeat his magic with the battery metals deals, which are expected to attract a new class of investors in Sibanye-Stillwater shares.
But with everyone trying to get in on battery metals, says Ninety One portfolio manager Hannes van den Bergh, “these assets are not the steal that Sibanye-Stillwater accessed when it went into PGMs”. It’s not clear either how much capex Sibanye will have to spend to develop the new mines it has acquired, he says.
Over at Implats, though, the RBPlats deal is one that’s long been expected, given that the Impala lease area is adjacent to RBPlats’s Styldrift and BRPM mines and there are significant synergies to be had. Their combined annual output of 2.5-million ounces at Implats and 480,000oz at RBPlats could rapidly be boosted by 10%, as well as ensuring a longer life for the Impala lease area.
So, the bet is on that ICE vehicles will be with us for a good while yet, with the “green” transition driving demand for PGMs at the same time as battery vehicles and battery metals ramp up. The market is watching closely how the mix will play out.
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