Northam Platinum has forecast falling global supply of platinum group metals (PGMs) over the next decade, given South Africa’s ageing production base, and hinted that its plans for Royal Bafokeng Platinum (RBPlat) could include a partnership with rival Impala Platinum (Implats).
“We are both fighting for a very valuable asset. I don’t see it as fighting each other, I see it as fighting over the asset,” Northam CEO Paul Dunne told journalists on Friday after the company’s financial results presentation for the six months ended December 2022.
Northam and Implats, which have a 34.52% and 40.71% shareholding in RBPlat respectively, are in a battle to control the mine, which is considered one of the lowest-cost and shallow resources in the industry — in a global market of dwindling supply.
Northam is expected to publish a circular on April 28 detailing its offer to RBPlat shareholders.
Dunne said Northam would like to get control. “Clearly, so would Impala. Both of those are a possibility — Impala gets control, we gain control, there are other possibilities, that is for sure.”
He said Northam and Implats had a lot in common given that they were both South African mining houses and employed “accomplished mining people”.
“We have similar people ... cultures. And we are similar corporations. It is our job to keep options open as long as possible for the company and shareholders. In this case, I am talking about our company and our shareholders.”
However, Implats spokesperson Johan Theron said on Friday that operating a joint venture with Northam would be the least-desirable outcome.
“There are a lot of significant synergies and socioeconomic benefits that can be truly achieved only through a position of control. But there are many potential outcomes. We can sell to them, they can sell to us, and we can end up in some kind of a joint venture. It is still to be decided,” said Theron.
Dunne said he expected an accelerated contraction in the supply of platinum as the South African production base aged.
“The market may not necessarily believe this, but it is inevitable from here on out. It is compounded by a particularly challenging operating backdrop in South Africa,” he said.
Dunne said for palladium the availability of capital for the southern cluster at Russia’s Norilsk placed a question mark on future production. He forecast flat supply up to 2027 with a moderate decline thereafter for palladium. For rhodium, the outlook was a similar declining profile to that of platinum, Dunne said.
He added that the demand for PGMs was driven by applications not foreseen 10 years ago, including the establishment of the hydrogen economy, food production and new medical technologies.
South Africa is the key to ongoing supply into the long future of PGMs. There are many millions of ounces sitting in the ground which we have not touched
— Northam geologist Damian Smith
Dunne said there was a strong investment case for Northam’s plan to gain control of RBPlats as the cost of building mines was becoming increasingly high.
“In light of the ever-growing time and cost [constraints] of building new mines, we will be buyers not builders,” said Dunne.
He said the impact of mining inflation and the lead time of new mining projects had raised the barrier to entry considerably. Dunne said that because of inflation the capital cost to build Northam’s Booysendal, if it were to start today, would be a staggering R25bn.
Northam geologist Damian Smith said South Africa, Zimbabwe, Russia, Canada and the US were the only five countries that produced PGMs, with South Africa accounting for 80% of global supply.
“South Africa is the key to ongoing supply into the long future of PGMs. There are many millions of ounces sitting in the ground which we have not touched. We have deeper resources, and we have challenging resources,” he said.
Smith said the time to build new mines was extensive.
“We are just at a point of getting to a steady [producing] state at our Booysendal south operation, that is about as quick as you can start a mine. When did we start that? In 2015, seven years gone like a flash. If you wake up tomorrow and say you want to build a mine, and you are looking at supply, the chances of producing significant ounces into the market, that work has to begin now if you are to bridge that gap, if you are going to flatten the depletion curve that you see,” said Smith.
Smith said a consequence of the depletion curve would be an impact on prices. “If prices are affected positively, then there is more incentive for people to build new mines. But it takes a lot of money, a lot of time and a lot of expertise.
Dunne said: “Strangely enough, I would say time is more valuable than money. As you know, capital across the world is available, but time for a miner is not. We try to make the point that the same applies to copper mines — the electrification of the world, the decarbonisation, requires huge amounts of copper.
“There are simply not enough mines being built to satisfy that demand. This is a common problem in mining. We are not the most popular sector in the world and are regarded as builders of big holes, but it is a highly complex undertaking. It takes a huge amount of time to bring a mine to book.”
In the six months under review, Northam's revenue increased to R20.1bn from R13.9bn a year earlier and the company generated a R9.1bn operating profit from R5.9bn a year earlier.
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