With platinum prices now at their highest levels in two decades, one might reasonably wonder if companies are considering using their hordes of cash to build new mines.
But those in the industry warn that uncertainty still clouds the long-term outlook for their metals.
While policy shifts and trade uncertainty have sparked a surge in prices over the past six months, the threat of electric vehicles and weak local policy continue to cast a shadow over the sector’s attitude towards drilling new shafts.
Addressing a platinum group metal (PGM) conference in Johannesburg this week, mining CEOs struck a sombre tone about the prospects of new exploration and greenfield production.
“It’s not about today’s prices. For us to invest in new greenfield projects, it’s a 10-year journey to get to production, so you have to anticipate the markets in 2035 and beyond,” said Impala Platinum CEO Nico Muller.
“We have other opportunities to evaluate before we would consider an R20bn-plus investment in a new greenfield project,” he said.
Muller, who has stuck to a bearish stance on the PGM outlook before, said he would only see the case for investing in greenfield projects if current PGM prices hold for another decade.
“The issue is that none of us see that [happening] at the moment, given the [expected] long-term demand decline as a consequence of electrification.”
Even Craig Miller, CEO of Valterra Platinum, the world’s biggest PGM producer, expects greenfield production to remain subdued.
“By our estimation, you need prices to be between $2,000 and $2,500 per PGM ounce to incentivise new greenfield production to come online,” said Miller.
“We’ve had six months of higher prices, but we still haven’t seen long-term forecasts increasing. It’d be very brave to talk about greenfield projects and bringing on additional supply when we haven’t seen a sustained increase in prices or forecasts.”
The cautious sentiment was echoed by Sibanye-Stillwater, a precious metal giant who has enjoyed a cash windfall over the past year thanks to the price rally, opening the door to operational expansion.
Sibanye CEO Richard Stewart said that though he is bullish on PGMs in the medium term, the group wants to leave the door open for portfolio shifts in the long term — hardly a position that lends itself to the risky business of greenfield investment.
“We’ve got a pretty good market for the next five years. We’ve got an okay market for five to 10 years after that, but after that there’s a huge question mark,” said Stewart.
“The PGM industry is in a structural change. It’s not going to happen overnight like a lot of people thought, but the world is electrifying. That shift is coming.
“In the longer term, we want to set ourselves up for good optionality.”
Paul Dunne, president of the Minerals Council SA and CEO of Northam Platinum, offered a bleaker explanation for the lack of greenfield investment, arguing that weak policy is keeping the industry on the back foot.
“It costs at least R20bn and 10 years to build a decent-sized mine. Very few mining companies have that type of money lying around on the balance sheet,” said Dunne.
“Mining companies need to operate in an environment that allows them to attract capital in the form of debt or equity to fund projects.
“However, providers of capital will not put their money into risky jurisdictions where returns are threatened by regulatory uncertainty, crime and corruption and failing infrastructure. At the very least, the cost of capital increases significantly, rendering projects unviable that otherwise would proceed.”
The Minerals Council SA, whose members account for 90% of the industry’s output, has repeatedly criticised the proposed Mineral Resources Development Bill, currently under revision after being released for public comment last year, for failing to encourage investment.
Dunne called on Eskom to speed up the liberalisation of the country’s electricity market.
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