Palladium and platinum prices are sitting so low South African miners are cutting thousands of staff in the hope of staying above water
\nMining analyst and geologist Chris Baker says the age and depth of existing operations means prices must move higher to incentivise new sources of production
\nASX platinum group metals players are sitting like a coiled spring waiting for the price rebound<\/p>\n
A mining expert who has followed the platinum group metals industry for 25 years says PGE prices have to rebound to incentivise new production with over half of the world\u2019s producers bleeding cash.<\/p>\n
Bridge Street Capital\u2019s Chris Baker says prices for palladium, platinum and rhodium \u2014 used in catalytic converters to reduce toxic emissions from gasoline and diesel powered automobiles \u2014 are not sustainable.<\/p>\n
Major producers are now cutting staff and curtailing projects in the face of prices that have crumbled from all time highs in excess of US$3000\/oz for palladium two years ago to around US$966\/oz today, having sunk as low as US$875\/oz earlier this month.<\/p>\n
Platinum, which is largely produced in South Africa, never received the post-Ukraine bump of Russian dominated palladium, but is also trading at a subdued level of US$893\/oz. Rhodium, meanwhile, which threatened US$30,000\/oz in 2021 and has become an important co-product for platinum and palladium producers, is fetching around US$4500\/oz.<\/p>\n
\u201cI wouldn\u2019t be forecasting sub US$1,000 platinum and palladium. I think the sort of numbers I\u2019d be looking at, would be somewhere north, probably up around US$1200-1300\/oz sort of levels for both platinum and palladium,\u201d Dr Baker told Stockhead<\/em>.<\/p>\n \u201cI think that it just reflects the cost curve. The industry is not sustainable at current levels. <\/p>\n \u201cSo I think it\u2019s quite reasonable to expect that we will see \u2014 as with nickel, as we\u2019re seeing with copper \u2014 we will see prices normalise. <\/p>\n \u201cAs we\u2019ll see with lithium. Clearly spodumene prices just are not sustainable. <\/p>\n \u201cSo I think to see a modest recovery (in PGE prices) is reasonable and we then have to think \u2018well, OK what is the most likely project to see the light of day?’\u201d<\/p>\n \u00a0<\/p>\n PGM mining is highly concentrated and relatively opaque, with production dominated by South Africa and Russia, where it is mainly a by-product of base metals produced by Norilsk Nickel.<\/p>\n Anglo American, which runs four major operations at Mogalakwena, Amandelbult and Motololo in South Africa and Unki in Zimbabwe, mines or processes in the order of 25-30% of the world\u2019s PGM ounces. <\/p>\n After a 71% dive in profits, Amplats announced plans to retrench 3700 jobs or 17% of its workforce in South Africa to cut costs. <\/p>\n Its 2024 guidance of 3.3-3.7Moz at US$920\/oz is down from 2022 (4.2Moz) and 2023 (3.8Moz) and has Anglo has warned that number remains subject to load shedding from beleaguered South African power provider Eskom.<\/p>\n Sibanye-Stillwater has, with union intervention, agreed to reduce job cuts at its South African mines from over 4000 to 2600.<\/p>\n South Africa\u2019s mining lobby thinks as many as 7000 jobs could be lost across the industry, the sign of a sector reaching its tipping point on prices.<\/p>\n They have been shielded in part by two years of extraordinary profitability after palladium prices surged in the wake of Covid and the Russian invasion of Ukraine, Baker said.<\/p>\n \u201cOrdinarily, at this point in the market, these guys might have fairly weak balance sheets, because they\u2019ve been supporting marginal operations,\u201d he said.<\/p>\n \u201cThey\u2019ve been undertaking capex where perhaps they shouldn\u2019t be. But in fact, all the balance sheets are pretty good.\u201d<\/p>\n But there are big issues for the sector from a structural perspective because over 50% of platinum and palladium production is now being completed at depths of greater than 1000m.<\/p>\n \u201cThey are expensive, expensive old mines,\u201d Baker said.<\/p>\n \u201cCost curves I\u2019ve seen would suggest that probably half the industry on an all in sustaining basis is probably underwater. <\/p>\n \u201cThat doesn\u2019t mean they can\u2019t stay there for a while \u2014 they can because the usual sequence of events is they do the easy cuts and chop a bit out of head office and then they start cutting back on capital expenditure. <\/p>\n \u201cThey keep pruning and pruning and pruning until they just can\u2019t stand it any longer. And then they have to start closing shafts.<\/p>\n \u201cI couldn\u2019t even tell you how long it\u2019s going take but it could be a year before the big Western Limb operations really start cutting production back big time.\u201d<\/p>\n Other factors are at play. South Africa is in an election year and the African National Congress, under more pressure from its voter base than it\u2019s been since the end of the Apartheid regime, won\u2019t want to see widespread job losses.<\/p>\n The devaluation of the Rand has also aided South African miners, who receive payment in US dollars.<\/p>\n Palladium and rhodium prices have fallen hard since this data was compiled last year. Higher cost miners are likely on much thinner or negative margins today. Pic: Southern Palladium Scoping Study<\/p>\n \u00a0<\/p>\n The issue, as much as older mines curbing production, is the capacity of new miners to get up and running at current prices.<\/p>\n Demand for platinum and palladium is theoretically challenged by the rise of electric vehicles, but Baker doesn\u2019t see that as the issue many believe it is.<\/p>\n He says rising demand for hybrids, a view held by the world\u2019s largest carmaker Toyota,<\/a> was bullish for palladium and platinum demand.<\/p>\n That means at some point new mines will need to be approved. Current prices won\u2019t incentivise them, especially given the relatively complex nature of the PGM supply chain.<\/p>\n It\u2019s not just enough to have the metals in the ground. You need to be able to sell them into a smelter, either one which relies on high grade PGM concentrate, or one which can handle PGM concentrates with significant base metal credits.<\/p>\n Ivanplats, backed by legendary mining entrepreneur Robert Friedland, is targeting first production this year from the first stage of its Platreef mine, which will produce 113,000ozpa of platinum, palladium, rhodium and gold along with nickel and copper credits.<\/p>\n It has a total cash cost of US$514\/oz according to study results. But whether market conditions support the development of two concentrators that will take it beyond an initial 770,000tpa milling capacity to 5.2Mt by 2030 is up in the air.<\/p>\n Johannesburg-listed Tharisa Capital have pushed back the commissioning of the Karo open pit mine in Zimbabwe 12 months to mid-2025 in the hope of capturing higher prices once it is in production.<\/p>\n \u201cYou can see there\u2019s a fair bit of stress that\u2019s emerging, even for projects under construction,\u201d Baker said.<\/p>\n Another mine on the Northern Limb of the Bushveld Complex \u2014 Waterberg \u2014 also looks marginal, its proponent now considering a processing deal with far-flung but big spending Saudi Arabia after part owner Impala Platinum baulked on offtake.<\/a><\/p>\n Baker said it illuminated an issue for platinum and palladium producers and showed why . To see the light of day you need to be able to find smelting capacity that can handle your product.<\/p>\n \u201cI think the market sort of forgets and thinks it\u2019s just like precious metals and mining gold. Well it\u2019s not,\u201d he said.<\/p>\n \u201cIt\u2019s like nickel and it\u2019s like copper, you\u2019ve got to have smelters and refiners that can deal with this ore and they\u2019ve got to give you appropriate payability so that you\u2019re not just doing it for fun, you\u2019re actually making some money and that I think is a big issue that\u2019s yet to be fully understood by the market.\u201d<\/p>\n \u00a0<\/p>\n PGE stocks on the ASX enjoyed a boom time a couple of years ago, not just from rising palladium and rhodium prices, but also from Chalice Mining\u2019s (ASX:CHN)<\/a> discovery of a magmatic nickel, copper and PGE resource at Julimar just 70km northeast of Perth in early 2020.<\/p>\n It rose quickly to become a rare thing \u2014 an ASX 200 company which was not only pre-revenue, but on inclusion was yet to even publish a resource.<\/p>\n Chalice now has what it boasts is Australia\u2019s largest nickel sulphide discovery in two decades, though palladium will be the biggest contributor to revenue.<\/p>\n Once worth over $3 billion, however, the Tim Goyder backed explorer is now worth $490 million \u2014 including a surprise 25% lift yesterday \u2014 after it was hauled over the coals for a scoping study which used a commodity price deck well above spot levels supporting a bulk, high capex development.<\/p>\n \u201cGreat discovery, they\u2019ve done a fabulous job there,\u201d Baker said. \u201cI think they\u2019ve learned from the initial scoping study, which wasn\u2019t perfect.\u201d<\/p>\n There are other Australian exploration stories.<\/p>\n Mark Creasy-backed Galileo Mining (ASX:GAL)<\/a> made a find a couple years back at Callisto near Norseman which caught the eye of the market, while Legacy Minerals (ASX:LGM) <\/a>captured some love of its own for announcing AI exploration tools had helped uncover a first of its kind magmatic PGE prospect in New South Wales\u2019 copper and gold-rich Lachlan Fold Belt.<\/p>\n Up in the Kimberley one of the longest known Australian PGE discoveries \u2014 Panton \u2014 is now in the hands of Future Metals (ASX:FME)<\/a>, which has some firepower literally on board with the recent appointment of former New Century Resources MD Patrick Walta as executive chairman.<\/p>\n He told Stockhead<\/em> Panton, where around $50m has been spent by a succession of explorers to date, had the benefit of sunk capital and a known metallurgical processing route to achieve high grade concentrates.<\/p>\n A scoping study last year suggested it could produce 117,000oz of platinum, palladium and gold (161,000ozPdEq including copper, nickel and chromite credits) at second quartile costs of US$789\/oz. <\/p>\n Walta told reporter Michael Washbourne prices would turn.<\/p>\n \u201cThe last thing you want to be is a PGM producer right now, we\u2019re at about the 60th percentile on the cost curve, so there\u2019s a lot of producers now that are just haemorrhaging cash,\u201d he said.<\/a><\/p>\n \u201cWe\u2019re seeing supply getting stripped out of the market and, ultimately, that\u2019s going to lead to a price turn. Our strategy with Future is to be production-ready as soon as the price starts moving. We will rise first and we will rise fast. That\u2019s our play, it\u2019s a massive option on PGM prices.\u201d<\/p>\n Given their not based on the doorstep of the smelters in the Bushveld, Baker said what he wants to see from Australian PGM stocks is clarity on what their path to market and payabilities are going to be.<\/p>\n That is especially in the case of Julimar, which has significant nickel and copper credits.<\/p>\n \u00a0<\/p>\n Also on the ASX are a couple of international players focused on the more established South African and Zimbabwean markets.<\/p>\n Southern Palladium (ASX:SPD)<\/a> listed in 2022 and earlier this month released a scoping study on its Bengwenyama project on the Bushveld\u2019s Eastern Limb.<\/p>\n It says mining on the UG2 Reef at Bengwenyama could be undertaken for 36 years based off mining 52Mt of ore containing 10.9Moz of palladium, platinum, gold, rhodium, ruthenium, iridium and osmium.<\/p>\n Extracting 2Mtpa from the UG2 reef at a mill feed grade of 6.55g\/t, the junior says it could produce 330,000oz of 6E PGMs per annum with a capital cost of US$408m, life of mine all in sustaining costs of US$836\/oz and 4.5 year payback at prices slightly above current spot levels of US$1200\/oz Pt, US$1100\/oz Pd and US$5000\/oz Rh.<\/p>\n \u201cThe UG2 Reef is a chrome reef with about equal amounts of platinum and palladium, with rhodium at very low base metals and they\u2019re not dependent on base metals for their revenue,\u201d Baker said.<\/p>\n \u201cThey\u2019ll get a bit of money for it but they\u2019re not dependent on it. So what they call the prill split is about 44-44 for platinum and palladium, 10% rhodium, a couple per cent gold and then a few other bits and pieces, a bit of iridium too as well.<\/p>\n \u201cIf they got nothing for the base metals it wouldn\u2019t matter, this should still be a commercial operation.\u201d<\/p>\n On the production side there is $1.84 billion Zimplats (ASX:ZIM)<\/a>, a listed subsidiary of South Africa\u2019s Impala Platinum.<\/p>\n Its shares tumbled 10% yesterday after revealing a 105% fall in profits after tax to a US$8.76m loss for its first half, down from a US$159.6m profit in H1 FY23. The Zimbabwean miner shaved its divided by 17% to 92.9 US cents.<\/p>\n That came despite a 9% lift in 6E production YoY to 327,810oz, with nickel tonnes up 7% to 3050t, silver production 16% higher at 25,934oz, copper 10% up to 2336t and cobalt tonnes 34% higher at 51.<\/p>\n Its accounts showed a 42% fall in received palladium prices and 70% drop in rhodium pricing, with nickel and cobalt sales also copping significantly lower prices.<\/p>\n As for the future of the palladium price, Baker thinks much will also depend on the attitude towards metals produced by Russia, the world\u2019s largest producer with around 43% of the market.<\/p>\n READ ALSO<\/strong><\/p>\n Something must give as \u201cunsustainable prices\u201d hit energy transition metals: Chalice<\/a><\/p>\n Sunk capital: Why Walta believes Panton will be the future king of PGMs<\/a><\/p>\n \u00a0<\/p>\n <\/span>\u00a0<\/p>\n At Stockhead, we tell it like it is. While Future Metals and Legacy Minerals were Stockhead advertisers at the time of writing, they did not sponsor this article.<\/em><\/p>\n <\/span><\/p>\n The post The commodity where prices have become \u2018unsustainable\u2019\u2026 and it\u2019s not nickel or lithium<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Supply discipline starting in opaque industry<\/h2>\n
So why will prices rise?<\/h2>\n
So who on the ASX is ready to jump off the bottom of the cycle?<\/h2>\n
Overseas players<\/h2>\n
ASX PGM stocks share prices today<\/h2>\n\n