EDITOR: | September 26th, 2016 | 7 Comments

Platinum sector suffers chronic underinvestment

stack of platinum
| September 26, 2016 | 7 Comments
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The South African mining sector is suffering from lack of investment, falling head- grades, strike action, political strife and overall poor productivity. The platinum sector is suffering the same plight with the added issue of lower recycling rates and reduced market share of diesel cars.

In our opinion, the lack of investment in South African mining has little chance of reversing in the medium term, if at all. Our sentiment has been echoed in recent weeks by CEO’s of South African platinum companies which is the largest source for platinum used in autocatalyst devices.

The World Platinum Investment Council adjusted its supply deficit forecast for 2016 upwards to 520,000 ounces from the prior estimate of 455,000 ounces. The increase cited lower than expected recycling growth and represents the fifth consecutive year of undersupply.

Implats’ CEO indicated that they are forecasting South Africa’s platinum supply to drop to below 3m ounces by the end of the decade and even if investment was made available, there would be too little time to bring new mines into production which takes decades.

Northams revealed that South African output would total just over 4m ounces in 2017, falling from 5.6m ounces in 2006. Out of this, around 5.5m ounces is expected to be needed for industrial use from the total demand of 8.7m ounces. As such, the company is planning to bring on an additional 800,000oz over the next six years to coincide with the increased demand.

Whilst the future demand/ supply imbalance is indisputable, the fact that a mine would take around 15 years to bring into production and to realise a return on investment has made it harder to attract investment as investors would have to be convinced of the long term sustainability of the industry.

In 2015, 2.25m ounces of platinum was used in the light duty diesel vehicle market and some 520,000 ounces and 250,000 ounces for heavy duty trucks and non-road vehicles respectively. Platinum demand is therefore reliant on the health of the diesel sector. With regards to heavy duty trucks, given that there are financial advantages to using more efficient diesel trucks over gasoline, diesel trucks should remain dominant and platinum demand to this sector could more than double by the end of the decade.

The outlook for the light duty trucks or passenger vehicle sector is more uncertain. New emission standards in Europe will require more complex emissions aftertreatment. This should result in an increase in the price of a typical diesel vehicle compared to gasoline equivalent, resulting in diesel engines losing some market share. It is unclear whether this decline in market share could potentially be offset by an increase in the amount of platinum required per car or truck in order to accommodate the cleaner emission standards. If this were the case, then the overall demand for platinum in this sector could potentially increase. However, until we have clarity around this potential, it will be hard to convince investors to develop new mines, especially for a return that will not be realised for more than a decade.

As such, investors remain cautious and the larger players are considering their respective strategies. Lonmin has stopped all loss-making mines and has not yet restarted its K4 mine which will deliver a low-cost platinum resource in Rustenburg. Anglo Platinum has switched its strategy to mining shallow, mechanised mines selling its deep level mines to Sibanye Gold. Sibanye will require large capital investment in order to produce platinum which is uncertain at this stage. Impala intends to replace its output from old mines with the development of 17 new shafts over the next few years, though currently the board has not expedited the deployment of these shafts.


Lara Smith

Editor:

Lara has been an analyst for over ten years, starting her career as an equity analyst at Foord Asset Management and more recently as the ... <Read more about Lara Smith>


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Comments

  • roger lagerfeldt

    The south african mines can easily increase platinum production if platinum prices goes up.World platinum council, made up of the biggest platinum mines try to talk up the platinum price nearly everyday….inkl all the CEOs in platinum mining sector recently…..BUT what is south african government doing to increase the platinum price, when south africa has monopoly on that metal ????nothing , government are letting the mines producing at maximum and depressing the platinum prices wich will lead to mines closure and unemployments……

    September 26, 2016 - 9:53 AM

  • Carlo

    Electric vehicles dont use platinum. Main user of platinum is catlaytic converters in cars (one out of every two ozs produced i believe). EVs replacing combustion cars quickly. Platinum demand will slump massively. Avoid.

    September 26, 2016 - 11:03 PM

  • Jack Lifton

    The only factor allowing the OEM automotive industry to continue building new cars and equipping them (as required by law) with catalytic converters is the recycling of the platinum group metals from spent catalytic converters. The scrap industry created this system about 12 years after the installation of catalytic converters became mandated by law in the USA. It was free market capitalism at its best. Today the same thing is waiting upon the scrap supply from OEM automotive EVs to supply a lithium, cobalt, graphite recycling industry. The transition to EVs may take as much as a generation, and, if so, feed stocks of scrap batteries will begin to match deficits in critical raw materials in the 2020s. At that point PGM use will be in decline and lithium and cobalt rising for a period of 12-25 years until an equilibrium national resource base load is reached in the 2030s or beyond. This is not a short term game nor is it an old man’s game, but it is the future.

    September 27, 2016 - 7:59 AM

  • Roger lagerfeldt

    Electric cars using fuel cells needs more than double amount of platinum than dieselcars. Fuel cells is The future,cleaner than any other method inkl. Battery cars. Only water coming out from The pipe.

    September 27, 2016 - 8:30 AM

  • Jack Lifton

    Here’s some math for you. If a fuel cell uses 1 tr oz of platinum then a ton of platinum can be used to produce 31,000 such fuel cells. There are 300,000,000 internal combustion powered motor vehicles on the road in North America. Annual new production of platinum is less than 300 tons per year, so 300 x 31,000 = 9,300,000 vehicles that can be built each year from new production of platinum based fuel cells. If such cells can be totally recycled to recover the platinum then it will would take 30 years and all of the world’s new production of platinum to convert just the 2016 fleet of motor vehicles to fuel cell power. It will not be platinum that drives (excuse the pun) the electrification of motor vehicles through fuel cells it would have to be something else more abundant and accessible.

    September 27, 2016 - 9:12 AM

  • roger lagerfeldt

    Fuel cells are so much more superior and CLEANER than battery cars.. At this moment you can drive fuel cells cars much longer distance than battery cars. It is only bec. of Tesla battery cars have been so popular. The japanese are coming out with fuel cells car now far superior than batterycars…..

    September 27, 2016 - 2:07 PM

  • roger lagerfeldt

    With technology you can bring down the amount of platinum required for fuel cells cars. They have already in this short time brought down platinum requiring with 60% to maybe 20 gram per vehicle soon maybe to 10 gram……..

    September 27, 2016 - 2:16 PM

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