Southern Africa’s current position as a leading platinum group metals (PGMs) producer is certain, with more than 90% of global reserves situated in South Africa and Zimbabwe, says specialist strategy and communications consultancy Africa Practice mining sector lead Rishon Chimboza.

However, the region’s ability to attract and retain investment from mining majors is less certain in the next five to ten years, owing to increasing production costs, unstable power supply and a production surplus in the case of platinum, as well as decreasing demand from the light-duty automotive sector, he adds.

“Exogenous factors that could harm the sector are an opportunity for smaller and nimbler operators to enter the PGMs fray snapping up marginal mines as the majors either divest or focus on more profitable operations. In the short to medium term, however, consolidation is more likely.

“This is already happening, more so in South Africa, where we have witnessed platinum producer Anglo American Platinum selling off some of its mines, and precious metals mining company Sibanye-Stillwater’s acquisition of mining companies Aquarius Platinum and Lonmin.”

Chimboza states that the automation and mechanisation of platinum mines are inevitable for South Africa and Zimbabwe, with the lowest-cost operations in South Africa dominated by mechanised mines.

“Given the extensive research and development (R&D) costs and buy-in required from organised labour, the higher-cost producers could struggle to stay afloat. However, it is not all gloom and doom for the sector. The manufacturing sector has increased its use of platinum and palladium, although not on the scale that would offset declining light-duty vehicle sales,” he points out.

“The palladium price rally has also provided reprieve to miners, as it breached $1 600/oz in February this year. This increase in palladium prices, on the other hand, could see it substituted by platinum as an alternative and we will probably see the platinum price climbing again,” says Chimboza.

“This has left Zimbabwean miners in a stronger position as their platinum to palladium ratios are better balanced against their South African counterparts, leaving them less susceptible to the platinum versus palladium price swings.”

While South Africa and Zimbabwe are subject to the same global supply and demand factors, aspects such as government policy, legislation and regulation also play a role, Chimboza comments.

In Zimbabwe, for example, the government has generally enjoyed a cordial relationship with its platinum mining sector, which has materially improved since the re-appointment of Mines Minister Winston Chitando in September 2018, he enthuses.

As a result of his appointment, two additional platinum projects have been announced this year. Additionally, the 15% tax on unrefined platinum was scrapped and the 51% local ownership requirement removed.

Future Outlook

Labour unions and rising production costs remain high on the sector’s agenda, particularly in South Africa, leaving miners and workers in an invidious position, says Chimboza.

“If the wage talks are not concluded satis- factorily and protests take place at the country’s major platinum operations to the same extent as they did in 2014, output could decrease by 50 000 oz a week, as estimated by global science and chemicals company Johnson Matthey.

“This would have devastating effects on the industry, as 60% of the platinum mining industry is either lossmaking or marginal, according to Minerals Council South Africa,” he adds.

However, Chimboza highlights that deliberate demand generation for PGMs will play a substantial role in ensuring the industry’s sustainability and will, in turn, drive beneficiation, as the traditional sources of demand are set to decrease. This is particularly the case for automotive demand, which comprises about 41% of platinum demand.

“As diesel-driven-passenger-vehicle and commercial-vehicle sales are predicted to fall within the next 10 to 15 years, so will demand for the metal. For example, 24 of Europe’s major cities are set to implement bans on diesel vehicles in the next ten years.”

Although there is an opportunity with fuel cell electric vehicles, it is unlikely to replace the falling demand from internal combustion vehicles. The answer for the industry’s survival lies in deliberately targeting sectors further along the value chain, investing heavily in R&D for other industrial uses and the jewellery market, he adds.

This will require coordination with South Africa’s manufacturing sector to assess further uses of platinum in production processes, as well as the aggressive marketing of platinum jewellery, he explains.

“Despite Anglo American Platinum’s commissioning its smelter in April, in Zimbabwe, with refining still taking place in South Africa, there is more opportunity for beneficiation at primary and secondary production level.”

This could potentially change in the next two to five years, as the country’s three mining majors, Unki, Zimplats and Mimosa, have developed plans to set up a toll base metals refinery, Chimboza concludes.