Tighter vehicle emissions legislation in South Africa would boost the struggling platinum mining industry and be a fantastic local beneficiation route for the metal, which is facing an uphill battle, SFA Oxford MD Beresford Clarke said last week.

Clarke, who was addressing the Investing In African Mining Indaba last week, said that South Africa was becoming less competitive in the platinum market and the next three years would be tough for platinum.

The recycling of platinum autocatalysts and platinum jewellery had risen to two-million ounces a year, four times higher than in 2000, and was tantamount to Lonmin-sized output being incrementally added every five years.

Palladium-rich Russian and North America are outdoing platinum-and-rhodium-dominant South Africa, with both countries producing at lower cash costs and higher by-product credits than South Africa.

Cheaper palladium is taking over some traditional platinum market strongholds, with platinum losing 620 000 oz of demand to palladium in formerly platinum-dominant diesel autocatalysis.

Rhodium’s intensity of use has collapsed, closing some upper group two (UG2) mines.

Even after rhodium loadings have been thrifted, the market is cautious to return to rhodium because of security of supply issues related to the ongoing labour strikes.

With the current low average platinum grade of 3.44 g/t mainly as a result of the overwhelming emergence of narrow-reef UG2 mining, companies are paying for a whole lot more waste for every ounce mined.

This is being compounded by safety regulations in the last two years demanding increased mining widths and leading to more dilution.

While the cherry on the top of declining Merensky reef has always been the addition of nickel and copper by-product credits, strongly emerging UG2 reef was platinum and rhodium dependent.

The cost of production in South Africa has risen exponentially in recent years, with cash costs trebling since 2003 against a doubling in Zimbabwe and a rising of only 1.4 to 1.5 times in North America and Russia.

While the average shaft depth in South Africa is more than 1 000 m, in Zimbabwe it is still only 230 m.

Zimbabwe, Russia and North America produce more palladium than platinum, has lower average costs on a platinum-group-metal-ounce basis and received substantially higher by-product credits for nickel and copper than South African producers.

South African producer costs should fall in dollar terms this year, owing to the weaker rand, with the devaluation of the rand to the dollar since the start of the year indicating a 10% reduction in dollar-based costs.

However, the high prices of both platinum and rhodium relative to palladium, plus extreme price volatility in 2008, have led to a fundamental shift in the cocktail of automotive demand towards palladium to the detriment of South Africa’s cocktail of platinum and rhodium.

Flat-lined automotive demand currently favoured palladium.

While the end of 2014 is still likely to be down on 2007 levels, growth is currently strengthening and a rhodium recovery is now needed to kick-start UG2 economics out of its current trough.

“Platinum demand will recover but it will take time,” warned Clarke, who added that if there had not been substitution to palladium, platinum would have been well and truly recovered already.

China, where demand had reached an estimated 2.1-million ounces, could overtake Europe to become the largest consumer of platinum and there was also an emerging market in India.

There are more than two-million ounces of additional platinum demand out there waiting to be legislated, which is equivalent to another half of South Africa’s output.

If South African producers can survive the next couple of years, do their best to iron out price volatility and guarantee security of supply as well as increase productivity levels and manage costs, there is a “huge captive market on the horizon” that will require satisfying in years to come.

New frontiers needed also to catch up with tighter emissions legislation and South Africa could lead the way by accelerating the tightening of its own emissions standards.

This would simultaneously help the South African platinum industry and be a fantastic example of local beneficiation, Clarke added.