Palladium, Darling Of The PGEs, Is Shifting Into High Gear

Up until 1920, nearly all PGE production came from placer deposits in Russia and Colombia. PGE mining now takes place mostly in Siberia and South Africa.

The United States is heavily dependent on external sources for PGEs, importing about 90% of the PGE metals it consumes.

Platinum group metals were included among a 2018 list of 37 mineral commodities the United States considers critical to its economic security and national security. North America only has two producing platinum and palladium mines - Stillwater in Montana and North American Palladium’s Lac des Iles mine northwest of Thunder Bay, Ontario.

Canadian PGEs are also recovered as a by-product of nickel mining, mostly from the Sudbury Basin, as well as northern Quebec and Manitoba. About three-quarters of Canadian PGE production is sold to the United States.

The United States gets 31% of its palladium and 44% of its platinum from South Africa; Russia supplies 28% of US palladium needs.

According to the US Geological Survey, the supply of PGEs from South Africa, the number one producer, is anything but guaranteed. Last year production there fell compared to 2017, owing to jobs cuts and mine shaft closures - a trend that is likely to continue.

“Production was expected to continue decreasing as the world’s third-leading PGM-mining company, by production volume, announced plans to cut 13,000 jobs over the next two years at some of its mines in South Africa,” states USGS.

Another key factor affecting supply: Platinum mining in South Africa is frequently interrupted by labour unrest. In 2014 workers at the country’s three major producers - Lonmin PLC (JO:LONJ), Anglo American Platinum (LON:AAL) and Impala Platinum (JO:IMPJ) - downed tools for five months demanding that wages be doubled. The strike was the longest and most expensive in South African history, shutting down about 40% of the world’s platinum production.

The industry was bracing for another shutdown this year but won a reprieve in February after a court reserved judgment on whether to block a scheduled week-long strike. Bloomberg reported the Minerals Council lobby group saying that producers could lose 1.3 tons of PGE production equal to $36 million, every day the workers stay off the job. Impala Platinum would be “devastated” by a labor disruption, its CEO said in a statement, as it tries to restructure its Rustenburg operations to stem losses.

The country’s platinum miners are under constant pressure to contain costs, because their mines are some of the deepest and most labor-intensive in the world. High temperatures are also a serious issue. Platinum is being mined in reefs up to two kilometers deep, where virgin rock temperatures have been measured at 70 degrees C. Anglo American considers 75 degrees to be the limit for mining, taking into account the metals prices, energy costs and available technology needed in such an operating environment.

There are significant infrastructure constraints, too. The country has limited processing capacity and water is a constant concern. Last summer Cape Town came dangerously close to running out of water and was only saved from “Day Zero” by stringent restrictions on water usage. In early 2018 officials in Cape Town warned that unless drastic conservation measures were taken, by summer the city’s 4 million residents would be forced to cue up for drinking water surrounded by armed guards. “Day Zero”, when taps would be turned off due to perilously low reservoir levels, was originally predicted for July 2018 but has now been pushed back to 2019.

Power in South Africa is notoriously unreliable - blackouts are frequent. In 2008 the country’s electricity grid nearly collapsed due to a shortage of coal for power stations and system faults. Eskom, the main utility, ordered all mining operations to evacuate underground staff and to stop mining for five days, then cut electricity supply across South Africa to minimum levels; the mining industry uses about 15% of Eskom’s output. The stoppage, affecting roughly a quarter of generating capacity, cost the industry billions in lost output.

In February, Reuters reported that Eskom imposed the worst power cuts in years on homes and businesses, as the utility grappled with another crisis within its crumbling power infrastructure.

While the prices of platinum, palladium and rhodium have all gained in recent months (platinum has risen 13.7% since the beginning of February, to $886.80/oz) thus helping the bottom lines of South African producers, Anglo American Platinum’s CEO has gone on record as saying that doesn’t mean the industry will boost supply.

CEO Chris Griffith told Bloomberg it takes between five and seven years to open a new mine, and while some expansions are underway (like Rustenburg), the increased output is likely to just replace supply declines elsewhere; the end result will be a flat supply curve over the next decade.

“We can bring metal to the market probably faster than anyone can, and that’s four to five years away,” Griffith said. “Very few companies in South Africa have the ability and real estate they can develop new mines on.”

The platinum market is currently oversupplied, with prices trailing both gold and palladium.

In January the precious metal dropped to a near 14-year low. According to a recent report from the World Platinum Investment Council , the market is predicted to move further into surplus this year, to 680,000 ounces compared to the 645,000-ounce surplus in 2018. The main problem is mined supply outstripping consumption. Platinum is flowing into the market from mine stockpiles and smelters in South Africa, that accumulated during upgrades and maintenance over 2017 and 2018, states WPIC. US platinum production is expected to expand eight-fold, from 50,000 ounces to 210,000 oz.

However, the precious metal that is a popular material for jewelry, has fought back since the beginning of February, rising from $780 an ounce to $886.80/oz as of April 10 - a gain of 13.7%.