Going platinum? PGMs poised for an uplift

Platinum is used as a designation of the second-highest level of certification for a music recording. ‘Going platinum’ means the album has gone to the next step, doubling sales to 1 million copies.

Albums that reach platinum level are considered commercially successful and are often prized by collectors. The word itself denotes prestige and profitability.

Platinum group metals (PGMs) – used in everything from aircraft turbines and smartphones to catalytic converters, jewellery making, medical tools, and glass production – while rare are incredibly valuable and extremely prized.

In recent times a confluence of headwinds from declining metals prices, a flattening growth curve for battery-powered electric vehicles (BEVs), and macro-economic and geo-political uncertainty has, however, led to a precipitous decline in the space.

Although, many who know and understand the complex space well say the medium to long-term view – although not likely to be topping the commodity charts – looks promising. The price weakness in 2023 is seen as more temporary in nature and not representative of a structural change in market fundamentals – like that of nickel.

There are already signs that support this positive outlook.

The global PGMs sector reached more than US$40 billion in size during 2023. The International Market Analysis Research and Consulting Group (IMARC Group) expects the market to top US$55 billion by 2032, exhibiting a growth rate (CAGR) of 3.5% during 2024-2032.

IMARC Group, which is a global advisory and market research firm, says widespread product adoption in the automotive industry is one factor driving the expansion of the market. As previously mentioned. the take up of vehicles in some segments of the EV market have in fact fallen short of previous expectations.

Rising inflation, diminished discretionary spending, and high borrowing costs are constraining uptake of EVs and new vehicle purchases.

In the BEV segment, annual growth of more than 30% off a small base was previously expected. The sector has electrified to a greater extent, although there has been lags in adoption in the mass market driven by price, which analysts suggest is not likely to converge with ICE prices in the near-term.

Pt + Pd taking centre-stage

So, what are platinum group metals? They rarely take centre-stage in the world of mining but essentially, they are 6 chemically, physically, and anatomically similar elements – iridium (Ir), osmium (Os), palladium (Pd), platinum (Pt), rhodium (Rh), and ruthenium (Ru). These metals are widely used in fuel cells, auto catalysts, electronic components, and spark plugs, among other uses.

Known for their purity, high melting points (and resistance to heat), and unique catalytic properties, PGMs exhibit other properties such as softness and resistance to corrosion and oxidation.

Of all 6 metals in this group, palladium and platinum are most important due to their economic values and higher quantities. The other 4 are mined as by-products.

The prices of Pt + Pd have gradually risen over the past 20 years although it’s recently endured a challenging environment – particularly palladium. As per ABC Bullion, in early 2004 the AUD spot price per troy ounce for palladium trickled over $250. It is currently at about $1,625. For context in March 2022 hit a high of $4,342.

There’s less disparity with platinum. At the start of 2004 it was $1,110 per troy ounce but as of 15 March 2024 it’s priced hit $1,460. Platinum plummeted to $1,067 in mid-March 2020 although it has continued a gradual roller-coaster rise to current levels.

To grasp the drivers of these price fluctuations is to understand the macro-economic and geo-political environment influencing these metals.

Concerns over South African power disruptions on primary supply led a price rally in April, however producers mitigated this with limited effect on mined volumes. The price retreated over H2 2023, as load-shedding eased.

This retreat continued from 2022 levels following Russia’s invasion of Ukraine. Automakers began building additional palladium inventory as a precaution against supply disruptions. As a result, excess stock levels declined during the year.

The rhodium price also continued its decline, falling 64%. Like palladium, stock sales influenced rhodium’s price. China experienced reduced rhodium imports after its glass manufacturers began thrifting rhodium from processing due to the high price, selling it into the domestic market.

Understanding the landscape

One industry stalwart who has seen it all before – CEO of Canada-based Clean Air Metals (TSX-V:AIR) Jim Gallagher – is firmly holding a bullish position on the market. As the CEO explains, one aspect often overlooked is PGMs is not a well understood by the broader market.

When Mining.com.au spoke with Gallagher in February, his optimism was based on knowing the market’s fundamentals. For one, there is a scarcity of global supply. There are only 2 primary palladium mines operating outside of southern Africa.

At the crux of it all, Gallager says, is a general lack of understanding from everything such as the vagaries of the market, to global legacy supply issues, and grasping what role PGMs actually have in the EV market.

“One point that is not well understood generally is that hybrid cars actually require significantly higher platinum group metal loadings in their catalytic converters than do regular ICE (internal combustion engine) cars. Catalytic converters reach peak efficiencies at high temperatures. A hybrid engine tends to cycle on and off therefore not reaching the same temperatures. This then requires higher PGE loadings in the converter to achieve emissions requirements.”

“One point that is not well understood generally is that hybrid cars actually require significantly higher platinum group metal loadings in their catalytic converters than do regular ICE cars

Clean Air Metals is advancing the Thunder Bay North Critical Minerals Project, which has a suite of platinum, palladium, copper, and nickel. The project hosts an indicated mineral resource of 13.8 million tonnes containing 1.2 million ounces of 2PGE (Pt+Pd).

While cyclical commodity price fluctuations were the story of 2023, having all these important metals in one basket remains an attractive investment proposition for the company.

However, Gallagher says such is the market that very few metals analysts even attempt forecasting long-term platinum prices due to all the variables and unknowns.

Compounding all this heading into Q2 2024, is metals markets are just not responding to long-term critical minerals demand.

“With the exception of the US, most major global economies have slowed considerably with China being the most influential. Consensus appears to be that 2024 will continue to be flat with a potential recovery starting in 2025. The automobile market, which has the most impact on PGM prices, is starting to run a bit contrary to the rest of the market.”

There’s a couple of reasons for this. Since the start of COVID in 2020 global auto sales have fallen by 20-25%. This has created a backlog of vehicle lifecycle replacements, which only now is starting to pick up. Additionally, the growth curve for battery-powered electric vehicles (BEVs) has flattened somewhat from predictions, and hybrid vehicles are seeing significant new growth.

On the consumption side, Gallagher notes the role platinum plays in the production of green hydrogen and in fuel cells is only beginning to be understood by the markets as well.

“Many jurisdictions, notably China, Europe and the US are starting to build out hydrogen supply infrastructure to support heavy transportation such as long haul trucks, shipping, ferries, buses etc. This increase in supply will help drive down prices and will likely back-feed into the automobile market with growth in fuel cell automobiles. This potentially will have a significant impact on Pt prices within the next decade.”

Legacy issues

On the production side, South Africa – which accounts for about 75% of global platinum supply (and 40% of palladium) – is facing multiple challenges. The country is dealing with very deep mines (most in-country PGM mines operate at a depth below 500m), ageing infrastructure, power disruptions, and a cost of production now above the selling price at many operations.

The discovery of the first platinum nuggets in South Africa dates back to 1924. In the latter half of the 20th century, the country’s platinum sector was dominated by 3 companies, which after some corporate deals had their assets eventually housed under Implats, Amplats, and Lonmin respectively.

According to the Minerals Council South Africa, the advent of black economic empowerment, and the use-it-or-lose-it approach to minerals rights — envisaged in the Mineral and Petroleum Resources Development Act of 2002 — led to growth of the sector and rise of smaller platinum players.

This legislation, the minerals council says, coincided with an upswing in PGM demand and prices from 2002 to 2008 “before a global economic depression heralded the end of the glory days in the platinum sector and shut many smaller operators down”.

Minerals Council South Africa CEO Mzila Mthenjane highlights that 2023 was a particularly tough one for the mining industry – not just in his country but globally.

“The two hardest hit mining sectors, platinum group metals and coal, are also two of the largest in terms of jobs – 58% of the total – and contribution to the economy, accounting for half of total primary mineral sales of R786 billion.

The PGM industry is the largest employer in the mining sector, accounting for 181,800 jobs. Mining companies are investing in developing additional avenues of demand for PGMs, with notable successes in hydrogen fuel cells and electrolysis plant to generate green sources of hydrogen, to secure supply and jobs in the sector.”

The Minerals Council South Africa CEO reiterates that “commodity prices are cyclical and largely determined by events outside our control”.

This echoes Gallagher’s earlier point – having supply dominated by one country, while a current challenge is very much a longer term opportunity for companies such as his Canada-focused Clean Air Metals.

Case in point. Earlier this month reports emerged Mimosa Mine will be retrenching 33 managers and supervisors, while shelving a key US$100 million expansion project amid falling metal prices and declining company cash flows.

South African miner Sibanye Stillwater (JSE:SSW) co-owns Mimosa Mine with Impala Platinum (JSE:IMP). On 5 March 2024, Sibanye reported revenue for H2 2023 was 18% lower than for 2022, recording a loss of US$2 billion.

Via Sibanye, Mimosa views prices will remain depressed in the medium-term. Yet the South African miner expects market dynamics to positively change sooner rather than later.

We are confident that the PGM price weakness during 2023 does not signal a structural change in PGM fundamentals…”

In a company report, Sibanye states: “While the operating environment remains challenging, with macro-economic and geo-political uncertainty persisting, our medium to long-term view on the fundamental outlook for the metals we produce with the exception of nickel, remains largely unchanged.

We are confident that the PGM price weakness during 2023 does not signal a structural change in PGM fundamentals like that of the nickel market but is more temporary in nature and we are beginning to see increasing signs which support a better demand outlook.

We believe that the precipitous decline in PGM prices during H1 2023, was due to a confluence of negative factors and exacerbated by unexpected destocking of inventory which caught the market by surprise, causing increased uncertainty and market anxiety.

This bearish sentiment was reflected in a significant build-up of speculative short positions in palladium, which also contributed to the price pressure.”

Sibanye continues to see emerging signals that support its long-held, robust view on PGM demand. These include absolute light duty vehicle (LDV) production forecasted to grow over the rest of this decade.

The company also highlights recent moderation in BEV growth rates and accompanying increase in hybrid power-train adoption, as well primary supply likely to continue declining in an inflationary environment with low PGM prices.

Cautiously optimistic

There are some ASX-listed miners with PGMs in their portfolio that also have a more cautiously optimistic view of what lies ahead.

Impact Minerals (ASX:IPT) recently applied for 3 new exploration licences covering 720km-square north of and contiguous with its 100% owned Arkun project, located 150km east of Perth in the emerging mineral province of south-west Western Australia.

Impact now holds a strategic ground position that covers 120km of trend of the Corrigin Tectonic Zone (CTZ), which marks a major crustal boundary between the South West and Youanmi Terranes of the Yilgarn Craton.

The CTZ is host to major gold deposits at Katanning and copper at Calingiri, as well as mafic-ultramafic rocks similar to those at the Julimar deposit (+10 million ounces of palladium).

As Impact’s CEO Dr Mike Jones detailed to Mining.com.au last week, the company is in pursuit of a world-class orebody.

“We set Impact up to find a world-class orebody. While everyone might start off like that, the problem is that those true world-class orebodies are few and far between.”

When Jones thinks of “world-class” discoveries, Chalice Mining’s (ASX:CHN) Gonneville is among them. Holding ground that has mafic-ultramafic rocks similar to those at Chalice’s Julimar deposit is certainly a positive step in that direction.

Chalice Mining’s Gonneville project is the first major PGE discovery in Australia and one of the few recent large-scale magmatic Ni-Cu-PGE discoveries. The company says it now owns the largest undeveloped palladium resource and one of the largest critical minerals discoveries in the western world.

Gonneville is 560Mt @ 0.54% NiEq or 1.7g/t PdEq for 16Moz of Pd-Pt-Au (3E), 860,000t Ni, 520,000t Cu, and 83,000t Co contained and the deposit remains open at depth. It is predicted to be lowest cost PGE producer in the western world at US$160-230/oz 3E cash costs (after Ni-Cu-Co by-product credits) and in second quartile on the PGE industry cost curve.

In a recent presentation, Chalice echoes much of Gallagher’s sentiments, and highlights the spot price is at the 50th percentile of the cost curve and Russia-South Africa dominate supply – “clear supply chain risks”.

The company believes one of the main drivers for a PGE price recovery is growing ICE and hybrid EV sales.

This year could be an inflection point for PGMs. One feature of 2024 that analysts predict will have significant but somewhat overlooked implications for the metals markets is many key economies will hold elections.

This adds an air of uncertainty but also presents opportunities around environmental and economic policies that may affect the PGMs supply chain.

The US presidential election set to be held in November. The next UK general election is looming, with analysts expecting it to be called late 2024. India, Indonesia, Iran, Pakistan, and Russia also have elections slated this year, as does the European Union.

Perhaps these changes in power coupled with the expected medium-term uplift could see PGMs market ‘going platinum’ and elevating to the next step?

Write to Adam Orlando at Mining.com.au

Images: iStock, Chalice & Clean Air Metals
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Written By Adam Orlando
Mining.com.au Editor-in-Chief Adam Orlando has more than 20 years’ experience in the media having held senior roles at various publications, including as Asia-Pacific Sector Head (Mining) at global newswire Acuris (formerly Mergermarket). Orlando has worked in newsrooms around the world including Hong Kong, Singapore, London, and Sydney.