JOHANNESBURG – Last week Northam Platinum told the market they expect to report a record operating profit for an interim period amounting to R1billion.
The group produced 256461 refined ounces, representing an increase of 4.1percent, thanks to a strong operational performance at both its Zondereinde and Booysendal mines.
There is reason to believe that the platinum industry and the platinum price have turned the corner.
Platinum group metals (PGM) started rising in the second part of last year, but remain near decade lows. Very few market participants would have thought that the price of platinum, which accounts for the bulk of PGM production in the country, would fall, and stay low, for such a long time.
For platinum mines, it is not only about platinum, but the basket of metals.
PGMs are a group of metals including platinum, palladium, rhodium, iridium, ruthenium and osmium. These have similar physical and chemical properties and tend to occur together in the same mineral deposit.
Their particular chemical and physical properties determine the use of PGMs.
Other metals share certain of these properties but it is the unique combination of properties that define the PGMs in their end markets.
Excluding platinum, all of these metals had spectacular price gains over the last few years due to their scarcity and their market developing a deficit. The opposite happened in the platinum market; the price lagged and an oversupply developed.
The usual course of events is that unprofitable mines close, supply drops, and then prices start rising. This didn’t happen in South Africa because of the social constraints of exiting the industry and closing unprofitable shafts. They just kept on producing at losses, demand dropped, and supply didn’t fall. It led to the cycle taking much longer to turn.
Sentiment in the industry is hugely impacted by the belief that electric vehicles will soon dominate and thus demand for platinum will fall away.
However, it recently became clear that electric vehicles will take longer than expected to take off significantly.
Much money will have to be spent to create the necessary infrastructure, which makes these vehicles very expensive. South African mines are also constrained by the Mining Charter and also by costs. The new Mining Charter is a much more workable document than the previous one – not perfect, but much better.
What mining companies can control, to a large extent, are costs. The cheaper it is for them to dig metal out of the ground, process and refine it, and deliver it to customers, the more significant their competitive advantage.
Northam has been investing heavily in bringing down its production costs. The rope conveyor (ropecon) is a 4763m overland conveyor installed by Northam at its Booysendal mine.
The conveyor was built by the European company Doppelmayr and commissioned at the end of last year.
It is now running successfully at a tenth of the usual cost and has virtually zero impact on the fauna and flora of the lovely area of Booysendal.
The belt is the first mining conveyor of this magnitude in Africa and is almost frictionless.
Development of the Central Mine is impressive; it is a modern mechanised mine with an eight-year zero fatalities record. The reef is very even, and full production is expected by 2022. The large mills of the Everest concentrator have enough capacity for Northam’s total output to reach almost 1million ounces by then.
Amelia Morgenrood is wealth manager: securities at PSG Wealth Faerie Glen.