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Friday, December 15, 2023 - 23:28:45
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Mining News Pro - The price of platinum group metals (PGM) has fallen by 42% this year and could widen a supply deficit if unprofitable mines are sidelined, according to a new report by an industry group.
Rhodium has lost two thirds of its market value and palladium a third during 2023, pushing the six-element PGM basket price to $1,250 per oz., two thirds lower than its peak in April 2021, the World Platinum Investment Council says in a report released on Thursday.
The PGM supply deficit is forecast at 8% of demand through 2027 while above ground stocks may fall by 70% during the period to 1.4 million oz., the council said. A quarter of mines are operating unprofitably and putting them on care and maintenance will worsen the supply problem, it said.
“The decline in PGM basket prices over the last 12 months has materially undermined the economic sustainability of significant portions of primary supply,” the council said. “Markets are already projected to be in deficit through our two- to five-year forecast horizon. This, we believe, strengthens the investment case for platinum.”
The price drop is partially due to how supplies from the main PGM producers South Africa and Russia haven’t been disrupted as much as the industry predicted. Declines in their currencies haven’t offset lower prices in US dollars and production cost inflation, putting profitability of their miners at risk. It is forcing mines to increase production to reduce unit costs, sell excess inventory to generate more cash, slash capital spending, renegotiate supply agreements and cut dividend payments.
Output at risk
Mothballing mines to weather the poor prices could put 1.3 million oz. of platinum output and 1.2 million oz. of palladium production at risk, the council said. Primary platinum production is forecast to average about 5.6 million oz. a year between 2020 to 2024, which is 9% lower than the five-year annual average production of 6.1 million oz. from 2015 to 2019, according to the report. Palladium output may fall 6%, the council said.
The ramp up of projects at Northam Platinum’s Booysendal, Eland and Zondereinde; African Rainbow Minerals’ Two Rivers; Implala Platinum Holdings’ (JSE: IMP) Styldrift and Zimplats; Sibanye-Stillwater’s (JSE: SSW; NYSE: SBSW) Stillwater and K4; and Anglo American’s (LSE: ALL) Motololo could add about 1 million oz. of annual PGM production growth, the council said.
Mines depend on prices when fixed costs account for about a quarter of an open pit mine and two thirds of an underground mine, the council says. The earnings before interest, tax, depreciation and amortization of primary PGM miners have fallen an average of 54% in this year’s first half compared to the same period in 2022. That’s more than double the 21% revenue drop during the same period.
Still, some miners have an operating cushion after higher prices during 2020-22.
“Being largely debt free should provide some headroom to take one or several short-term actions to improve or tolerate current margins,” the council said. “However, we estimate that these types of actions are only likely to reduce loss-making ounces by 5-10%.”
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