The platinum group metals (PGM) party is well and truly over and the hangover is proving to be brutal. 

Two years ago, PGM producers were reaping record profits off record prices. It was a spectacular turnaround for a sector that a few years ago was mostly unprofitable in the face of depressed prices and periodic bouts of often violent labour unrest.

But in the space of 18 months, many shafts have gone from spinning cash to burning cash, robbing the cash-strapped National Treasury of a crucial tax lifeline while raising the spectre of layoffs in an economy saddled with sky-high levels of unemployment, poverty and inequality.

“The PGM sector’s revenue has halved. What has happened to the sector is that our revenue per ounce has halved over the past 18 months. It has been very quick and a very harsh downturn,” Northam Platinum CEO Paul Dunne told Daily Maverick in an interview.

“At the same time, we have inflationary pressures which have been experienced across the world. So the industry now in many areas is no longer profitable. Large swathes of the South African PGM production base are currently loss-making. That presents a very difficult situation if it persists because it threatens the viability of shafts. This is very concerning for the country.”

Dunne is the latest PGM CEO to sound the alarm as prices maintain their downward trajectory. Sibanye-Stillwater CEO Neal Froneman warned last month about looming layoffs.

Read more in Daily Maverick: Layoffs in PGM sector are ‘inevitable’ as prices sink and costs soar – Sibanye-Stillwater CEO

Sibanye has since launched a Section 189 process at its Kroondal, Marikana and Rustenburg PGM operations that could potentially see more than 4,000 employees laid off.

“I’m concerned for broader employment in the PGM space if these metal prices remain in place for any length of time. From a profitability point of view, we are a sector under threat. And that in turn means unfortunately that jobs are also under threat because you can’t burn cash for indefinite periods of time in some of these older, more mature operations,” Dunne said.

The typical miner in South Africa has around eight to 10 dependants, so layoffs will have a profound social and economic ripple effect.

Over the past 18 months, the price of palladium has fallen from almost $2,100 an ounce to under $1,100, according to Johnson Matthey data. Platinum’s decline has not been as steep, dropping to $916 an ounce from around $970.

Rhodium’s fall has been far more dramatic over the timeframe, plunging to just over $4,300 an ounce from over $16,000. Two-and-a-half years ago rhodium was almost $30,000 an ounce, palladium almost $2,400. 

This trio comprises the key PGMs used by the automotive industry for emissions-capping catalytic converters and accounts for the bulk of the PGM “basket price.”

A range of factors have combined to pull the rug from under the PGM market, including soaring interest rates to contain inflation in key automotive markets such as the US and Europe. Slowing global economic growth has also put the brakes on demand, while the rise of electric vehicles is another shift into a lower gear for PGM prices.

Market signals 

In this environment, mechanised operations are in a better position than deep-level, conventional mines. Meanwhile, PGM projects are being starved of cash.

Northam’s operations are a reflection of this state of affairs. The company’s Booysendal mine on the Mpumalanga/Limpopo frontier is fully mechanised and shallow.

“Booysendal is on the low end of the cost curve and that brings cost advantages,” Dunne said. Asked if the mine was still making money, he replied that it was.

The company’s Zondereinde operation — the world’s deepest PGM mine which reaches depths of 2.3km — is in a less favourable position.

“‎Zondereinde is in a break-even situation at the moment at this price level, it’s in the middle of the cost curve in our estimation. It is a deep-level, conventional mine,” Dunne said.

And there are now question marks over how much capital to allocate to the company’s Eland mine project near Brits in North West which employs about 2,500 people.

“We can’t be blind to the market. The market is telling us at this stage that the immediately available metal is clearly excess to requirements. We are clearly getting a poor pricing signal.”

So there is no rush to bring projects up to speed.

“Eland is still a project, and as a project it is utilising cash because we are investing in it. It is a consumer of cash rather than a generator. We will think very carefully about Eland as to whether the market wants the metal from Eland. So we will be very careful about how we look at Eland for the next planning cycle for the next financial year starting in June 2024. We will consider Eland’s future very, very seriously in this market. The question is: does the market want that metal?”

“I don’t think it will be mothballed, but we might structure Eland differently in this market,” Dunne said.

The bottom line is that there is a lot of uncertainty in the PGM space when South Africa’s economy is barely growing and the government’s fiscal situation is precarious.

Most of South Africa’s PGM production has multi-year, inflation-linked agreements in place with organised labour. But how many of those workers will still have a job before the agreements expire is anyone’s guess at the moment. DM