SA sitting pretty on potential platinum powerhouse – by Ross Harvey (Business Day Live – August 11, 2014)

AT THIS week’s mining lekgotla, the future of the currently suppressed platinum industry is likely to be a key agenda item. Whether fuel cell technology takes off is a critical determinant of what this future might look like.

In its latest set of facts and figures, the Chamber of Mines states that “despite the significant role and contribution of the platinum mining sector to the South African economy, the industry is currently in a challenging position”.

It cites the combined effect of slowing global demand, market surpluses and associated declining prices, increasing production costs and the effect of continued labour relations strife as specific challenges.

The chamber also highlights weakness of demand for catalytic converters in Europe. Combined with some substitution of platinum by palladium — a challenge because of palladium’s much lower price — this suppressed demand suggests a break-even marginal return to platinum of $1,600/oz.

In South Africa, about “59% of the industry is either marginal or loss-making” as it is difficult to keep marginal production costs below $1,600/oz. The platinum price is at present around $1,460/oz, with a 200-day moving average of roughly $1,430. As a result, some investment analysts have gone so far as to say that there are no more profits to be made in platinum.

Taking a longer-term view, however, the fundamentals of the platinum group metals (PGM) market remain remarkably solid. A 2012 paper in scientific journal Ore Geology Reviews notes that: “Platinum group elements (PGEs) are increasingly finding important uses in a variety of environmentally related technologies, such as chemical process catalysts (especially oil refineries), catalytic converters for vehicle exhaust control, hydrogen fuel cells, electronic components, speciality medical uses, jewellery, or investment. Given the need to expand almost all of these uses to meet environmental and technical challenges this century, demand growth for PGEs can reasonably be expected to be sustained long into the future.”

The question is whether the available geological supply is commercially viable under current conditions. This itself depends partly on the geology of available platinum deposits. It is therefore important to examine two things. First, exactly how strong is the demand for platinum-intensive environmentally related technologies likely to be? Second, is South Africa well placed to meet this demand?

Total platinum demand was about 220 tonnes in 2011, with 160 of those (73%) equally split between catalytic converters and jewellery. There is little notable demand at present for fuel cells (electrochemical devices that produce electricity through clean, hydrogen-based chemical reactions).

If this is the technology that will drive the future of the platinum industry, why has it not been widely adopted? As a Massachusetts Institute of Technology review points out, “although radical change might well be the means by which companies can achieve sustainable growth, in practice, considerable difficulties, barriers and paradoxes exist for implementing such a strategy”.

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