Another mining failure is not an option — rescuing South Africa’s declining platinum industry

Mined platinum-rich rock sits inside a freight wagon in a mine shaft during a media tour of the Sibanye-Stillwater Khuseleka platinum mine, operated by Sibanye Gold, outside Rustenburg. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

By Claude de Baissac

22 Nov 2024

Is there anything South Africa can do to stop its platinum sector from going the way of its gold mining industry?

Once the world’s largest, South Africa’s gold sector now ranks 12th because of both depleting reserves and various structural weaknesses and inefficiencies. The plunge in South Africa’s (SA) ranking is doubly painful given what is happening with gold prices globally: they are soaring.

The same cannot be said for platinum, of which South Africa is by far the world’s biggest producer, accounting for roughly 80% of global supply. Platinum prices are currently under severe pressure due to market volatility and cautious investor sentiment. Demand is suffering from the rise of battery electric vehicles. Some of the industry’s heavy hitters have already written off SA’s platinum sector, describing its decline as “irreversible” and “terminal”.

Mining can’t survive, let alone thrive, without strong backing and sensible support from government. And SA’s mineral resources and energy department has meticulously avoided doing either for a very long time. Unsurprisingly, exploration investment in SA is flagging: below 10% of Africa’s since 2013, down from 25% between 2000 and 2009, and hovering around an irrelevant 1% of global investment since 2017. Without exploration, mining is all but certain to decline as resources deplete and costs increase. Not exploring over a significant duration of time while mining is choosing to eventually end mining.

And yet, there are important reasons for not giving up on platinum and platinum group metals (PGMs) just yet.

Strategic minerals

PGMs are classified as strategic minerals by SA’s major commercial and diplomatic partners: China, the European Union, Russia and the US. These metals are essential to various industries, from catalytic converters to petrochemical processes, optical instruments and medical devices. Platinum also finds use in jewellery and has a small investment function. SA holds about 70% of global platinum and 40% of palladium reserves, giving it a significant edge in global markets. Historically, Russia has produced more palladium, but geopolitical tensions — especially the Ukraine war — has dampened demand.

This shift presents an opportunity for SA to solidify its dominance across the metals group.

Read more: Loaded for Bear: US presidential election has big implications for SA platinum group metals producers

PGMs are also key to the national economy. From 2013 to 2023, they generated more than R1.5-trillion in export earnings — more than double those obtained from exports of coal, gold or iron ore each. PGMs accounted for 8% of total merchandise exports before 2019.

Since the pandemic, they have accounted for 13%, although this is expected to be lower in 2024 due to lower prices and Rand appreciation against the dollar. But concerningly, production volumes have remained stagnant for a decade at around 260 tons produced. The share of production exported has risen from 90% before 2019, to 94% since.

Rising PGMs prices and declining Rand value during and after the pandemic provided the country with an export revenues bonanza that contributed to softening the effects of lockdowns. Despite production having decreased by one-tenth in the period, Rand-based export earnings grew an astounding 350% between 2018 and 2021.

They have declined since, but remain twice as high than they were in 2015-2017. Exports earnings from PGMs amounted to nearly half of mining’s total in 2021, and more than 40% in 2019-2022 – over twice as much as gold, and 3.5 times as much as coal.

In 2023 the mining industry contributed R200-billion to tax earnings. PWC estimates its full fiscal contribution in 2024 at more than R300-billion — 14% of the total. PGMs are likely to represent over a third of this, in part because the sector is employment-intensive and pays comparatively well, but mainly because, like gold, it generates vast amounts of revenues for small volumes when compared with bulk commodities like coal, iron ore and manganese.

The centrality of mining to tax revenues was dramatically highlighted after the pandemic, when out of a total R320-billion in corporate income tax (CIT) the industry paid R130-billion — a cool 40%. The industry’s CIT bill has steadily risen from an average of 9% in 2013-2019 to 24% in 2020-2023.

Largest mining employer

PGMs are also the largest mining employer with 180,000 out of 460,000 direct jobs. They are estimated to provide a further 450,000 indirect and induced jobs. Despite declining production, employment rose by nearly 30,000 between the onset of the pandemic and 2023.

The wage bill rose from R55-billion in 2019 to R76-billion in 2023 — well above inflation. This amounted to 43% of all mining wages, up from 39% in 2013. The average PGMs sector wage rose 200% in the period, ahead of coal’s 180%, on par with iron ore but well below manganese. In contrast, wages and employment have been under serious pressure across the rest of the private sector.

All this occurs within a sector undergoing profound transformation.

Gone is the Anglo Platinum-Implats-Lonmin triumvirate that long dominated. The first disposed of its costly Rustenburg mines in favour of then newcomer Sibanye, the second acquired contiguous black-owned Royal Bafokeng Platinum, and the third was absorbed by Sibanye, which also hedged against SA and platinum by acquiring US-based Stillwater.

Implats has since acquired palladium assets in North America. Smaller companies such as Northam have grown steadily to become mid-tier players. BEE champion African Rainbow Minerals, Ivanhoe Mines, Platinum Group Metals and Southern Palladium have entered a field that is more diverse and more hedged.

Investment has therefore occurred. But the majority is distributed between mature mines at the southern end of the Bushveld Complex that need capital for “ounces-renewal” and the shallow mines at its northern end that employ far less workers. The small balance goes toward long-discovered reserves that remain prospective.

Numbers don’t lie

But production numbers don’t lie. The PGMs sector is treading water. Considering how vital PGMs are to the country’s fiscal and foreign currency revenues — nearly R1.1-trillion of US-dollar foreign currency gains resulting from the sector in 2019-2024 were generated by a mere 1,300 tons of metal — something has to give. In a country where the state-owned railroad and port monopolies are ranked among the world’s worst performers, the safe bet isn’t on bulk commodities.

It is on the precious metals, which can be exported without any recourse to a Transnet that shows little interest in its own turnaround and is seemingly blocking the public-private partnerships that have been standard practice worldwide for decades.

In this environment, stagnant production and the recent decline in sales should alert government that the goose with the platinum eggs is too precious to be allowed the same fate as that of the gold sector.

Plummeting demand?

Over 70% of combined platinum and palladium demand comes from catalytic converters used in internal combustion engines (ICE). With the rise of battery electric vehicles (BEVs), which do not require PGMs, demand for these metals could plummet over the next decade. Such a scenario would be devastating for the sector, and thus to the economy, the fiscus and the Reserve Bank’s foreign reserves.

PGM companies are in a fight for survival.

Eastern Platinum Limited, for example, reported a 48.6% decrease in revenue for Q2 2024 compared to Q2 2023, with mine operating income decreasing by 66.9%. Similarly, Implats saw a decline in revenue from R106,594-million in 2023 to R86,398-million in 2024, with a loss of R17,313-million in 2024 compared to a profit of R4,905-million in 2023.

Sibanye-Stillwater has restructured its South African and overseas operations to address a basic loss of R7.1-billion for the first half of 2024. And in an extraordinary turn of events, Anglo American is shedding its PGMs and diamonds businesses in favour of the industrial minerals for which future demand is all but guaranteed.

True to form, the Department of Mineral Resources and Energy has recently brought back on the table the never-dying beneficiation dream. As with previous efforts, the DPMRE is on a hiding to nowhere.

Despite overwhelming evidence that beneficiation in SA has decreased significantly over the past decade because of binding domestic constraints and will continue to do so, Minister Gwede Mantashe is floating introducing export taxes and restrictions in order to direct unprocessed minerals toward domestic producers.

This egregious attachment to policies and practices that are failing due to lack of reliable and affordable determinant inputs like power, rail services, ports, roads, water, labour, licensing requirements and good governance must be severed.

At last month’s Joburg Indaba, more than a few mining executives issued tense warnings that smelters in key sectors, including aluminium, are facing closure if next year’s electricity tariff increases go through – their energy bills having risen from around 20% a decade ago to nearly 50% now.

Nowhere in the world have measures whose effects are to raise prices and cut revenues ever resulted in improved competitiveness. To believe so is to play semi-divinity with the hard laws of economics.

Everyone with an interest in renewing South Africa’s mining industry must try to prevent the introduction of new policies that are destructive, especially to a sector as vital — and vulnerable — as PGMs. To do otherwise would be tantamount to socioeconomic, fiscal and monetary sabotage. DM

Claude de Baissac is the founder and CEO of Eunomix, an advisory firm focused on investment climate, strategy, risk management and development.

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Largest mining employer

Numbers don’t lie

Plummeting demand?