Lay-offs in PGM sector are ‘inevitable’ as prices sink and costs soar - Sibanye-Stillwater CEO

Two years ago, South Africa’s PGM producers were raking in record profits from record prices. 

In hindsight, the red-hot price rally for the likes of palladium and rhodium may have been a classic case of “irrational exuberance” which saved marginal shafts from the chopping block. 

Prices have since crashed back to earth. Combined with surging costs, a perfect storm has been created that, in the view of Sibanye CEO Neal Froneman, will lead to lay-offs.  

“The PGM sector, at these basket prices, is probably going to have to go through a restructuring, and not just us. We’re one of the lowest-cost producers, so if we have lossmaking areas, others must as well,” Froneman told Daily Maverick in an interview on the sidelines of the Joburg Mining Indaba organised by Resources 4 Africa. 

Asked if he meant potential lay-offs when he said restructuring, Froneman said: “Correct.” 

Sibanye is a diversified metals producer with an asset base that includes gold and PGM operations. 

“And when I look at our portfolio, we have some shafts which are coming to the end of their lives, some of the Lonmin shafts which we kept open. So it’s a combination of high-cost shafts now becoming loss-making and some shafts just coming to the end of their life,” he said. 

Sibanye acquired Lonmin in 2019 and preserved thousands of jobs which were on the line at the time. 

“The high basket price gave a reprieve to some companies that were planning restructuring before Covid. I think it’s inevitable,” Froneman said. 

Froneman also noted the escalating costs and the challenges posed by South Africa’s withering state.  

“It’s not just commodity prices. We are suffering the consequences of load shedding and increases in electricity tariffs, which is a good 20% of our cost,” he said. 

And while PGMs are not moved by rail and so not affected like iron ore and coal by the unfolding train smash that is Transnet, the byproduct chrome does move by rail. 

“Our chrome is a bulk commodity and it’s a big offset against our costs because it’s a byproduct,” Froneman said. 

In its annual report on South African mining released this week to coincide with the indaba, the accountancy firm PwC said PGM revenue results in the year to June fell by 33%. 

Concerns about global economic growth and the sluggish recovery in China have been among the factors that have undermined PGM prices. 

The rhodium price has fallen by 66% so far this year, extending a downward spiral which has taken it from close to $30,000 an ounce 2½ years ago — when it was the most valuable precious metal in recorded history — to around $4,100 an ounce this week. 

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