PGM miners enter survival mode
Sibanye-Stillwater’s convertible bond may herald a rush by others to raise capital
A dash for cash might be on the cards for South Africa’s haemorrhaging platinum group metals (PGM) sector if current spot prices persist for much longer. That’s the thinking of industry executives, who also expect production cuts to intensify as the sector seeks to minimise margin pressure.
A $500m convertible bond raised by Sibanye-Stillwater on November 21 caused some surprise. UBS analyst Steve Friedman observed that debt of this ilk is normally the fare of smaller companies with growth to fund rather than larger firms seeking margin protection. But Sibanye-Stillwater head of corporate affairs James Wellsted tells the FM the company wanted to jump in early. “We think there is limited capital for cheap money like our bond,” he says. He expects other companies to enter the bond market imminently.
Certainly the signs are ominous. Impala Platinum (Implats) announced a process of voluntary retrenchment at its South African shafts. This was before the tragic accident on November 27 at its Rustenburg mine, where 11 miners were killed and 75 injured, resulting in the temporary closure of production from the complex and potentially compounding its financial position, previously described by Implats spokesperson Johan Theron as “just scraping by”. According to Bank of America, Implats is likely to take another impairment on its acquisition of Royal Bafokeng Platinum when it reports interim numbers in February.
Wesizwe Platinum, controlled by China Africa Jinchuan, said last week up to 571 employees of the 761 employed at the Bakubung platinum mine would be affected by a restructuring. Just over 6,000 jobs are under review at Sibanye-Stillwater (though actual employee reductions may be much less), while Bloomberg reported the possibility that Anglo American Platinum could cut jobs. Amplats has declined to comment, but is thought to have discussed the matter with the government.
Citibank analysts say highcost mines Amandelbult (owned by Amplats), Zondereinde (Northam Platinum) and
Rustenburg (Implats) are all vulnerable now. A major surplus in palladium, were it to translate into sustained low prices, will spell shaft or even mine closures for palladium-heavy mines in North America owned by Implats (Impala Canada) and Sibanye-Stillwater (Stillwater mine in the US).
North American mines aside, there is a worry among industry investors such as Coronation Fund Managers, which recently exited its platinum investments, that PGM miners might delay shaft and mine closures on political and social grounds. This is surely debatable, however; in fact, Bank of America analysts con
We thought with the high interest rate cycle coming to an end, there would be a recovery, but it hasn’t happened
James Wellsted
sider it unlikely. “While there may be political considerations here around job losses, we think South African authorities have, of late, become more understanding of economic reality,” the bank said. “Closing older, highercost mines would ultimately make the industry healthier and more sustainable.”
Safety would also be improved as older shafts are closed though, interestingly, pressure to keep refining facilities operating efficiently could influence miners to keep some less profitable shafts open. “For years we’ve wondered whether Impala has been building net present value negative mining projects to keep Impala Refining Services full; we think this could have been a consideration in the acquisition of Royal Bafokeng Platinum,” Bank of America said.
The question is when the PGM market will recover. Imminently, says Edward Sterck, an analyst for the World Platinum Investment Council (WPIC), an organisation funded by producers to promote metal investment.
“The lack of response [in the platinum price] is the elephant in the room that everyone is talking about.
“During Covid and during the semiconductor shortage, automakers were not producing but they continued to take
PGMs in terms of offtake agreements.” This led to stockpiling, which the WPIC thinks topped out at 1-million ounces.
“That has just taken the heat out of the market, but we think it’s more or less completed. We expect the underlying market dynamics to reflect in the price.”
Nonetheless, the PGM price is a confusing place to be. A major factor behind the price correction from earlier this year was demand for battery-electric vehicles in 2022. But BEV demand this year has stalled. Market share of BEVs in the lightduty vehicle sector is unchanged year to date at about 12.7% while BEV growth has declined, says a report by SBG Securities.
“Stimulus measures in China helped a recovery in BEVs in [the second half], a clear sign the BEV market there is struggling to sustain growth,” says SBG analyst Adrian Hammond.
“That is the problem,” says Wellsted. “The global economy is going nowhere at the moment. We thought with the high interest rate cycle coming to an end, there would be a recovery, but it hasn’t happened, and might not happen until the second half of next year.”
The poor macroeconomic outlook also affects other battery metals such as nickel, lithium and copper, which puts more than PGM miners under strain.
The debt markets could become overly busy with mining firms in the coming months.