Mounting costs, red tape put project starts at risk - Northam

The medium-term outlook for PGMs remains robust as technological innovation and ambitious decarbonisation goals open up new consumption frontiers around the world, Northam chief executive Paul Dunne said in a keynote address at the China PGM Market Summit on Tuesday as part of Shanghai Platinum Week. "The catalytic properties of PGMs continue to provide unique solutions to the requirements of the modern world. New applications are leading to additional demand, including for the hydrogen economy and the evolving quest to reduce carbon released into the atmosphere." "However, the global mining environment is becoming increasingly constrained and the cost of producing metal and building new mining operations continues to rise, whilst regulators and lobbyists occasionally delay or even prohibit new mines. This applies to PGM base metals, battery metals and energy metals right across the board. The barriers to entry are increasing, not decreasing." Dunne's concerns add to a chorus of misgivings this week over the regulatory costs for mining operations, and the rising influence of national governments in supply chains for metals essential for decarbonisation. On a similar theme, BHP chief executive Mike Henry called on the same day at a separate conference for nations to avoid protectionism over critical minerals. "Governments striving to secure their own critical mineral supplies must ensure they don't undermine the outcome the world needs to achieve - where in fact a combination of pragmatic international cooperation and competition can jointly accelerate the energy transition," Henry said at the World Mining Congress in Brisbane. The comments from Dunne and Henry came a day after Simon Thompson, senior advisor at Rothschild and the former chair of Rio Tinto, warned at an event in London that "there is a real risk that uncoordinated government interventions may create more uncertainty, and therefore more risk for new investors, by distorting the price signals". Regulatory barriers that discourage mining investment are not isolated to big Western miners either, as Zijin Mining chairman Chen Jinghe complained last autumn that restrictive development policies had constrained mineral resource exploration in China - leading to a bottleneck that risked the country's resource security. PGMs supply to tighten Enabling the development of new resources will only become more important given that Northam expects metal markets to remain tight in general. Key to this sentiment is the company's analysis of global mining potential for PGMs, which forecasts current primary supply of platinum, palladium and rhodium from South Africa - responsible for three-quarters of global PGM production - to dry up by the end of the 2030s. "This illustrates the point very well, resources are finite," said Dunne of the analysis, which he described as "bottom-up" on a shaft-by-shaft basis and including all announced projects on the assumption that all reserves are economically recoverable. All of South Africa's platinum supply is presently coming from projects that started up before 2010, as supply from pre-2000 projects ended in 2021-2022. But supply from the pre-2010 projects is also projected to stop in 10 years' time. For palladium, pre-2000 production will fade after this year while pre-2010 supply will end in the mid-2030s. Rhodium supply will fare slightly better, with pre-2000 and pre-2010 production lasting until early and late next decade respectively. Northam's analysis aligns with that of the World Platinum Investment Council (WPIC), which believes the outlook for platinum supply is flat at best. Supply peaked in 2006 while low profitability among miners last decade constrained capital budgets and reinvestment. Ongoing geopolitical and socio-economic instability have added to low rates of reinvestment, stagnating mine expansions and leading to a flat supply outlook, according to Deng Wenbin, Asia Pacific regional head for the WPIC. Total supply has fallen by 13% from 2021 due to increased geopolitical instability, ongoing South African smelter maintenance, greater intensity and duration of load shedding in the country, and potential disruption to Russian operations following Western sanctions on Moscow. "Without the addition of new projects, production will inevitably fall. For platinum, we see an accelerating contraction in supply from the South African production base. And the popular market generally tends not to believe this until it's seen in the print, but it is compounded by a particularly challenging operational backdrop," said Dunne. "For palladium, South Africa will be similarly impacted and critically, global palladium producers are experiencing headwinds in the execution of previously announced growth projects. And finally, for rhodium, we forecast the similar declining production profile as that as to that of platinum." "Given this depletion picture, we retain the view that the value of a production ounce will strengthen over the remainder of the decade," said Dunne. He added that Northam's expansion programme remains on track to deliver a medium-term target of 1Moz of production, coming from the ongoing ramp-up at Booysendal and Eland that will begin to deliver over the coming three years. No let-up in hydrogen excitement Europe's energy crisis last year after Russia invaded Ukraine helped expand already robust interest in renewable energy sources, including green hydrogen. Europe now has a burgeoning number of electrolytic hydrogen projects, and reinforced US incentives in the Inflation Reduction Act have also prompted a wave of investor interest in hydrogen. Some 2.81 GW of hydrogen electrolysis capacity is set to go online in Europe next year, more than the US, China and Asia Pacific combined, according to the Paris-based International Energy Agency. Europe will then add 13.35 GW of capacity in 2025, which will be nearly on par with the 13.77 GW in the rest of the world. As platinum is critical for electrolysers that use proton exchange membrane technology to produce green hydrogen, growing faith in the combustible, zero-carbon gas continued to be touted as a key driver of future PGM demand by speakers at the Shanghai summit."Hydrogen by itself does not create any PGM demand. It's in the hydrogen sphere, [in] PEM electrolysers and fuel cells. These are the only two spots where a lot of PGM demand is created, so we have to push that," said Benny Oeyen, executive head of market development for PGMs at Anglo American. "I think platinum for investment is punching under its weight. It's a great investment when the hydrogen economy is taking shape," Oeyen added, noting that platinum is a proxy for investing in hydrogen where there are limited publicly listed investment opportunities. Platinum-enabled green hydrogen could provide more than one-tenth of the CO2 savings necessary to limit the global temperature increase to 2°C under the Paris Agreement, while hydrogen production could account for close to one-third of total platinum demand by 2040, according to the WPIC.

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