By Ed Stoddard
This is a fairly rare project for the Australian-listed company to undertake, but looming supply deficits mean the timing could be perfect.
South Africa’s platinum group metals (PGMs) mining sector is in dire straits in the face of depressed prices, rising costs and the uncertainties of operating in communities that are often flashpoints of social and labour unrest.
Then there is a political landscape that can be subjected to seismic shifts. The Government of National Unity has injected a new sense of optimism into South African business circles including mining, but who knows how long that will last and what the next election will bring?
But miners take a long view, and light is seen emerging at the end of the tunnel, with looming supply deficits forecast as production slows and demand picks up on a range of fronts.
That is the view taken by Australian-listed Southern Palladium, which is embarking on a relatively rare project these days: it is laying the groundwork to build a new PGM mine in the northeast of the platinum belt in Limpopo that will produce 400,000 ounces a year.
Given the current downturn, is it wise to bring an additional 400,000 ounces a year to the market?
“The platinum market will remain in fairly substantial deficit over the next four to five years and above ground stocks are going to whittle away by 2026/27. We think in the platinum space that we will see the fundamentals being more instructive of where the price is going,” Roger Baxter, the executive chair of Southern Palladium, told Daily Maverick.
Battery electric vehicle (BEV) demand
“A lot of people have had this view that in the automotive sector there will be a massive fall-off in demand for both platinum and palladium because of the expected phase-out of the internal combustion engine, as demand for battery electric vehicles (BEVs) was growing at a very fast pace.”
Platinum and palladium are the key ingredients for emissions-capping catalytic converters in internal combustion engines, and the bottom line is that BEVs don’t use the metals. But Baxter noted that it has turned out to be a bit of a “false dawn”, as growth in BEVs has slowed over concerns about costs, convenience and resale values.
The decline of the internal combustion engine is proving to be premature, whereas the demand outlook for hybrid vehicles that require PGMs is fairly rosy.
PGMs also have a range of other applications, and platinum is seen as crucial to the emerging clean energy “hydrogen economy”. Chemists are also finding new uses for PGMs as they mix and match the elements in the periodic table.
South Africa is by far the world’s biggest producer of PGMs and, barring unexpected major discoveries elsewhere, it is the place where most new production will come from in the future.
South Africa’s two PGM reefs are known as UG2 and Merensky and the project straddles both.
“Our studies have shown that UG2 is a better option for us, for the simple reason that it has a better grade and also has chrome. If you look recently at what kept the PGM miners afloat, it’s chrome income,” CEO Johan Odendaal told Daily Maverick.
Chrome is coveted for its use in a range of applications, including the making of stainless steel.
Pre-feasibility study
Southern Palladium recently published a pre-feasibility study for the project, which shows it has high grades and almost 7 million ounces of PGMs that are economical to extract.
A final investment decision is expected by the middle of 2026 and construction will start after that, with an estimated price tag of $450-million – a relatively low cost that reflects the fact that it is quite shallow and will be a hybrid mechanised-conventional mine. Production is targeted to start in 2029 and 4,500 people will be employed directly at the mine.
A lot could happen in the next two years. Unforeseen events could delay the project or stop it dead in its tracks, and the incoming Trump administration could roil the global economy with its planned wall of US tariffs.
“Concerns over the degree of tariff protection in the US have worried markets, with full enactment of the tariff proposals on Trump’s electioneering campaign expected to see slower global growth and weaker demand for commodities,” Annabel Bishop, chief economist at Investec, said in a recent note.
Still, amid the talk of SA mining being a sunset industry, it is promising that some rays are rising on the horizon.
