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Facts and figures

The state of the PGMs sector

Introduction

Six primary precious metals make up the basket of platinum group metals (PGMs) in South Africa. The metals – platinum, palladium, rhodium, gold, iridium and ruthenium – occur together in PGM-bearing ore, together with chrome, nickel and copper and other minor metals, which are defined as by-products.

Platinum, palladium and rhodium are the three primary metals of significant economic value. Due to their unique physical and chemical properties, they are essential components in many industrial applications including the automotive industry due to their excellent catalytic properties, as well as in computer hard disks, mobile phones, glass and fuel cells, among others.

PGMs are also used in many medical applications, including anti-cancer drugs, cardiac treatment, implants and dental applications.

The durability, quality, and aesthetic appeal of platinum and, to a lesser extent, palladium has significant application in luxury goods and jewellery manufacture. China accounts for 50% of the world’s platinum jewellery market.

Investment, in the form of coins, bars and electronically traded funds (ETFs), is another significant source of demand for PGMs.

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PGMs mining in South Africa

Geologist Hans Merensky’s work from 1924 resulted in the discovery of what became known as the Bushveld Igneous Complex. The complex is over 400 kilometers in diameter and is divided into four different limbs: the northern, southern, eastern, and western limbs.

This complex hosts approximately 80% of the world’s known PGM-bearing ore.


Global PGMs production 2018

Global PGM production [map]

Since 2008, average wages have increased in real terms by 5% a year

CPI and employee wages

CPI and employee wages [graph]

Minimum basic wages paid by the sector compare favourably to basic minimum wages in most non-mining industries

PGMs industry:

R11,000

Metals and engineering:

R7,840

Motor industry:

R5,396

Road and freight logistics:

R5,816

Structural engineering:

R6,537

Farm workers:

R3,169

PGMs’ basic wages are higher than those in the other industrial sectors. It should also be noted that allowances and variable pay (like bonuses) in the mining industry are significantly higher than any other sectors.

Cost issues

Platinum price and cost changes (nominal, year-on-year) (Rands)

Platinum price and cost changes (nominal, year-on-year) [graph]

176%

increase in average wages over 10 years

13%

Power and water costs

523%

Electricity tarrifs increase in ten years

This graph shows how cost increases have exceeded platinum price increases and decreases almost consistently, and often by huge margins, over the last six years.

The most prominent factors at work have been power and employment costs. Employment costs accounted for 41% of total costs. Power and water costs account for 13% of intermediate input costs in the sector. Electricity tariffs have increased by 523% for the mining sector in the ten years to 2018, and the tariff increases set this year promise another 29.4% in power increases over the next three years.

PGMs cost split (total cost of production)

PGM cost split (total cost) [graph]

Profitability, dividends, salaries and wages

 

Profitability, dividends, salaries and wages

Profitability, dividends, salaries and wages [graph]
 

The challenges ahead

  • On an aggregated basis, total industry production costs measured in tonnes milled will increase by 29.6% between 1 April 2019 and 1 April 2021.
  • The recent rise in the PGMs basket price due to increases in palladium and rhodium prices has only recently restored profitability to the industry. But after years of underinvestment in sustaining and growth capital, significant capital investment is needed to create a sustainable industry and secure jobs.
  • Platinum demand has weakened due to the growth in recycling of catalytic convertors and lower automotive, jewellery and industrial demand.
  • Finally, labour strife has badly affected the sustainability of operations. The 2014 strike was a major contributor to the jobs losses that followed, and further prolonged strike action will exacerbate this trend in a sector that is already under pressure.