PAUL Dunne says he was teased for claiming Northam Platinum would become a one million ounce a year platinum group metals (PGM) producer.
The ribbing may have been entirely warranted: when Dunne took up the firm’s leadership seven years ago, there was some scepticism about him.
He’d been a director at Impala Platinum, South Africa’s second largest PGM producer, but as a CEO he was considered untested. He’d clashed with Implats’ then CEO, Terence Goodlace, and left in a huff.
When he joined Northam, the company was in a pickle: heavily indebted with a single asset and growth aspirations that were underfunded. Northam’s Zondereinde mine had excellent reserves but was geologically troubled. And now there was this new CEO, talking about expansion.
Questions about Dunne’s suitability – since comprehensively answered – were nothing compared to what was going on in the PGM market.
Amid today’s rocketing PGM prices it’s difficult to recall just how tough it was for the sector’s miners in 2013.
“We had the deepest downturn in the PGM industry’s history,” Dunne said at the firm’s north Johannesburg offices. By the end of the price drought, two platinum miners had gone out of business, while the industry’s balance sheet shrank drastically.
With no money to spend, PGM mining firms stopped projects and with that, retarded the industry’s ability to respond to a demand recovery. Dunne describes this condition as a “deep hurt” that damaged the industry’s asset base. It is, in fact, at the root of the price rises today across every metal in the so-called PGM basket.
Palladium was trading at $680 an ounce in 2013. Today it’s worth about $1,800/oz more than that. The platinum price, meanwhile, is undertaking a slow but consistent recovery. Then there are the other metals. The massive supply deficit has thrown the spotlight on some pretty obscure parts of the Periodic Table. Ruthenium and iridium, previously minor components of the PGM suite, are now star turns. Another – rhodium – is so highly prized that it’s expected to constitute roughly half of this year’s total PGM revenue despite comprising 10% of all production.
Dunne thinks the supply deficit is so fundamental that prices of this stripe will be in place for another decade at least.
The driving force behind the price improvement has been PGMs in cars, principally petroleum-driven vehicles by dint of tightening emissions standards, and China’s adoption of blue-ribbon emission standards. Consumers are also buying bigger cars: more than two-thirds of all vehicles sold in the US are either trucks or SUVs. Even in Europe, the home of the compact car, SUVs have become the biggest seller for the first time. Bigger cars mean more carbon emissions, requiring more PGM-loaded autocatalysts.
“You’ve got these pretty serious demand-side effects, which have led to at least a 25% increase in PGM loadings cumulatively if you take them altogether,” says Dunne. “And you’ve got these heavy contractions that have happened in the mining side, and that presents this market condition that we’re now seeing where it’s pretty tight.”
Surpassing one million ounces
Dunne expects Northam to hit a million oz in PGM production by about 2024. That’s some improvement considering production in 2015 was about 380,000 oz, most of it from Zondereinde. He says the key element in Northam’s performance was a black economic empowerment (BEE) deal in 2014. Though he decribes it as “unwelcome” in its complexity, the deal nonetheless raised R4.2bn in expansion funds which Dunne used to pick up assets “at ridiculous prices”. They included Everest South, acquired for R450m from Aquarius Platinum; Eland Platinum for R175m from Glencore; and the biggest deal of them all, the R1bn paid for reserves held in Amplats’ Amandelbult extensions.
Naturally, the question is where to from here for Dunne, especially as Northam has settled its BEE deal four years early, which has removed massive liabilities from the balance sheet. There’s a plan to reinstall the dividend, but there’s also the major opportunity of feeding into the supply deficit of the next decade, assuming the market forecasts are right.
“I really believe the market needs the metal, and to quantify that, just in automotive [demand] alone, I think we’re going to grow the demand from about 13 million oz to 16 million oz per year of PGMs,” he says. So the question is where the additional three million oz is going to come from. “Some of it will come from Russia, but Southern Africa also needs to respond.”
For this reason, Dunne doesn’t see Northam making surprise strategic shifts in focus. It’s worth noting that rival Sibanye-Stillwater is intent on growing its gold production, to which it also wants to add battery metals such as lithium.
Even Implats has mentioned, though in rather subdued, slightly ambivalent tones, the potential of metals diversification. Dunne is having none of that: if Northam is to stay in PGMs, it has to stay in South Africa. “It’s not always the message you may get from some of the competition, but we firmly see ourselves as a South African PGM producer with lots of opportunity in South Africa.”
There’s also science to thank for South Africa’s centrality in the future industrial usage of PGMs. The rapid advance of hydrogen technology has opened the prospect of fuel-cell batteries and given PGMs a role in the development of electric vehicles and global decarbonisaton that didn’t seem quite so apparent as little as four years ago.
“There are three metals that would be important for the hydrogen economy,” says Dunne. “Definitely platinum in both generation and use; iridium for the generation of green hydrogen, and ruthenium in the use of hydrogen in the fuel-cell application.” He adds another, rhodium, as crucial. “Guess where they are all found? South Africa.”
Handily, the metals also predominantly occur in a type of mineralisation known as ‘UG2’. UG2 is deeper than Merensky Reef which is more prized as a consequence. Or was. Hydrogen technology, however, has thrust UG2 resources, in which South Africa is abundant, to the forefront.
“I think for hydrogen, it’s coming like a stream train,” says Dunne. “You’ll see a lot of developments this decade already, and you can imagine what it will look like in the 2030s. It’s very promising.”