SOUTHERN Palladium on Thursday published details of a scoping study into its Bengwenyama project estimating a post tax net present value of $700m assuming “conservative” metal prices.
The firm, one of the JSE’s few exploration and development companies, was now working through a prefeasibility study of the project. “The recently concluded scoping study represents a pivotal moment for our company,” said Johan Odendaal, MD of Southern Palladium. The Bengwenyama project was “world class”, he added.
The assumption is for an average palladium price of $1,200 per ounce for platinum, a palladium price of $1,100/oz, and $5,000/oz for rhodium. The capital cost was forecast to be $408m, including contingencies.
The price assumptions are in line with how the metals have traded from 2019 to part of 2023 but palladium rarely traded above $1,100/oz before then. Rhodium has not traded above $5,000/oz for at least 15 years prior to late 2019 when it raced up to more than $29,000/oz before retreating as precipitously in 2023.
Are these assumptions conservative? Perhaps not.
Palladium is the least favoured of the platinum group metal (PGM) family currently, but former Anglo American Platinum CEO Chris Griffith said the world still needed the metal. “My view of the PGM industry is it’s still a very good industry,” he said in an interview with Miningmx in December.
“The demand for rhodium and platinum and palladium will come to pass and the market will go into deficit again,” he said. “The prices will increase and the PGM companies that will make good money again,” said Griffith – although he added an important rider to this saying it was critical PGM miners invested shareholder money wisely.
Deutsche Bank analysts said in a report in January that the convergence of platinum and palladium prices “is likely to go further” as fundamentals point more positively for platinum into 2025 on a better autocatalyst demand trend, even as production of internal combustion engine vehicles declines.
An emerging view in general is that the cataclysmic outlook for ICE is overstated, more so if hybrid vehicles are recatergorised as ICE instead of electric vehicles which some market commentators tend to do. Adrian Hammond, an analyst for Standard Bank Group Securities wrote last month he could see 3% consumption growth for the ICE market.
While acknowledging this was hardly an investment case for PGMs, the combination of other factors such as metal substitution, increased autocat loadings (in line with emissions legislation in places like China), and supply cuts lead him to “a bullish conclusion”, particularly for platinum and rhodium.
Odendaal is working on average annual production of 330,000 oz at an all-in sustaining cost of $836/6E oz. That’s low compared to the industry average of about $1,0000 which Odendaal says Bengwenyama can achieve owing to its orebody.
“What sets this project apart is a solid hanging wall that enables a stoping width of 1.1 metres. This unique feature has the potential to yield a higher-than-usual head grade to the plant, due to reduced dilution,” says Odendaal.
Southern Palladium anticipates that while Bengwenyama’s rand per ton costs are anticipated to align with the industry average, AISC expressed in rand per 6E oz or $/6e oz, is lower than industry. “This positions us at the lower end of the industry cost curve,” says Odendaal.