Platinum receives a boost from the green economy
After a decade in the doldrums, South Africa’s key platinum industry reported windfall profits last month as supply deficits pushed palladium and rhodium to record highs. Recent legislation to curb pollution from gasoline and diesel engines is boosting the use of platinum-group metals in autocatalysts, the biggest PGM consumers, reports Bloomberg. That’s keeping the bonanza going for miners, even as the growth of electric vehicles poses a longer-term threat to demand.
“It’s certainly given them a new lease of life and some have added life to assets that were meant to be shut down already,” said Mandi Dungwa, an analyst at Kagiso Asset Management Ltd. in Cape Town. “There were a lot of questions around how long some of these mining companies would continue to exist.”
Platinum mine bosses are upbeat. Stricter rules will increase PGM use in vehicles by an average of 20% over the next 10 years, said Anglo American Platinum CEO Natascha Viljoen.
“It looks like this one could last longer than previous cycles because it’s driven by a legislative push to reduce emissions,” said Arnold Van Graan, an analyst at Nedbank Securities Ltd.
Autocatalyst demand for platinum, which was dented by the switch away from diesel cars, is likely to rise by two-thirds to 4.5 million ounces by 2025 as automakers substitute the metal for more expensive palladium, according to Sibanye Stillwater CEO Neal Froneman.
“The fundamentals from a producer’s point of view get better and better as we look further out,” Froneman said in an interview. “So for at least 10 years there is no reason why this trend should be any different.”
The robust outlook and profit windfall has resulted in companies starting to expand output after more than a decade of shunning investments. Future demand could be met without oversupplying markets, according to Impala Platinum Holdings Ltd. CEO Nico Muller.
Longer term, the proliferation of electric vehicles raises challenges as they gradually displace the combustion engine that’s helped drive PGM consumption. Much will depend on whether the nascent hydrogen industry can offer new sources of demand to offset the hit from EVs.
For the moment, the outlook is uncertain, according to Rory Kutisker-Jacobson, a portfolio manager at Allan Gray Ltd. in Cape Town.
“The transition to electric vehicles is negative for PGM metals, but this needs to be balanced against continued tightening emission standards and a growing hydrogen economy, which are positive for PGM demand,” he said. “If history is any guide, prices and profits are likely to come under pressure.”
BHP deliberates ditching fossil fuels for greener mining
The world’s biggest miner, Australian-based BHP, is supposedly considering withdrawing from a multi-billion dollar contract, which would see the company generate more than US$2bn due to mounting pressure over aligning its business with ongoing climate concerns and ESG-compliance measures.
Exiting the agreement would mean BHP escalate its distancing from oil and gas and subsequently cut down on the amount of fossil fuels used by the company when mining.
It’s estimated that the petroleum business being debated upon could actually be worth around US$15bn but is still under talks to be put up for sale.
Global Mining Giant Considers Greener Future
BHP has made itself clear that it wants to avoid becoming unable to sell its assets. As competition within the market increases following higher numbers of oil giants wrestling with investors to deal with climate pressure, so too are the number of mining rivals looking to make environmental changes for the future.
However, BHP currently has the upper hand as a stalwart mining company that established itself back in the 1960s, allowing it the time to grow and dominate over other fast-appearing mining competition.
Mike Henry, BHP Chief Executive, has an optimistic outlook for the future of oil and gas despite worries over rising demand to align his business with the Paris Climate Agreement. Henry argues that prices remain promising due to a lack of industry-wide investment.
BHP’s petroleum business won’t be easy to say goodbye to. Forecasted to generate around 6% of profits during the ongoing financial year (US$2bn), and around US$1.6bn revenue produced by BHP petroleum in the six months leading to December 2020, BHP is due to take a hit no matter what agreement they choose.
On the other hand, distancing itself from thermal coal and petroleum would arguably aid the company’s case to possible - and valuable - investors who may be required to fund BHP’s increased output to places such as Australia and Mexico in the near future.
BHP considers cutting billion-dollar contract to aid climate
An exit away from petroleum has the potential to be “a powerful corporate catalyst,” says Dominic Kane, Analyst at JP Morgan.
“We believe an exit would likely ring-fence BHP’s exceptional cash flows for non-fossil fuel organic growth, mergers and acquisitions and generous shareholder distributions since BHP could avoid a major new capital investment phase this decade in petroleum.”
BHP is also set to sanction a giant US$5.7bn Canadian potash mine in August of this year, already seeing potash as a long-term substitute for gas and oil going into the future. The company has also previously announced plans to abandon its 80% share in its joint endeavour with Mitsui, owner of two lower-quality mines in Queensland, Australia.
BHP is scheduled to report its annual results on August 17, after which it may become clearer on whether the company will choose to focus its shift to a low-carbon economy or whether it will stay with its current contract into the coming year.