Load-shedding hits PGM miners hardest

The platinum group metals (PGM) industry bore the brunt of load-shedding as January production fell 15.2% compared with a month earlier.

Smelters and concentrators in the PGM industry rely heavily on Eskom’s coal-fired power stations and have been unable to produce at full capacity because of blackouts, resulting in such miners recording reduced production in the second half of 2022.

Stats SA said on Tuesday that overall mining output declined by 1.9% year-onyear in January, marking the 12th consecutive monthly contraction. While the decline then was better than Bloomberg’s forecast of a 2.8% decline, it followed a 3.6% contraction a month earlier, a 9.1% slump in November and an 11% fall in October 2022. Stats SA added that diamond production fell by 15.5% in January.

Christiaan Bothma, investments analyst at Sanlam Private Wealth, said the PGM production decline was concerning.

“It contributes around 23% to total mining output and may be indicative of the impact of load-shedding on specifically the processing of mined ore, which is particularly electricity intensive.”

He said bulk commodities such as iron ore and coal are less dependent on Eskom, but are exposed to Transnet’s continued rail underperformance.

The decline in diamond production was less important, Bothma said. “It is only 3% of total mining production and can also be explained by De Beers’ Venetia mine, which is transitioning from an open-pit to an underground operation, thus likely a temporary reduction.”

After coal, PGMs, which consist of platinum, palladium, rhodium, ruthenium, osmium and iridium, are the second-largest component of the country’s mining volumes. Coal, PGMs, metals, gold, iron ore and manganese ore account for 85% of South Africa’s mining.

Seleho Tsatsi, an investment analyst at Anchor Capital, said “load-shedding, highcost inflation, Transnet issues and lower commodity prices are really pressuring profitability across the sector. Companies have flagged these challenges to investors recently and indicated [they] will likely continue to impact operations.”

PGM majors Impala Platinum, Anglo American Platinum (Amplats), SibanyeStillwater and Royal Bafokeng have recently pinpointed the negative impact of power shortages, particularly in the latter part of 2022 when load-shedding intensified.

Intensive energy users such as mining companies are requested by Eskom to reduce power consumption when the grid is under strain.

Amplats, the world’s biggest platinum producer, cut its outlook for 2023 production due to power constraints and Sibanye’s South African COO Richard Stewart last month warned that if power curtailments continued this year, 15% of the company’s and South Africa’s production PGM output would be affected.

Royal Bafokeng Platinum said severe load-shedding in the latter part of 2022 made it more difficult for PGM producers to maintain consistent levels of production. And Impala’s processing plants postponed 38,000 6E ounces of refined products in the six months ended December 2022.

According to the Minerals Council South Africa, anecdotal evidence indicates the country’s mining operations are running 20% to 30% under capacity due to electricity constraints, either through load-shedding or load curtailment. It estimated a 15.2% decline in PGM output to 242 tonnes last year and identified Eskom’s ongoing electricity supply challenge as the single risk inhibiting PGM production and exports.

“The unreliable nature of electricity supply coupled with steep increases in electricity prices is a binding constraint on the industry,” it said. The council previously raised concern about PGM production in 2022 being below pre-Covid levels and sustained declines in physical output.

Despite load-shedding woes in the PGM industry, sales were the largest contributor to the sector in 2022.

Department of mineral resources & energy spokesperson Makhosonke Buthelezi said among reasons for below-par production performance were Transnet’s logistical challenges emanating from locomotive availability, cable theft, rail vandalism and delays at the ports, especially for bulk commodities (which make the larger contribution) destined for export, compounded by electricity constraints.

As a result of constraints on the rail and port system, bulk commodity producers, including iron ore, chrome, coal and manganese, missed out on R35bn in exports in 2021 and R50bn in 2022.