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The platinum group elements (PGEs) consist of six metallic elements found
in the Periodic Table: iridium (Ir), osmium (Os), palladium (Pd), platinum
(Pt), rhodium (Rh) and ruthenium (Ru). Platinum and palladium are the most
well-known of the PGEs due to their industrial applications in diesel and
gasoline engines. The market for palladium has become especially interesting
of late, with the price of the silvery-white metal gaining 18% in 2018, an
otherwise down year for metals. Scaling an uncharted $1,600 per ounce in
March, palladium is up 70% from a year ago.
We’ll get into the reasons for that in this article, and much more, as we
dig deep into the world of PGEs.
Characteristics
PGEs share similar physical and chemical properties, and they usually
occur together in the same orebodies. The similarities include a resistance
to corrosion, high melting points, and catalytic qualities, meaning they
speed up chemical reactions without themselves being chemically altered.
PGEs are the densest of the metallic elements, and they are highly
durable. This, along with their high value because of their rarity, make them
ideal candidates for recycling.
The first known mining of platinum and palladium alloys is thought to have
occurred in pre-Columbian South America (Colombia and Ecuador), where
indigenous people mined them from stream sediments and shaped them into
jewelry. According to the US
Geological Survey (USGS), after 1500 the Spaniards, upon finding
platinum grains mixed with gold nuggets in stream deposits, named the metal
“platina” meaning “small silver”. However it was considered to be a
worthless impurity. Platinum was named a new metal in 1750, followed by the
rest of the PGE group, in the early 1800s.
Geology
PGEs are among the rarest
of elements in the Earth’s crust. The crust has just 0.0005 parts per
million (ppm) platinum for example, compared to 60 million ppm copper and
0.075 Mppm silver and 0.004 Mppm gold.
Over 100 minerals contain components of PGEs, but they are too small to
see with the naked eye. Their presence must generally be confirmed by lab
analysis. Most PGEs are concentrated in magmatic ore deposits, formed
millions of years ago when magma flowed up from Earth’s mantle, cooled and
crystallized. Through this process, PGE-rich sulfides accumulated to form PGE
deposits. When PGE-enriched rocks eroded, through the movement of water,
PGE-enriched placer deposits formed.
Uses of PGEs
The leading use of PGEs is in catalytic converters. These essential
automobile components scrub tailpipe emissions in gas or diesel-fueled
vehicles.
Palladium is an ingredient in catalytic converters for gasoline-powered
cars, vans and trucks; platinum is in the catalytic converters of diesel
vehicles. Autocatalyst demand accounts for three-quarters of
palladium demand. Twenty-five to 50% of palladium is routinely substituted
for platinum in catalytic converters, due to its normally lower
price. However that is now reversed, with the price of palladium
about double that of platinum. If that dynamic stays the same, carmakers will
substitute platinum for higher-priced palladium.
I was surprised to read that, according to the International Platinum
Group Metals Association (IPA), one-quarter of all manufactured goods either
contain a PGE, or a PGE played a key role in its production. That makes PGEs
indispensable for industrial applications.
The chemical industry for example needs platinum or platinum-rhodium
alloys to make specialty silicones and nitric oxide - the raw material in
fertilizers, explosives and nitric acid. Platinum-supported catalysts are
used to refine crude oil and to produce high-octane gasoline. They are also
heavily applied in electronics, with PGE components utilized to increase
storage capacities in computer hard disk drives, in multilayer ceramic
capacitors, and hybridized integrated circuits. PGEs are needed to produce
fiberglass, liquid-crystal and flat-panel displays.
Platinum and iridium’s non-corrosive qualities make them ideal for medical
implants such as pacemakers, and surgical tools. Palladium, platinum and
rhodium are also investment metals, bought and sold as bars, coins or ETFs.
An emerging market for platinum is in the manufacture of hydrogen fuel
cells. Platinum is used to spur the chemical reaction of hydrogen with
oxygen. Recognized as powering NASA’s 1969-72 moon landers, the process
produces electricity and water. In the case of a fuel-cell electric vehicle,
hydrogen is stored in a fuel tank before it is mixed with oxygen from the
air.
Platinum demand for hydrogen fuel cells is set to increase into the 2020s,
according to a report from Heraeus
Precious Metals:
"Several thousand ounces of platinum are used annually and
this will grow as the technology is rolled out, potentially exceeding 100,000
ounces per year in the late 2020s."
Market for PGEs
Out of 69 million tonnes of PGEs found worldwide, South Africa’s Bushveld
Complex has the largest reserves of platinum and palladium - 63 million
tonnes as of 2018, according
to the USGS. Russia and Zimbabwe are a respective second and third. The
US Geological Survey notes that about 104,000 tonnes of PGEs could be
developed throughout the world.
South Africa is also far and away the largest Pt and Pd producer in the
world, outputting 178,000 tonnes combined last year. Canada is a significant
producer of PGEs, mining and processing 17,000 tonnes of palladium and 9,500
tonnes of platinum in 2018.
 
Up until 1920, nearly all PGE production came from placer deposits in
Russia and Colombia. PGE mining now takes place mostly in Siberia and South
Africa.
PGE supply insecurity
The United States is heavily dependent on external sources for PGEs,
importing about 90% of the PGE metals it consumes.
Platinum group metals were included among a 2018 list of 37 mineral
commodities the United States considers critical to its economic security and
national security. North America only has two producing platinum and
palladium mines - Stillwater in Montana and North American Palladium’s Lac
des Iles mine northwest of Thunder Bay, Ontario.
Canadian PGEs are also recovered as a by-product of nickel mining, mostly
from the Sudbury Basin, as well as northern Quebec and Manitoba. About
three-quarters of Canadian PGE production is sold to the United States.
The United States gets 31% of its palladium and 44% of its platinum from
South Africa; Russia supplies 28% of US palladium needs.
According to the US Geological Survey, the supply of PGEs from South
Africa, the number one producer, is anything but guaranteed. Last year
production there fell compared to 2017, owing to jobs cuts and mine shaft
closures - a trend that is likely to continue.
“Production was expected to continue decreasing as the world’s third-leading
PGM-mining company, by production volume, announced plans to cut 13,000 jobs
over the next two years at some of its mines in South Africa,” states USGS.
Another key factor affecting supply: Platinum mining in South Africa is
frequently interrupted by labour unrest. In 2014 workers at the country’s
three major producers - Lonmin, Anglo American Platinum and Impala Platinum -
downed tools for five months demanding that wages be doubled. The strike was
the longest and most expensive in South African history, shutting down about
40% of the world’s platinum production.
The industry was bracing for another shutdown this year but won a reprieve
in February after a court reserved judgment on whether to block a scheduled
week-long strike. Bloomberg
reported the Minerals Council lobby group saying that producers
could lose 1.3 tons of PGE production equal to $36 million, every day the workers
stay off the job. Impala Platinum would be “devastated” by a labor
disruption, its CEO said in a statement, as it tries to restructure its
Rustenburg operations to stem losses.
The country’s platinum miners are under constant pressure to contain costs,
because their mines are some of the deepest and most labor-intensive in the
world. High temperatures are also a serious issue. Platinum is being mined in
reefs up to two kilometers deep, where virgin rock temperatures have been
measured at 70 degrees C. Anglo American considers 75 degrees to be the limit
for mining, taking into account the metals prices, energy costs and
available technology needed in such an operating environment.
There are significant infrastructure constraints, too. The country has
limited processing capacity and water is a constant concern. Last summer Cape
Town came dangerously close to running out of water and was only saved
from “Day
Zero” by stringent restrictions on water usage. In early 2018
officials in Cape Town warned that unless drastic conservation measures were
taken, by summer the city’s 4 million residents would be forced to cue up for
drinking water surrounded by armed guards. “Day Zero”, when taps would be
turned off due to perilously low reservoir levels, was originally predicted
for July 2018 but has now been pushed back to 2019.
Power in South Africa is notoriously unreliable - blackouts are frequent.
In 2008 the country’s electricity grid nearly collapsed due to a shortage of
coal for power stations and system faults. Eskom, the main utility, ordered
all mining operations to evacuate underground staff and to stop mining for
five days, then cut electricity supply across South Africa to minimum levels;
the mining industry uses about 15% of Eskom’s output. The stoppage, affecting
roughly a quarter of generating capacity, cost the industry billions in lost
output.
In February, Reuters
reported that Eskom imposed the worst power cuts in years on homes
and businesses, as the utility grappled with another crisis within its
crumbling power infrastructure.
While the prices of platinum, palladium and rhodium have all gained in
recent months (platinum has risen 13.7% since the beginning of February, to
$886.80/oz) thus helping the bottom lines of South African producers, Anglo
American Platinum’s CEO has gone on record as saying that doesn’t mean the
industry will boost supply.
CEO Chris Griffith told
Bloomberg it takes between five and seven years to open a new mine,
and while some expansions are underway (like Rustenburg), the increased
output is likely to just replace supply declines elsewhere; the end result
will be a flat supply curve over the next decade.
“We can bring metal to the market probably faster than anyone can, and that’s
four to five years away,” Griffith said. “Very few companies in South Africa
have the ability and real estate they can develop new mines on.”
Platinum
The platinum market is currently oversupplied, with prices trailing both
gold and palladium.
In January the precious metal dropped to a
near 14-year low. According to a recent report from the World Platinum
Investment Council, the market is predicted to move further into surplus
this year, to 680,000 ounces compared to the 645,000-ounce surplus in 2018.
The main problem is mined supply outstripping consumption. Platinum is
flowing into the market from mine stockpiles and smelters in South Africa,
that accumulated during upgrades and maintenance over 2017 and 2018, states
WPIC. US platinum production is expected to expand eight-fold, from 50,000
ounces to 210,000 oz.
However, the precious metal that is a popular material for jewelry, has
fought back since the beginning of February, rising from $780 an ounce to
$886.80/oz as of April 10 - a gain of 13.7%.
Palladium
Discovered by William Wollaston in 1803, palladium was named after the
asteroid ‘Pallas’. Demand for the metallic element has surged since 2016 with
the movement away from more polluting diesel-fueled vehicles. The price has
more than doubled over the last three years (+124%) and ran up 18% in 2018.
That compares to declines in spot gold, platinum and silver last year.
As drivers shift from diesel to gas-powered cars or hybrids, the market
for palladium used in gasoline engines has buoyed the price. In 2017
palladium raced past $1,700 an ounce for the first time since 2001.
Despite automobile demand slumping in China last year, palladium finished
2018 at $1,262 an ounce - almost catching gold’s year-end close of $1,282/oz.
The increasing use of palladium in hybrid vehicles deserves more fleshing
out. An executive at Russian nickel and palladium miner Norilsk Nickel
PJSC said
recently that the combined use of palladium in hybrid and plug-in
hybrid/rechargeable vehicles is set to triple this year compared to 2016. A
2018 report by JP Morgan Chase & Co. predicts hybrids are expected to
grow from 3% of global marketshare to 23% by 2025.
Like platinum, palladium is facing constricted supply.
According to a report
from Sprott Asset Management, “Supply shortages continue to support
palladium’s performance, with strong multi-year growth in palladium demand
now straining a fixed supply.” The Sprott report also notes that
supply for palladium is inelastic because it’s usually a by-product of other
ores like platinum and rhodium.
South African palladium is a by-product of platinum mining and palladium
from Russia is a by-product of nickel. Between them, the two countries
control almost 90% of the palladium market.
On March 19, 2019, palladium prices rocketed past $1,600 an ounce, the
market’s reaction to news that top producer Russia is considering banning the
export of precious metals scrap, refining it domestically instead.
That was on top of an announcement that Fiat Chrysler has been ordered to
recall almost a million vehicles over failed emissions testing. In
conjunction with that recall, prices for rhodium, which also go into
catalytic converters, traded above $3,000 an ounce in March, MINING.com
reported. The recall is expected to strip out 25,000 ounces of rhodium
demand.
Conclusion
Platinum group metals are extremely advantageous for exploration or mining
companies to have in their deposits because PGEs provide a “kick” to
lower-value base metals. Consider for example a VMS deposit that is rich in
copper and zinc, but also has platinum and palladium by-products. When base
metals prices are up, those PGEs are a nice extra to have, and if copper and
zinc prices slump, that miner will be thankful for the PGEs, whose prices
normally rise when base metals fall.
PGEs also fit in with the electrification trend I continue to follow and
invest in. Palladium, platinum and rhodium are not only used in catalytic
converters required for diesel/gas-powered vehicles, but cleaner and greener
hybrids. Platinum also has an emerging use in fuel-cell vehicles.
I like PGEs because they’re rare, and the market is in no danger of
oversupply. The leading platinum producers are saying there’s no way we’re
looking at a glut anytime soon, for all the above-mentioned factors: labor
disruptions at South African platinum mines, power outages, expansion
problems due to constrained water supplies and processing capacity, not to
mention the fact that platinum mining is difficult and expensive - it’s not
easy to increase production even if prices rise considerably. And it takes
five to seven years to open a new mine.
We also need to emphasize that PGEs are critical metals. A relatively
small amount is mined in the US and Canada - the most
friendly country to the United States in the event of a supply
disruption. Who are the alternatives? Russia, Zimbabwe and South Africa.
Russia is the target of US sanctions and a constant thorn in its side,
Zimbabwe has a basket-case economy, and South Africa can’t be counted on for
a reliable supply of PGEs, due to the factors I’ve outlined.
Legal Notice / Disclaimer
This document is not and should not be construed as an offer to sell or
the solicitation of an offer to purchase or subscribe for any investment.
Richard Mills has based this document on information obtained from sources he
believes to be reliable but which has not been independently
verified. Richard Mills makes no guarantee, representation or warranty and
accepts no responsibility or liability as
to its accuracy or completeness. Expressions of opinion are those of
Richard Mills only and are subject to change without notice. Richard Mills
assumes no warranty, liability or guarantee for the current relevance,
correctness or completeness of any information provided within this Report
and will not be held liable for the consequence of reliance upon any opinion
or statement contained herein or any omission. Furthermore, I, Richard Mills,
assume no liability for any direct or indirect loss or damage or, in
particular, for lost profit, which you may incur as a result of the use
and existence of the information provided within this Report.
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