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Heraeus Precious Appraisal

  • No. 3 | 23rd January 2023

PGM supply at risk in South Africa as power cuts continue

Troubles with power supply plagued South African platinum miners last year. Power use curtailment was imposed on miners on 205 days in 2022, including at Stage 6 of loadshedding when miners must cut electricity consumption by ~50%, rather than undergo full power cuts like the public. Mines will cut usage at energy-intensive processing facilities to reduce consumption in order meet required load curtailment when necessary and depending on a mine’s individual situation.

Platinum production disruption is likely to extend deep into 2023. Late last year, Eskom drained funds to buy diesel used to supplement powerplant generation. This is likely to lead to more extreme loadshedding until the end of FY’23. Eskom predict steady-state stage-3 loadshedding until August 2023, but levels of generation capacity undergoing maintenance is ramping up. With total planned and unplanned generation outages currently reaching ~50% of installed capacity, the risk of higher-level loadshedding is high.

PGM miners are planning to diversify electricity generation. South Africa’s National Energy Crisis Committee suggests that nearly 18 GW of additional generation capacity could be added to the grid in the next 24 months. The Minerals Council of South Africa sees a pipeline of 7.5 GW of mining industry-owned projects and estimate that less than 3 GW could be operational on that timeline. These projects are primarily wind and solarbased, meaning that supply is likely to be intermittent and not able to compensate for Eskom shortfalls. The largest announced plans for PGM miners are 425 MW of solar and wind generation at Sibanye-Stillwater’s operations, and Northam has secured rights to energy from private wind farms that could provide up to 50% of the company’s current energy use.

There is a risk that the combination of severity and frequency of loadshedding could lead to a build-up of unprocessed PGM ore and metal inventory. The increasing frequency of load-shedding allows miners less time between power cuts to catch up with lost processing time, particularly if the processing facilities normally run at full capacity; thus stockpiles and inventories could build up over time. Although stock release from Anglo American’s Polokwane smelter rebuild adds ~250 koz 4E PGMs to mine supply this year, overall, the palladium and rhodium markets are seen as being near to balance. Eskom-related impacts on producers increase the risk of supply constraints which could push the palladium and rhodium markets into deficit and result in more price volatility.

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