Platinum group metal miners in top producer South Africa may start to close mine shafts soon to rein in financial losses amid the sustained downturn in PGM prices, and the reduction in output is unlikely to be offset by supply from Russia and elsewhere, delegates heard at a recent conference in Shanghai.

Platinum's worst crisis in decades has squeezed the four big producers in South Africa - Sibanye-Stillwater, Amplats, Impala and Northam Platinum - as they battle the sharp slump in the PGM dollar basket price, particularly palladium and rhodium.

With high interest rates and sluggish global growth undermining demand and adding to costs, the platinum price has fallen by one-quarter to less than $1,000/oz since February 2021.

Each company has fared differently, depending on their position on the cost curve, capex cycle, prill split and by-product credits. Amplats, the world's biggest platinum miner, and Northam have best withstood the price rout to date, while the situation at Impala and Sibanye-Stillwater looks more precarious, but profitability at all four has suffered to some extent.

"To be frank I think it's been quite devastating. More than 50% of the cost curve is under water. Most of the companies are haemorrhaging cash at the moment, some more than others," Adrian Hammond, head of precious metals research at SBG Securities, said at the China PGMs Market Summit held as part of Shanghai Platinum Week.

"Two of the four producers have balance sheets that are okay. The other two are in quite a severe situation, and one of those is actually in a very dire situation with concerns around the balance sheet that may obviously flow into concerns around the sustainability of their portfolio."

Shaft closures loom

Cost-cutting measures by the miners have included shedding jobs and curbing expenditure but not potential production cuts until recently, according to speakers. Sibanye-Stillwater blinked first when it said in April it would close its loss-making 4 Belt shaft at the Marikana platinum operations after failing to return it to profitability.

"We haven't seen shaft closures per se but we have seen reductions in workforce, which is translating to lower production. For example, platinum is down half a million ounces. We foresee another 20% reduction by 2030," said Hammond. "I think you may very well soon see some shaft closures, which hasn't been happening for some time."

"If [miners] stop investing, they will start to mine out what is there, and particularly in an older industry, where you have mature shafts blended with new shafts blended with mid-life shafts, if you do not replace the end-of-life shaft, you will shrink. And I think that already baked into the system," said SFA Oxford chief executive Henk de Hoop.

South Africa in a pinch

South Africa's PGMs dominance has been driven by the Bushveld Igneous Complex, which spans 66,000 sq km as the world's largest layered igneous complex. First mined in 1926, it now has 180,000 direct employees within the South African PGMs industry through 22 mining operations and 30 active shafts.

Bushveld helped South Africa contribute 54% of global supply of platinum, palladium and rhodium last year, dwarfing the next biggest sources of Russia on 27%, and North America and Zimbabwe each on 8%.

But at current metal prices Bushveld's output is currently challenged by a number of factors, one being that PGMs cannot be selectively mined, according to Henk.

"You can't mine the metals individually, they all have to add up to a certain revenue number, and if two or three of those major drivers start to weaken, you've got a problem for the industry."

"It all comes in a basket and that has a consequence. First of all, if you want to build new mines in South Africa, yes, there are still some shallow deposits left that are more challenging because they are more geologically fractured and more difficult to mine. But the larger orebodies that need replacing would probably need some deep-level shafts to replace them."

Building a 2km-deep shaft on par with Bushveld's deepest existing shafts and the requisite infrastructure could take years. "We are talking 15 years before you have a big-scale shaft because these shafts will never be built small. To make them economically feasible, they need to be big shafts that produce big volumes of ore," said Henk.

Deep shafts need to contend with heat as the virgin rock temperature 2km underground can reach 60 degrees Celsius. Shafts are also prone to earthquakes at this depth, requiring miners to leave more ore behind to support rock layers above and thereby lowering extraction ratios.

"You essentially can say your deeper mines need higher margins to actually be economically sustainable and to justify the big investment that you need to make before you've got the mine up and running. At this stage, no boards in South Africa will approve deep-level shaft expenditure. Their own economics can't afford it, their longer-term outlook is too uncertain, and as a result, some of those deeper shafts are starting to close down and getting mined out, we're going to see shrinking of the platinum base in South Africa and the production base of overall PGMs."

The dependence of South African miners on the PGM basket price rather than individual metal prospects is also problematic. Platinum revenue was historically key to overall revenue for the miners, with occasional price spikes in palladium and rhodium boosted profitability in short bouts.

But severe cost inflation in South Africa since 2019 coupled with the present downturn in palladium/rhodium prices means a considerable portion of palladium and rhodium is now loss-making. The outlook for the two PGMs is also shaky given demand is based on the need for internal combustion engines, which is expected to shrink over time amid the rise of electric vehicles.

Rest of the world

Russian output is likely to withstand the lower price environment given that PGMs are produced as a minor by-product of base metals production. "That's an important differentiator. Their mines run on nickel and copper prices," said Henk.

North American output is seen declining in the next few years as mines in the region are palladium-dependent. Impala said in February it was restructuring its Canadian palladium operations - the life of which has been shortened to between two and four years, down from seven years.

More recently, Sibanye-Stillwater chief executive Neal Froneman said at the London Indaba last month that the company was prepared to put its Stillwater mine in the US on care and maintenance.

Russian platinum production stood at 178koz in Q1 2024, up by 30% from 136koz in Q4 2023, although output for all of this year is expected to decline by 9% to 616koz, according to forecasts from the World Platinum Investment Council. North American supply held steady at 72koz for Q1 2024, and full-year production is forecast to remain unchanged from 2023 at 276koz.