Price is an issue for the South African platinum mining sector. I think Since 2008, we have seen a little bit of price recovery and then prices falling
back again. Some of the impact of that has been offset by a weak rand. In local terms, that means you are earning a little bit more cash and that
offsets some of the weakness in dollar prices. But, it is a big challenge for the industry and I think it has led to a few changes. I think If
you go back 5 or 10 years, the industry thought of itself as a platinum industry; and actually now, I think it looks at itself a little more widely
as a platinum-group-metal industry.
You can see that in the amount of the revenues that are coming out of platinum and now, with palladium at record prices in October 2018, just how much
effect that has had, with strong rhodium prices as well. So people are looking at it and saying, ‘We are mining a basket of metals’, and that leads
to some slightly different behaviour: instead of mainly mining for volume, you start mining for profitability and you say, ‘If we have mines that
do not make money, we should not be operating them.’ That, shows changes in the world in terms of interesting fundamentals. We hear a lot about
how fundamentals are becoming more important again in the precious-metals space, and I think you can definitely see that in the different behaviour
of, say, platinum and palladium prices over the last year or year and a half.
We have seen a lot of rationalisation in the platinum-mining sector in South Africa. We have seen some mines under care and maintenance; effectively,
being closed for the short term, with the potential of being reopened in the long term, if prices change. We have also seen assets sold. We are
seeing a little bit of interest with the potential deal between Lonmin and Sibanye. I think, at the moment, at today’s prices, unless something
changes, you would say that the industry is still under some pressure; therefore, I think there is still potential for some further rationalisation.
How that manifests itself is difficult to say, but I think we would expect to see definitely some further cuts in supply, which is partly because
of lower capex over the last few years. But it think it is also a rational response to low prices today.
We have seen some of those announcements. I think it is hard to say where prices go – although it is part of my job, it is a really challenging thing
to do – and, therefore, to say which assets might change hands or how they might scale. But it seems very hard to see, with the amount of capex
that has gone into the industry in the last few years, it is very hard to see production rising, say the next three, four, five years. Beyond that,
of course, everything can change but, in that timescale, we look to an industry that is probably going to be, at best, the same size or more likely,
in my view, a little smaller.
We normally look geographically at the metals. We are looking at two things: where is supply and where is demand. That is always the question. The
supply side is pretty easy but the big deposits are in South Africa and Russia. That is where you have to look if you want to see lots of production
coming on stream. What we have seen is a couple of palladium assets in North America – North American Palladium and Stillwater, which is now part
of Stillwater-Sibanye – and they are dealing with high palladium prices pretty well. And then we also see some palladium and platinum coming out
of the nickel mining as well, particularly in Canada. There is, then, potential for some growth but you are never going to get the same level of
production in North America that you can in Russia or in South Africa.
What you see, of course, is that demand is a massive story in North America. We see China as growing hugely but still very large amounts of demand
for platinum-group metals coming up in exhausts for large vehicles in the US and for hi-technology applications, and for investors as well. So
the demand side for North America remains an important area. Recycling is a hugely important area with the amount of metal that is going around
on vehicles in catalytic converters in the States in particular, but also in Canada. In the supply side, you could see potential for some growth,
particularly with high palladium prices, but I think limited potential compared to, say, the traditional places where you see production, such
as Russia and South Africa.