Some platinum group metals (PGM) producers are freezing recruitments for non-essential jobs and restructuring loss-making operations as they grapple with weaker metal prices, inflation, rising input costs and energy supply constraints.
In July, Northam agreed to sell its 34.5% stake in RBPlat to Impala Platinum (Implats) amid concerns that prevailing PGM market conditions and the material decline in the PGM basket price “may signal a potentially protracted cyclical downturn”.
Nomonde Ndwalaza, spokesperson for Anglo American Platinum (Amplats), said despite the group's record earnings in 2021 and 2022, mainly driven by bumper prices, the local industry still has to deal with high input costs and energy and logistics constraints.
“Globally, the picture has also been challenging for the mining industry: prices for many commodities have fallen, coupled with this, the high inflation that we’ve seen this past year — even with moderate signs of easing — continues to present a challenge for mining companies from a cost point of view,” she said.
Amplats, the world's biggest platinum producer, is 78% owned by Anglo American, which is aiming to remove $500m (about R9.4bn) in costs across its global footprint.
“We anticipate this might lead to a headcount reduction in some head office functions in the businesses we operate and at group level. This work is already under way and the dynamic operating environment we find ourselves in requires us to approach these issues with urgency and diligence.”
If performance slips and/or metal prices deteriorate further, we will have to take more drastic action to remain profitable
— Implats spokesperson Johan Theron
Platinum prices have plummeted from $1,070 to $869 an ounce, palladium from $1,883 to $983, while rhodium has tumbled from a high of $13,150 to $4,300.
Rhodium and palladium are used in the motoring industry to reduce exhaust fumes, while platinum is used as a precious metal.
The bleak PGM environment resulted in Northam Platinum abandoning its 18-month pursuit of Royal Bafokeng Platinum (RBPlat), while Sibanye-Stillwater last month announced plans to restructure its loss-making operations, a move that could affect 4,095 jobs.
PGM prices have declined significantly over the past year, eroding profit margins and hurting liquidity, Northam CEO Paul Dunne said.
The depressed global economic environment, slower-than-expected recovery in China, the distribution of Russian PGMs to China, metal substitution and the continued rise in electric vehicles are some of the factors that have dented demand, he added.
“Current indications are that the PGM market may remain under pressure for some time. However, we believe PGMs will remain important, particularly in the hydrogen economy, and we foresee a supply deficit in the medium term that supports a recovery in PGM prices,” Dunne said.
In response to the prevailing price environment, the miner said it had strengthened its balance sheet through the sale of its stake in RBPlat.
“We believe lower PGM prices will rapidly demonstrate to the market where relative risk and value lie in the sector, as we have seen in the past. Conversely, should PGM prices recover quicker and stronger than now anticipated, Northam is very well positioned to benefit from this market shift,” said Dunne.
Implats spokesperson Johan Theron said PGM producers must align their operational strategies to current metal prices to remain financially sustainable.
Implats was progressing with a range of targets, including operational efficiency improvements, capital prioritisation and labour cost optimisation, he said.
However, labour cost optimisation did not imply mass-scale retrenchments as employees were the “heart and soul of the business, the hands through which value is created”, Theron added.
“Presently, labour optimisation at Implats contemplates a range of interventions, including the deferment of annual management salary increases, recruitment freezes for non-essential jobs, natural attrition to realise lower staffing levels, organisational changes and voluntary separation incentives to employees who may already be contemplating leaving the organisation.”
The group aims to ensure every operation in its portfolio can stand on its own and remain, at minimum, cash neutral through the cycle, given prevailing metal prices, he said.
“This approach is premised on operating performance and metal prices — if performance slips and/or metal prices deteriorate further, we will have to take more drastic action to remain profitable.”
The group had the strategic intent of remaining cash-positive at all operations through the commodity cycle, but might reconsider unprofitable operations if the situation doesn't improve, said Theron.
“To the extent we are unable to align our performance to prevailing metal prices, other options will be advanced, including stopping unprofitable operations and instituting fundamental organisational restructuring where ongoing interventions are unable to deliver our strategic objective of being cash positive through the cycle.”
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