ZIMBABWE’s platinum mines, which are battling to ride over subdued market prices, could benefit from a rally in palladium prices, a Chamber of Mines of Zimbabwe (CoMZ) executive said this week.
Zimbabwe has the world’s second largest proven platinum group metal (PGM) reserves after South Africa. Palladium, rhodium and gold are some of the by-products of platinum refinery.
CoMZ chief executive officer, Isaac Kwesu, told The Financial Gazette that palladium’s current price movement would be good news for platinum miners, but said it would still not be enough to repair significant damage inflicted on platinum miners by a decline in prices over the past few years.
Speculative wagers on palladium have resulted in prices shooting since May this year, with investors piling into the commodity. Supplies of palladium, which is used mostly in pollution control devices for gas powered cars, tightened following a string of annual deficits that eroded stockpiles.
Spot palladium is up about 30 percent this year, while platinum, produced at about 445 000 ounces per annum in Zimbabwe, has climbed by only two percent.
Platinum miners, whose predicament deepened after last month’s order by the Reserve Bank of Zimbabwe to surrender 80 percent of their foreign currency earnings, have been battling the sharp slide in prices.
Platinum prices have slipped from a high of about US$1 200 per ounce in the final quarter of 2016, to as low as US$910 at one time in the past few weeks. On Monday, palladium prices reached US$925 per ounce, against US$916 per ounce for platinum.
As the speculation picked, the palladium market continued to tighten, according to the World Platinum Investments Council. Prices opened the week to October 6 with palladium selling at US$934 per ounce, against platinum’s US$912,60, according to analysts at MMC Capital.
Prices were level at US$911 on Tuesday last week, followed by a sudden gain in palladium traction on Wednesday, to end the day at US$922 per ounce, with platinum remaining at the previous day’s price, MMC data showed, noting that palladium capped the week at US$943,38, against platinum’s US$914,64.
The Bull Run is certain to attract the attention of government, which has been accusing platinum mines of manipulating data on the quantities of platinum byproducts during final refinery in South Africa, and ripping off the State.
Zimbabwe has directed its three foreign platinum firms, Mimosa Mining Company, Unki and the Australian Stock Exchange listed Zimplats, to invest in domestic refineries as part of measures aimed at stemming what authorities see as mineral plunder.
But there are concerns that current production levels of about 445 000 ounces per annum fall far below the quantities required to run a viable refinery. “Any increase in palladium prices is good news for the industry and for the country,” said Kwesu.
“We will get a reprieve especially when platinum prices have not been good. It will cushion platinum mines a bit although it will not cover them enough. We should also note that the palladium price is still lower than its peak of over US$1 000 per ounce in the past five years. We hope that the recovery will be sustainable. But this does to mean that platinum mines will shift to produce more palladium because the prices are good. It is the price versus the cost of extracting each mineral which determines what is economic to mine. Remember that previous investors concentrated on producing nickel,” Kwesu told said.
Annual palladium revenues for 2016, at US$208 million, were only one tenth of the industry’s mineral output estimated at US$2 billion.
But this is no joke for a country reeling under severe foreign currency shortages. The US$208 million is just below total annual minerals revenues for countries like Rwanda, which generated US$340 million from the resources sector last year.
In its annual 2016 report, the CoMZ said palladium output increased by 22 percent to 12 222 ounces last year, from 10 055 ounces in 2015. Output is projected to rise by one percent to 12 400 ounces.
“Notwithstanding the 40 plus mineral endowments in Zimbabwe, more that 88 percent of the value of mineral output in 2016 was accounted for by four key minerals (gold, platinum, palladium and nickel), with gold constituting 48 percent of total revenue,” the CoMZ said.
But Lyman Mlambo, chairman of the Institute of Mining Research at the University of Zimbabwe, said the possibility of PGM miners hunting for palladium as the major and platinum as the by-product was increasing with time, given the price gains that the former has experienced.
“My best guess is that the rising trend in palladium prices will continue given that it has several other applications that seem to be experiencing growth,” Mlambo said.
“The rise in palladium prices is actually on the back of strong demand fundamentals from auto sales in China and India. If demand for platinum in its other applications does not strengthen its price is likely to dampen in the medium to long term. Thus, in my opinion this development is good for the PGM industry and for Zimbabwe as we got the second largest resource of PGMs in the world,” Mlambo added.
But analysts are not sure if palladium prices will sustain the northward march.
“Anyone considering entering that relative trade now should be aware of the concerning signals from the two largest gasoline auto markets, the US and China,” Tapiwa Sibanda of advisory firm, Trade Winds, referring to the possibility of a depressed gasoline powered automobile market going forward, which could reverse the palladium rally.