Deep Insights #51 Mining2030 PGMs Outlook with Dr. David Davis

Episode 51 February 24, 2023 00:31:43
Deep Insights #51 Mining2030 PGMs Outlook with Dr. David Davis
Deep Insights with Mining Review Africa
Deep Insights #51 Mining2030 PGMs Outlook with Dr. David Davis

Feb 24 2023 | 00:31:43

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Show Notes

Precious metals consultant Dr. David Davis unpacks his Auctus Metals report that highlights a turbulent future for PGM supply due to South Africa's energy crisis.

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Episode Transcript

Speaker 1 00:00:03 Latin group Metals are extremely important for the modern world due to the unique properties and wide range of applications. However, due to South Africa's energy crisis, producers may not be able to meet global demands. Hi, I'm Roelle Berta, and in this episode, precious Metals consultant Dr. David Davis, give a forecast on PGMs into the year 2013. Speaker 2 00:00:32 Hello and welcome to the very first episode of the Deep Insights Podcast on Mining Review Africa. My name is, and thank you for tuning in. This is a second installment of the Mining 2030 series, and today we take a look at Platinum Group Metals. So PGMs are most valued for their wide range of industrial, medical, and electronic applications. Platinum is one of the rarest metals in the world with distinctive qualities, making it high value across industries from Mona to B Mar all the way to northern South Africa's Miens and upper, uh, group two reefs are endowed, uh, with more than 80% of the world's platinum reserves. However, in a recent report published by Octa Metals portfolios, precious metals consultant Dr. David Davis, has revealed that amid South Africa's endowment of the metal, the rolling power outages in the country will cause P PGM supplies to face a steep drop leaving flat and already staggering economy. Dr. Davis joined us to further unpack the PGMs outlook report. Dr. Davis, thank you for joining us and welcome to Deep Insights. Speaker 3 00:01:57 Thank you very much for having me. Hmm. Speaker 2 00:02:00 So now, what kind of an impact does load shedding have on a platinum mine? Just take us through how 10 hours without power a day impacts the day-to-day operational routine. Speaker 3 00:02:15 Well, um, it, it does, uh, especially if the load shedding frequency is high, and that's above four, five, and six, obviously, six is the, the official number, which is, which is the extreme number where at least 50% of, um, machinery has to be closed down. It depends also on the type of mine that there are open pits mines, which of course, uh, uh, have no underground operations, so that's more easier. And, uh, there are mid deep dark mines and very deep minds. So the protocol for each of the mines is very, very different in terms of what, what, what is happening, uh, to load heading. But I, I think we'll probably look at a, uh, a deep middle, uh, middle mine because the other one can in fact hold a little long or longer. Uh, basically, um, before I start, I'd just like to indicate to your viewers that, uh, platinum mining is a, is extremely complex, and plat a platinum extraction is extremely con, uh, complex. Speaker 3 00:03:28 Um, it obviously involves mining. If it's deep, it'll involve refrigeration. It'll involve significant ventilation, which requires electricity, uh, and, and then obviously it will involves the miners, which their safety is of utmost importance. Uh, the, um, following the trip up to the, the concentrator, we, we, we grind the ore to and float it to liberator a, a flotation concentrate, which is concentrated in platinum rich metals and copper and nickel. Yep. So the concentrator, you might have six or seven ball mills, uh, grinding away, and again, very highly, um, um, um, electrified, uh, system, uh, from there to the smelter and converting. Now the, uh, smelter has to be treated like a baby, um, because it doesn't like, um, high and low temperatures, and so it, it expands and contracts, um, and suddenly the converters are, are not as quite as it disrupted, but they are. Speaker 3 00:04:43 And thereafter, that process is, um, the all goes through that process. It then goes through possibly in a different district, the, uh, refining, uh, and lecture winning of copper and nickel, and then further organic, uh, solution, uh, methodologies to extract the, the platinum and, and the platinum group metals. Now it takes around about six months mm-hmm. <affirmative> to, for the platinum to, uh, uh, piece of platinum if you like, to go through that whole process. So that gives you some background. Uh, so I o on a o on a mine, uh, if you, I, if you have a stoppage, uh, obviously there is, uh, a significant, uh, communication between escom and, uh, and the mining houses and the mines. Yeah. So they will know pre, pre hand what they can stop and what they can't stop. But, uh, if, if you're looking at a stage four to six, um, you will probably, uh, as I said, it, d depends on the, um, the protocol, the mining people adopt. Speaker 3 00:05:55 Mm-hmm. You probably, uh, have to stop, uh, uh, mining or limit mining, uh, depending how deep the mine is. Mm-hmm. <affirmative>, uh, you'll probably have to stop, uh, ball mills and run a few ball mills from a stockpile. And the smelter will have to try and keep on at a reduced rate to go through, uh, at a very high frequency of, and a length of time. The, uh, the mine will more or less, uh, come to a standstill with, with standby, uh, uh, um, generators running the important, uh, pieces of equipment for safety. Um, basically, uh, that is what happens, and it's, and you, and it can happen in various different, as I said, there are various different protocols. Mm-hmm. You could carry on some mining and stop the concentrator, build up a concentrate, but the likelihood, uh, of that happening, we will see actually what has happened over the, uh, fourth quarter of 22, how, how they miners have, have dealt with that protocol. Speaker 3 00:07:10 Um, going forward, uh, I'm sure they'll have to restructure their operations quite significantly. Mm-hmm. <affirmative>, uh, basically the effects of the two, uh, of, of, of load shedding will be, uh, initially a buildup in, um, inventory. Mm-hmm. Because inventory before the smelting, and so you get, uh, you'll build up a lot of money in, in, in inventory, and the, and then you have to put that inventory, feed it through the smelters. Well, at, at some stage, the inventory's gonna be very large, so the structure of running the operations is gonna change. So in that, in that regard, you will probably have a lower throughput. Uh, and so that means, uh, a reduction of output of PGMs. Speaker 2 00:08:05 Mm-hmm. So, so, um, I think in, in addition to the, the, the lower throughput, I think most importantly, their health and safety, there's so many repercussions on that because of the ventilation fails with people underground, that really, really causes some safety hazards. Speaker 3 00:08:24 Well, uh, the, the, the mining, uh, fraternity and elsewhere, of course, uh, always put safety first. Mm-hmm. So they always will put their, their people first in terms of if it's, if it's bad, if it's going to be bad, they won't put them down. They won't put people down the mind. Mm-hmm. Mm-hmm. Um, sorry, carry on. Speaker 2 00:08:45 Yeah. So, so you, you, you were talking about, um, the fact that supply will be affected. I mean, the title of your report suggests that the global mine supply will fall significantly. And I know that this is attributed to, to ESCO's load shedding, but just how much in terms of quantity will escu power shortages put a dent into PGM supply? Speaker 3 00:09:09 Well, it's, it, it's, it's, I, I'll talk about platinum, uh, pallium and roadium because those are the, the three main P PGMs, and it, there again, it is very complex to work out how, how much will, uh, will, uh, will it affect effect because you have that, uh, initial, um, buildup of, um, inventory. Yeah. And so, uh, it is really more or less impossible to calculate <laugh>, but you can look at it on the increase in frequency of load shedding, and you can judge from previous load checking and really make a educational guess, if you like, of, of how much, uh, platinum will be, uh, uh, affected. Now, um, and it also obviously depends on how many days this la last, uh, last, um, year, we, we were 151 days, uh, of load hitting, uh, at diff at a increasing levels of frequency of load checking previous year to that, we have a only 48 days, and I'm expecting that the days of load chatting will easily go up to 250 days this year. Speaker 3 00:10:27 So clearly at that sort of rate, um, I'm being very conservative, and I would think that South Africa would lose between 12 and 20% of its of its output. Now, South Africa produces about 4.8 million, uh, ounces. Mm. So clearly it is, it, it is significant, but it is in that range on the global side of things. Um, it will be somewhere when in nine, nine, uh, 9% in that, in 9% in, in that, in that, in that order of magnitude, magnitude plus or minus two or three. Mm-hmm. So that is important because, um, uh, just as an aside, mm. Platinum is changing its spots all the time. Mm. Because of the decarbonization, because of global climate change, platinum is used significantly for, uh, as we know exhaust catalysts Yes. And palladium, but it, it is also used to create green hydrogen, although there are other methods to produce green hydrogen. Yeah. We see green hydrogen being the number one priority, uh, for, uh, for, for, for platinum in the long term together with fuel cell vehicles. Speaker 2 00:11:51 So now those are drastic results that we're, um, we're about to see in the coming future. And my, my next question is more onto, um, con consulting firms and investors, is enough attention being given to this, um, are consulting firms loud enough on the meta and I investors equally aware? Speaker 3 00:12:16 Oh, uh, I, I'm sorry to say that the larger reserve, uh, um, research organizations and the investors have been behind the curve, and they're only just coming on board. And I've, I've been blowing my trumpet for a couple of years now, saying, Hey, what about, uh, escom? Um, and, and its effect on the, the platinum group metals in particular, platinum. Um, the research industry has indicated that there are risks involved, uh, but have not, uh, there haven't come to the party quick enough, in my view. Yep. Mm-hmm. Uh, and so having done that, uh, they haven't, uh, indirectly, um, uh, told investors that this could happen. Mm-hmm. They have said there are risks available. So I, I, I'm, I, uh, I am concerned about that yet. Speaker 2 00:13:12 Mm-hmm. Mm-hmm. Now, Dr. Davis, let's hope that such dialogues will, um, kind of get the word out there so that, um, yes, we can start preparing. So now let's move on to, um, let's, let's dive deeper into your report. Um, the integrated resource plan of 2019 has been met with several barriers since its adoption, including serious procurement problems resulting in significant delays. What do you think are some of the factors influencing ESMs inability through, given the government's failure to give an update on the revised I r P framework? Speaker 3 00:13:54 Well, it's, it's not only 2019. In 2017, 2018, now, 2019 are, are not fit for purpose. Mm-hmm. <affirmative>, uh, and weren't then, they weren't introduced then in 2017, they weren't introduced. So the government has a background of really non-compliance to their own, uh, uh, uh, um, their, their, their own, um, Speaker 2 00:14:24 Commitments. Speaker 3 00:14:25 Yes. Mm-hmm. <affirmative>, so clearly, um, there is a difference after the, the president has formed this national committee and set some objectives, uh, in July when he, when he re recreated the, the, the committees. Yeah. Since then, however, we have not seen timetables. Mm. We have not seen, we need to get it done by X date. Uh, and, and the, we have got lots of bureau, uh, complications, and we've got, uh, political con, uh, complications, those who are on inside of green energy, and those are on the side of, of, of coal energy. So, um, we've got complications within complications, and basically, um, to see it will take at least six or seven months to, to un unwrap a new program, by which time it'll be out of date anyway. Mm-hmm. <affirmative>, so clearly it is, it is not a good start Yeah. For the government, but the government has kickstarted the COP 27, the COP 26, COP 27 partnership. Yeah. Um, and they've offered, they being, uh, the uk, the usa Europe, et cetera, have offered to, um, deliver 1.3 or 1.4 trillion man rand, uh, to, uh, to change over from, uh, coal to, uh, green energy. Mm-hmm. <affirmative>, however, there is, there are dates associated with it. Yeah. So if you don't actually achieve what you're gonna achieve mm-hmm. Your exports to those countries Yeah. Or to any country for that matter, will be taxable at a higher tax rate because you haven't, uh, decarbonized enough. Mm-hmm. Speaker 2 00:16:27 Mm-hmm. So there are high penalties associated with that. But also again, uh, is, is South Africa not, um, committing too much of what it cannot, uh, uh, bring itself up to speed with? Are we, are we biting more than we can chew? Speaker 3 00:16:46 I think we are, uh, because, um, we need more resources in all of these areas to, to kickstart the, the whole program mm-hmm. <affirmative> and, uh, the, we need barriers to per, uh, procurement dropping dramatically. Yeah. We need all of those factors, uh, resources to, to, to carry them out with. And we haven't got the money at the moment to do that. Mm-hmm. Mm-hmm. So, uh, it, it, it's, it's gonna be difficult. Speaker 2 00:17:23 Mm-hmm. I, I really, really hate to go into the words here, but Dr. Davis, your report also points that ESMs emergency generation system has run out of fuel, which really, really cause for concern. What do we see companies doing to keep afloat? And more importantly, how can the platinum industry, the PGMs industry cushion itself for this gloomy period? Speaker 3 00:17:51 Well, just to go back to, to the, uh, emergency gas tur, uh, uh, diesel generators. Yes. Uh, basically, uh, escom has spent, uh, overspent on it more than double about 11 billion rand on, on, uh, on diesel. And, um, as against 6 billion. Um, they want to, at another 19 billion to, to secure to make it what I call not a high heightened risk, but at the moment, the government hasn't come forward. And so the height, the risk is heightened that we can't just go and switch on an emergency generator to help us through the load shelling. Now, um, you asked what, uh, what are our mining, uh, and, and industries are doing Well, the, the, they, they're doing, uh, as much as they can in terms of bringing forward their, um, their green energy programs and continuing with their green en energy programs, but they're allowed up to a hundred megawatts, uh, by government, uh, through the government laws and what have you. Speaker 3 00:19:09 But, uh, the, um, the new, uh, the, the new thinking is that those that will be done away with, so that we can ha uh, these companies, the big companies can have, uh, additional generating capacity through solar, solar systems. Uh, the small, the small guys are, are, are really battling with their Yeah. With, with their, um, generators and so forth. Mm-hmm. <affirmative>. So that's really, it's going to be a interim period before the solo will come through. But one thing I should say, and, and people don't recognize that of the, uh, coal powered stations mm-hmm. <affirmative>, five coal power stations are due to be closed down, uh, uh, by 2025 mm-hmm. <affirmative>, that means about five, uh, uh, megawatts. Yeah. Uh, of, uh, of, uh, system which will, which will close mm-hmm. <affirmative>. And so as the, as the coal fired units get older and are closed, so the solar panel systems, the solar recovery systems that are put in place, which should be put in place, should take that out, take over the, the gap mm-hmm. <affirmative>, but it won't, it won't happen. And, uh, it won't happen as quickly as we think. And so we'll still be in a, a high risk, uh, situation. Speaker 2 00:20:48 So I'm not sure if this is in connection to the question that I'm about to ask. When we talk about renewable energy, we are currently seeing, as you've said, a lot of miners acquiring green assets, um, mainly in, in solar and wind energy, but there are more words on transmission expansions with eski m's generation connection, um, capacity assessment report, noting that there are limiting factors for connecting areas with based wind and solar resources. So what are the, some, what are some of the outlined issues regarding the inability to transmit renewable energy given ESCO's 3000, uh, 33,000, uh, kilometer transmission line? Speaker 3 00:21:38 Well, uh, around about 14,000 kilometers are, are associated with new generation and new lions. Yeah. And they are, uh, are deemed to be put into the northern cape and the Eastern cape and, uh, uh, so as to relieve, uh, or so as all of those areas with high potential of wind and, uh, and sun, uh, can actually generate a significant amount of electricity through power lines. But the, the barriers to that are considerable. Mm-hmm. Um, uh, the servitudes, for example, over land, uh, you know, as well as I do, the law acts quite slow. Uh, if you want to purchase a, a a a a, a portion of a farmer's land. Yeah. You know, there will be a lot of, um, a lot of hasling, uh, going tape on red Yeah, yeah. Red tape going through that mm-hmm. <affirmative>. So, uh, we, we effectively have a grid system, which possibly is the most, uh, dire, uh, situation that escom can be in because the grid system cannot transport now the, uh, the, the areas from the areas with the greatest, uh, wind and solar and TV panels. Speaker 3 00:23:03 Yes. Mm-hmm. And, and the other thing is that I'd like to build, bring up, and, and normally when I say normally, yeah. Um, it is usual to wheel power from one section to another. So if, if, if you built a, uh, powers power line Yeah. You, you could wheel that power right up through the grid mm-hmm. <affirmative>, uh, but, um, basically, uh, that is, uh, uh, probably a higher risk because you haven't completed the necessary, uh, trans, uh, um, transformers and grid lines, et cetera. Mm-hmm. <affirmative> mm-hmm. <affirmative>. So wheeling is a possibility, but not gonna be in, in, in the near Speaker 2 00:23:51 Future. It would make more sense to wheel via escu with, um, lines that are already existing. Speaker 3 00:23:58 It, they can do, but, uh, the lions, which are existing are not that, uh, they are replaced. Mm. But I think the problem in replacing, uh, 14,000 kilometers, or putting new 14,000 kilometers between 23 and, uh, 2032, uh, is gonna be a very, very big task, big mission, and a very capital intensive program, very capital intensive. So one wonders whether it will be achieved. Speaker 2 00:24:32 Hmm. So now let's take it out of South Africa, um, while Zimbabwe appears to still be cleaning shop, which other countries are fairly equipped to, to balance the global supply, Speaker 3 00:24:48 The short answer is none. <laugh> mm-hmm. <affirmative>. Mm-hmm. <affirmative>, there are no countries, Speaker 2 00:24:53 Not even Canada. Speaker 3 00:24:55 No. Um, you mentioned in the introduction, uh, the South Africa itself, um, has 70, roughly 73% of the world's platinum. Yeah. Uh, and production at the moment. Mm-hmm. <affirmative>, uh, Russia has around about 10 or 11 and Zimbabwe eight, uh, to 10. So, uh, America, um, uh, north America has about 6%. Yes. But that's more palladium than, than platinum. Yes. So basically you cannot replace it. The only way to replace it is to, uh, recover it through recycling. Uh, so, um, recycling of platinum and of the PGMs, uh, will, will have to certainly be, uh, uh, built up quite considerably. Mm-hmm. <affirmative>, because recycling a platinum just recently hasn't been so good. And the reason for that is the, um, most, the average motor vehicle passenger vehicle in life is around about 12 years. And in that 12 years, may the, the petrol driven, uh, engines were, were in the, um, in the, in, at the high level. So they have more palladium in than platinum. So consequently, any recycling over the next 12 years won't deliver that much will happen. Speaker 2 00:26:31 Mm-hmm. <affirmative>, Dr. Davis, Russia is another factor that you have just mentioned. And it seems like the ongoing conflict between the country and, um, Ukraine is a never ending one. Um, how does this further affect the supply of PGMs? Speaker 3 00:26:50 Well, I see, uh, NORIS nickel, who, who, uh, produces copper and nickel and PGMs, uh, has just come out with their, um, their annual report or a preliminary annual report in 2022. They did say that, um, in that, uh, the report they were looking at, uh, reducing be because of the supply chain, uh, cha uh, chain problems, they did have a little sentence in there, uh, which gave me a, uh, made my eyes, uh, um, open a little in terms of that. Uh, in my report, I indicated that there are a few up to 14 or 15 projects, which this company is developing Yeah. Through to 20 30, 20 35. However, the, um, however, the, um, basically they did indicate, uh, that, uh, those projects were being delayed by at least two to three years. So as we, we are not gonna see a big change, but I expect, uh, in the medium, uh, term, five to 10% changes coming along the line because they've had a couple of, uh, problems with metal surgical operations in 2021. Speaker 3 00:28:15 And, uh, those are now online. So I, I, I would expect, uh, uh, a decline there. But I think I, I, I would like to also state that it's not only escom, which is going to create a big problem. Yeah. If, if you didn't have an escom problem, uh, the, my, uh, predictions and of that are many others indicate that the platinum group metals are in decline in bush belt, in, in the, in the igneous, uh, uh, bush belt. So in, in other words, uh, they are in decline already, uh, simply because of, uh, uh, expiration, limited expiration, limited capital going out, um, uh, o of the company's hands. And so that will continue to decline. So the decline has been exasperated by Escom Speaker 2 00:29:17 By escom, but not only limited to Escom. Of course, yes. Mm. So lastly, Dr. Davis, what are some of the additional risks or economic implications, not just on mining output, but on the social end? What will happen to people working in these sectors? Speaker 3 00:29:37 Well, it's gonna hit everyone. Um, for example, uh, uh, your cell phone, uh, your, the battery from the, uh, transmitter can last anywhere between two and six hours. It depends on how charged that battery is. So your, um, communications, uh, from village to village and, uh, from place to place will be non-existent unless the, the, um, the cell phone operators install, um, uh, extra power for these transmissions, municipalities are being affected, uh, sig significantly because at higher levels, uh, of, of load shedding the pumps for water, the pumps for sewage are, are, are, are, you know, are, are, Speaker 2 00:30:30 They're taking strain mm-hmm. Speaker 3 00:30:32 Yeah. Are taking the strain. And so every angle corner of the, of, of the country's industries and, and, and especially the poor, are, are gonna be affected significantly. Speaker 2 00:30:48 Mm. Dr. Davis, thank you for, for coming onto a platform to put the spotlight on the reality of the future of precious metals. I hope this podcast will call for, for more dialogue and, and not just on, on these issues that lie ahead, but also how we can prepare or even better solve them. Thank you very much. Speaker 3 00:31:11 Thank you for having me on. Speaker 2 00:31:15 Well, uh, we have come to the end of today's podcast episode on the future of PGMs in South Africa. Be on the lookout for a continuation of the series on other commodities as well. Thank you for joining us. Until next time, Speaker 4 00:31:31 Bye-bye. Thank you for listening. Remember to like, share, and subscribe to deep insights. For more mining news, visit mining review.com. Until next time, goodbye.

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