How a German automaker’s scandal forced South African miner to shut operations

In 2015, the United States Environmental Protection Agency (EPA) issued a notice of violation of the Clean Air Act to German automaker Volkswagen Group after the agency discovered that the German automaker had intentionally programmed its diesel engines to activate their emissions controls only during laboratory emissions testing.

The scandal raised awareness over the higher levels of pollution emitted by all diesel-powered vehicles from a wide range of car makers, which under real-world driving conditions exceeded legal emission limits.

A report by the World Platinum Investment Council quarterly report shows diesel car sales slump after the scandal. In effect, platinum demand for the automotive sector declined 4 percent year-on-year causing the market capitalisation of the world’s second-largest platinum miner Impala Platinum (Implats) to reduce by 50 percent to $1.8 billion (December 2017) and finally force a restructuring that will cost Implats about R2.7 billion ($204 million) in its 2019 and 2020 financial years.

In the wake of precious metal-Palladium price gain against its Platinum counterpart and concerns regarding diesel vehicle emission control, platinum producers are spent for cash. The production cost, increased electricity prices and a lack of investment in the industry over a number of years have all taken their toll on the miners.

Implats is forced to cut production to 520,000oz from 750,000oz and slash the number of its mines to six. The South African based miner also plans to reduce its manpower by 13,000.

Attempting to salvage the situation, Implats has chosen to shift its focus to activities that will produce profitable, lower-cost, high‐value, and longer‐life assets by shutting operations at its uneconomic shafts at the Rustenburg complex.

In late September 2017, platinum price (PPLT) fell below palladium price (PALL, SPPP) for the first time since 2001. In July, prices for platinum settled at a 9½-year low of $813.40 an ounce and have been around 33 percent below gold and roughly 11 percent lower than palladium. Currently, platinum trades below gold and palladium at $$834.90/oz (as at August 3), one of the lowest prices recorded for an ounce in a decade.

Platinum
Price of Platinum (Feb 4 – Aug 3, 2018)

Comparatively, palladium is as valued, effective as platinum but less expensive for use in certain industrial applications and in most automobile catalytic converters causing a change in consumer trends, thereby increasing the demand for palladium.

South Africa produces more platinum and similar metals than any other nation. In 2005, 78 percent of the world’s platinum was produced in South Africa, along with 39 percent of the world’s palladium. Over 163,000 kilograms (5,200,000 ozt) of platinum was produced in 2010, generating export revenues of $3.82 billion.

Implats will now focus on low-cost mines and also boost palladium output to exploit the current deficit of the metal used to check harmful emissions from petrol-fueled vehicles.

Implats Chief Executive Officer Nico Muller noted that the company’s future will be built on Two Rivers, a joint venture with African Rainbow Minerals (ARM) and Zimplats, its Zimbabwean subsidiary.

Things to note about Platinum and Palladium

Platinum is the catalyst in a catalytic converter, but there are other metals as well, such as palladium, rhodium, copper, nickel, cerium, iron, and manganese.

Platinum (Pt) is a dense, malleable, ductile, highly unreactive, precious, silverish-white transition metal with remarkable resistance to corrosion, even at high temperatures. Platinum is used for jewelry, chemical production and petroleum refining, medicine and biomedicine, anticancer drugs, oxygen sensors, spark plugs and turbine engines.

Palladium (Pd) is a rare and lustrous silvery-white metal. The largest use of palladium today is in catalytic converters. Palladium is also used in jewelry, dentistry, watch making, blood sugar test strips, aircraft spark plugs and surgical instruments.