Does Zimplats need a rethink on palladium?

07 Feb, 2020 - 00:02 0 Views
Does Zimplats need a rethink on palladium?

eBusiness Weekly

Tawanda Musarurwa

Last month palladium hit an all-time record price of US$2556,95 per ounce, higher than the platinum price at below US$1000 an ounce, and gold at just over US$1500 an ounce.

The irony of it is that palladium was long considered as only one of the Platinum Group Metals (PGMs).

The metal’s skyrocketing prices have raised questions over substituting it for platinum.

Palladium has various uses, including in ceramic capacitators found in mobile phones and laptops, dental fillings as well as white gold jewellery. But 80 percent of palladium produced is used in the manufacture of catalytic converters for petrol cars, which perhaps points to its growing demand.

Zimbabwe Platinum Holdings (Zimplats)’s fourth quarter production numbers — albeit in the red — show that palladium production is now just below that of platinum by a few thousand ounces, with indications that if the price of the former continues on an upward trend, palladium might outstrip platinum as the PGM of choice.

The latest numbers from the local platinum producer show that it produced 53 107 ounces of platinum from 70 000 ounces in the previous quarter, while Q4 palladium output for the period amounted to 45 367 ounces from 59 795 ounces in the quarter to September 30, 2019.

At current metal prices, Zimplats is likely to be earning more from its palladium exports than from platinum, even if production of latter is still higher.

Metal analysts have said that a palladium deficit has been one of the main drivers pushing its prices higher. They say palladium has been in deficit for the past seven years and could remain in deficit this year, and perhaps into 2021. In an earlier interview, Zimplats chief executive CEO Alex Mhembere, said the rise of palladium could be temporary.

“We are not in a position to take that strong stance (to re-focus on palladium production) because it requires us to shift what we call the mining charter agreement. At this stage, we still think it is temporary and that platinum will overcome palladium.

“We have seen the trend yes, but if that becomes a permanent position, there are two things that we have to do; first is to widen our mining charter or shift the mining plant to palladium. Palladium ore tends to occur below the platinum ore.”

At that time (2018), palladium had grown to contribute 35 percent of Zimplats’ revenue, compared to platinum’s 38 percent, from 11 percent and 68 percent in 2009, respectively.

But could the spike be a short-lived one?

Said Daniel Briesemann, an analyst with Commerzbank last month: “We believe it is still too early to declare an end to the price rally, as this would require several days of declining prices. The current development of the palladium price is reminiscent of silver’s performance between 2009 and 2011.

“Silver also began by rising gradually for a long time before climbing sharply and ultimately reaching a record high of nearly $50 per troy ounce in April 2011. However, the price then slumped and even fell in the following years to below $15.”

Whatever, the future holds local platinum producers like Zimplats should be seriously thinking over this sparkling mineral.

But events in the electric automobile revolution should also guide as the catalytic converters on petrol vehicles might not be needed as the world shift to the new and cleaners vehicles.

Meanwhile, for Q4 2019, Zimplats’ six elements (platinum, palladium, gold, rhodium, ruthenium and iridium) production decreased 23 percent from the previous quarter due to planned mill reline shut-down at the Selous Metallurgical Complex concentrator.

“Running time for the quarter was constrained due to the planned mill reline shut-down at the Selous Metallurgical Complex concentrator. 6E metal production in final product decreased by 23 percent from the previous quarter mainly due to an increase in concentrate stocks and the build-up of inventory in the furnace on start-up after the 122-day major rebuild shutdown,” said Zimplats.

“The furnace inventory build-up is expected to reverse during the financial year and it is anticipated that all the concentrates stockpiled will be smelted before the end of the year.”

Total operating cash cost increased by 5 percent from the previous quarter.

Costs for the previous quarter were low as the furnace was down on its major rebuild.

“Costs transferred to closing stocks increased from the previous quarter due to the increase in ore and concentrate stocks,” said the platinum producer.

Operating cash costs per 6E ounce increased by 30 percent from the previous quarter due to the 23 percent decrease in 6E ounces produced.

Zimplats said it utilised capital expenditure to the tune of US$1,3 million during the fourth quarter as it moved to expand its existing operations. The US$1,3 million was spent on exploration drilling projects conducted during the quarter on existing mines.

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