SOUTH AFRICAN mining firms are in line for a profit windfall as the Russian invasion of Ukraine has led to an extended rally in commodities, on the back of spooked investors and fears of a supply crunch.
On February 24, world markets were shaken as Russia launched its massive military attack, which observers describe as the largest in Europe since World War II.
Riding the commodity bull are South African mining firms.
Of note: shares in Amplats are up 16.26 percent in seven days (up 37.09 percent in 30 days); SibanyeStillwater’s shares up 6.28 percent (up 27.36 percent in 30 days); Harmony shares up 20.9 percent (39.19 percent in 30 days); Gold Fields up 10.9 percent in seven days (44.27 percent in 30 days); DRDGold up 9.27 percent in seven days (up 29.34 percent in 30 days); Thungela Resources up 40.9 percent in seven days (up 66.92 percent in 30 days) and Impala Platinum down 3.74 percent in seven days, but up 19.81 percent in 30 days.
South Africa is the largest producer of platinum group metals (PGMs) in the world, followed by Russia. The PGM industry anticipates that local mining firms will benefit if Russian PGM sources are sanctioned.
Umthombo Wealth Equity and ESG analyst Sandile Magagula said the Russia-Ukraine crisis was boosting the PGM sector.
“The crisis should support PGMs unless the unthinkable happens, a nuclear war, with the potential to give us hell-winters lasting more than 4.5 million years. We can then safely put our money in the Martian economy free of radiation,” he said.
Magagula said that given immaterial growth projects in the PGM space, increasing strategic importance of scarce green metals in geopolitics, and regulatory bound commodities such as nickel and cobalt, this did not mean the end of internal combustion engine vehicles.
“A cleaner world is, therefore, almost impossible without the PGMs, while legislative-led increased loadings on autocatalytic converters will require supply to increase 2 percent to 4 percent annually to satisfy demand, a condition that would require high investment and take longer time to get production on stream,” he said.
Anchor Capital investment analyst Seleho Tsatsi said on Friday that the price of commodities – for example, oil, base metals, aluminium, zinc, nickel and natural gas – had rallied strongly.
While the Russian economy is small in global economic terms, the country is one of the largest producers of PGMs in the world.
Russia produces 2.7 million ounces of palladium, which accounts for 38 percent of global supply, but in terms of other PGMs, it only produces 10 percent of platinum and rhodium, and only 8 percent of iridium and 4 percent of ruthenium.
Russia produces about 40 percent of primary (mined) palladium supply and 14 percent of platinum supply, so there are concerns that the Russia-Ukraine war will lead to supply issues regarding PGMs, Tsatsi said.
PGM miners play a critical role in the vehicle sector, and disruptions to its supply chains due to Russia’s invasion could impact demand for PGMs.
“We have already started to see automotive original equipment manufacturers announce cut-backs in production. BMW and VW have announced production shut downs due to supply issues,” said Tsatsi.
As the world gears towards decarbonising, PGMs are in demand as vehicle emission control catalysts.
Tsatsi said how long the rally in PGM prices would last depends to a degree on how long the conflict lasts.
The fighting remains intense in central Ukraine as Russian forces continue to bombard Kyiv.
dieketseng.maleke@inl.co.za
BUSINESS REPORT ONLINE