Low PGM prices take toll on Zimplats, forced to retrench. . . Price slump may go beyond 2027

Zimplats, a subsidiary of Impala Platinum of South Africa, has taken a major knock from low metal prices on the global market, forcing the giant PGM producer to widen a voluntary retrenchment package to all classes of employees as it seeks to contain costs.

The company, a subsidiary of Impala (87 percent shareholding) started with retrenchment packages for management and has now opened the offer to all willing workers.

On Monday, Zimplats chief executive officer Alex Mhere, said the company had to take additional measures as part of its cost containment and cash preservation strategies.

“One of the measures that the company will implement is a voluntary retrenchment exercise for all employees wishing to be considered. If successful, this will mitigate the need for a compulsory retrenchment.

“Those wishing to be considered for the voluntary retrenchment package should approach the respective divisional human resources department for the application form beginning Tuesday, March 19, 2024. The completed forms must be submitted to the respective HR department by 22 March 2024,” he said.

The voluntary retrenchment package will include two weeks’ pay for every completed year of service, one month notice pay, minimum guaranteed package of three months for employees whose retrenchment package is less than three months in addition to all statutory requirements.

Mhere said employees who proceed on voluntary retrenchment will be considered good leavers and will be favourably looked at when re-employment opportunities arise.

He said the company is in a difficult operating environment as PGM prices remain subdued, a situation which is projected to last for the next 12 to 18 months forcing it to resort to cost containment measures.

Zimplats’ South African peers including its holding company Implats, which account for about 70 percent of global platinum output, have already cut thousands of jobs as a result of the slump in PGM prices which have significantly impacted their profits.

The company is a leading miner in Zimbabwe specialising in PGMs that include platinum, palladium, rhodium, iridium and ruthenium.

It operates four shallow mechanised underground mines, one open pit and two concentrators at Ngezi in Mashonaland West province, about 150 km south west of the capital on the Zimbabwe Great Dyke.

An insider at Zimplats who cannot be named for professional reasons, said there was likely to be carnage in the PGM sector as firms responded to the weakening metal prices on the global market.

“The PGM sector is going through a rough patch. The fall of metal prices on the global market has been cyclical ….it happens in years and they are predicting a slow recovery in the next 12 to 18 months and you are looking at 2025 to 2026. Lets see what will happen?” said the insider.

But according to mining.com plummeting platinum group prices are likely to worsen shortage, adding the challenges mighty go beyond 2027.

The PGM supply deficit is forecast at 8 percent of demand through 2027, while above ground stocks may fall by 70 percent during the period to 1.4 million oz., it said.

A quarter of mines are operating unprofitably and putting them on care and maintenance will worsen the supply problem, it said and in the case for Zimbabwe, some mines have already abandoned major capital projects.

“The decline in PGM basket prices over the last 12 months has materially undermined the economic sustainability of significant portions of primary supply,” the council said. “Markets are already projected to be in deficit through our two- to five-year forecast horizon. This, we believe, strengthens the investment case for platinum,” according to the mining.com.

The price drop is partially due to how supplies from the main PGM producers South Africa and Russia have not been disrupted as much as the industry predicted.

Declines in their currencies have not offset lower prices in US dollars and production cost inflation, putting profitability of their miners at risk. It is forcing mines to increase production to reduce unit costs, sell excess inventory to generate more cash, slash capital spending, renegotiate supply agreements and cut dividend payments, it argued.

Output at risk

Source – Simanye Stillwater

Mothballing mines to weather the poor prices could put 1.3 million oz. of platinum output and 1.2 million oz. of palladium production at risk, the council said. Primary platinum production is forecast to average about 5.6 million oz. a year between 2020 to 2024, which is 9 percent lower than the five-year annual average production of 6.1 million oz. from 2015 to 2019, according to the report.

Palladium output may fall 6 percent, the council said.

The ramp up of projects at Northam Platinum’s Booysendal, Eland and Zondereinde; African Rainbow Minerals’ Two Rivers; Implala Platinum Holdings’ (JSE: IMP) Styldrift and Zimplats; Sibanye-Stillwater’s (JSE: SSW; NYSE: SBSW) Stillwater and K4; and Anglo American’s (LSE: ALL) Motololo could add about 1 million oz. of annual PGM production growth, the council said.

Mines depend on prices when fixed costs account for about a quarter of an open pit mine and two thirds of an underground mine, the council says. The earnings before interest, tax, depreciation and amortisation of primary PGM miners have fallen an average of 54 percent in the first half of 2023 compared to the same period in 2022. That’s more than double the 21 percent revenue drop during the same period.

Still, some miners have an operating cushion after higher prices during 2020-22.

“Being largely debt free should provide some headroom to take one or several short-term actions to improve or tolerate current margins,” the council said. “However, we estimate that these types of actions are only likely to reduce loss-making ounces by 5-10 percent.” – Business Writer/New Ziana