This was a scandal week in the mining sector: the once powerful AngloGold Ashanti is no longer on the list of the top 10 mining companies as measured by market capitalization; the ongoing collapse in the price of rhodium (now half of where it was in April); and the realization that South Africa’s coal sector could last much longer than environmental lobbyists would prefer.
Rhodium Price in USD
Rhodium accounts for a relatively small part of South Africa’s platinum group metal (PGM) extraction by volume, but has a much larger impact on earnings. The graphic above explains why.
That also explains part of the recent drop in the share price of PGM producers like Impala Platinum, whose price is down 37% since May. As Moneyweb previously noted, rhodium may have accounted for only 6.5% and 7.5% of Implats and Amplats mineral production, but it gifted these companies 25% and 34% of their total revenue in 2020.
Read: How A Small Metal By-Product Is Generating Billions For PGM Producers
The latest drop in price suggests we are heading for less foamy waters, as rhodium continues to change hands at prices well above 2019 levels.
Declining demand from the automotive sector and a shortage of semiconductor chips are behind the recent drop in the price of the metal.
The enormous contribution of PGMs to South African mining was emphasized in PwC SA’s latest mines report, released this week, which shows that PGMs accounted for 38% of total mine sales in fiscal 2021, then of doubling the sales with respect to the previous year.
The other important story that emerges from the PwC report is the growing importance for the extraction of bulk commodities such as iron ore and coal.
Coal and iron ore contributed 37% of total mining revenue in 2020 and 31% in 2021, despite a 20% improvement in revenue. The declining contribution of these two bulk products is distorted by the doubling of PGM’s sales revenue over the last year.
Coal sales were roughly unchanged at R133 billion in 2021 compared to 2020, but SA’s high-grade iron ore attracted a sizable premium as the global economy rebounded from the Covid collapse. Total iron ore sales increased 59% in 2021 compared to 2020.
In a speech at Mining Indaba this week, Kumba CEO Themba Mkhwanazi said the global steel industry is under increasing pressure to decarbonize as regulators are setting more ambitious carbon neutrality targets. Canada, the EU, the UK and Japan have set targets to be carbon neutral by 2050 and China by 2060.
Kumba’s premium iron ore reduces emissions, Mkhwanazi said, adding that partnerships with customers are producing cleaner mining technologies.
Climate change is accelerating a flight to quality, and this benefits companies like Kumba who, as part of the Anglo American stable, have revolutionized mining with the introduction of technologies designed to minimize environmental impacts.
These include the use of hydrogen-powered trucks, the construction of solar power plants, and the reinvention of virtually every aspect of the mining production chain.
July Ndlovu, chief executive of Thungela Coal, told Indaba that coal will remain a key part of the energy mix for the next decade, perhaps longer.
“We believe Thungela represents a new generation of carbon value players. We believe that sometimes our value chain is not understood and we can coexist [with green energies] in the future, ”he said.
The world is not faced with a binary choice between fossils and renewables, as the transition from fossil fuels will take decades to complete.
Coal remains essential for 80 countries, and for many of them, coal will remain the key energy source long after 2040. The path to green energy runs through coal, Ndolvu said, adding that the world’s clean technologies Coal is not a myth, as some environmentalists have claimed. , and they are likely to extend the life of coal producers, perhaps decades. These technologies removed two gigatons of carbon from Asian economies in 2018.
Older generation coal-fired power plants in the US and Europe are more likely to close in the coming years, but new-generation coal plants, predominantly in Asia, are unlikely to close anytime soon.
Transnet prevents export growth
African Rainbow Minerals Ferrous Division CEO Andre Joubert told Indaba that Transnet’s capacity is a major bottleneck for export growth, with annual freight targets of 67 million tonnes (Mt) per year. that remain out of reach, regardless of the aforementioned target of 76 Mt.
Transnet’s current capacity is 60 Mt per year, but in the last three years it has managed only 58 Mt.
The country loses about R5 billion a year due to this unrealized export potential, in addition to the loss of revenue for Transnet.
SA is a niche but high-quality player in the iron ore world, Joubert said, and it needs to partner with Transnet to reach its export potential. The new management at Transnet Freight Rail (TFR) is much more transparent than the previous team, and a solution to supply constraints is only possible by partnering with the organization.