Potential mining supercycle on the way – Froneman

The mining sector is about to enter a potential “supercycle” says Sibanye-Stillwater CEO Neal Froneman.

Speaking during a Ninety One webinar earlier this week, Froneman said the global movement away from fossil fuels is one of the main drivers of this trend, as it has encouraged the migration to more eco-friendly fuel-cell-based energy storage, which is largely constructed of platinum group metals (PGMs).

This move away from fuels that lead to greenhouse gases is expected to see the global automotive fuel cell market grow from about 20 168 units in 2021 to over 596 000 units by 2028, according to MarketResearch.com.

Platinum records

This transition can already be seen somewhat in Sibanye-Stillwater’s results for the first quarter to end-March, which saw its PGM production in South Africa rise 6% to 13.83 tons.

Higher PGM prices saw its adjusted earnings before interest, taxes, depreciation, and amortisation ­­(Ebitda) rise a massive 90% to R15.2 billion.

There is a similar story at rival Anglo American Platinum, which saw total production for PGMs increase 7% to 28.95 tons for the quarter.

Froneman says this new cycle is not limited to PGMs, but applies to commodities in general. His view has been backed up by the latest mining production figures released by Statistics SA, which showed a massive 21.3% year on year in March.

In a research note, the Nedbank Group Economic Unit says copper production, which was up 63.4%, grew for the first time in seven months. The same was true for gold output, which rose 10.5% after 11 months of contraction.

“Sales continued to benefit from increased global demand, higher commodity prices and improved operations at major ports,” Nedbank said.

Mike Schüssler, chief economist at Economists.co.za, noted on Twitter that the quarter saw the mining sector earn R75.1 billion sales in March 2021 alone, compared to the R51.1 billion it made in March 2020.

Sunrise

The positive momentum in the industry has seen Sibanye-Stillwater commit to investing R6.3 billion in three new projects – two in PGMs and one in gold – which will create 7 000 long-term jobs.

The change in prospects for the mining sector has been so stark that Froneman said Minister of Mineral Resources and Energy Gwede Mantashe recently told him that he informed the cabinet that mining was no longer seen as a sunset industry.

But is the talk of another commodities supercycle that drove the mining sector in the early 2000s too soon?

Hannes van den Berg, Ninety One co-head of SA equity and multi-asset, was reluctant to be drawn on whether the mining sector is about to enter a supercycle. He did say the group had foreseen disruption to supply as a result of the Covid-19 crisis.

It is his view that this “supply chain disruption is forcing commodities to where they are now”.

Not-so-super SA 

Although the industry’s prospects look strong, Froneman still has concerns when it comes to investing in the local mining sector, despite the greenlighting of the three projects.

Policy uncertainty, along with extraordinary delays when it comes to getting the government’s approval for mining projects, are all things that are holding back the development of the industry.

“We have many projects that are good projects in a normal environment, however, when you can’t predict the price of electricity, which is 20% of your costs, or the reliability of supply, or the legal tenure of ownership … these investments are unlikely to be approved by the board.”

This lack of certainty is costing the country.

When asked in the webinar if Sibanye-Stillwater would consider investing in SA ahead of expanding abroad, Froneman said given the obstacles faced in the local industry, this was unlikely.

“We are proudly South African. We are not leaving SA, but we do need to grow our business in a way that mitigates some of the risks that I’ve mentioned.”