Saudi PGM smelter proposal may test SA Govt’s loyalties

Molten metal in Nornickel smelter PLATINUM Group Metals, a Canadian…


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Molten metal in Nornickel smelter

PLATINUM Group Metals, a Canadian company better known by its Toronto trading code, PTM, has submitted a proposal to the government that will force it to weigh its desire for minerals beneficiation against its loyalty to the expansion of the Brics partnership, which originally consisted of Brazil, Russia, India, China and South Africa.

Discussions held by the departments of mineral resources & energy and trade, industry & competition with PTM have been under way for a year about whether to support construction of a platinum refinery in Saudi Arabia, says the firm’s CEO, Frank Hallam.

Without the processing facilities, PTM’s proposed R11bn Waterberg PGM Project in Limpopo may not get off the ground — at least for the foreseeable future.

But exporting concentrate is generally not supported by the government, because it wants the higher-value finished metal to be sold from the country, where it attracts more tax revenue, among other perceived benefits. “The question becomes: does South Africa want the investment in the mine and the jobs that come with that, or do we wait until one of the local smelter refiners gives us capacity?” Hallam says in an interview.

Impala Platinum (Implats) has the right of first refusal on concentrate produced at the Waterberg project, but this would require opening up its refining capacity and following its rights in the mine’s construction. A 15% shareholder in the Waterberg project, Implats has been reticent to commit the project capital, which is pegged at R1.7bn.

Implats CEO Nico Muller last year relegated the project to a low priority level while he fought for control of Royal Bafokeng Platinum. Now his company is embroiled in a fight for survival amid a 40%-50% decline in platinum group metal (PGM) prices. Implats is cutting its capital plans, which makes the Waterberg project seem even less of a priority.

Hallam calculates that the value leakage to the government of allowing PTM to build a refinery in Saudi Arabia for the Waterberg project’s concentrate is no more than about 2% of cash flow from the loss of refined metal exports — compared to the benefits of having a mine in a relatively unindustrialised province.

Another question for the government is whether it can afford to risk making its scarce electricity available to a PGM refinery. Saudi Arabia is offering PTM discounted electricity and water, which more than offsets the cost of bagging the concentrate in South Africa and exporting it. Saudi Arabia is also offering a host of other economic benefits to South Africa that range from tax deductions to subsidies.

Hallam and his fellow executives have toured the proposed site of the refinery, where infrastructure is already being built. Empowerment investment company Hosken Consolidated Investments is a 24.8% shareholder in PTM, and the group’s deal-savvy CEO, Johnny Copelyn, serves on its board.

Rising power in minerals

Saudi Arabia’s 2030 vision of diversifying its economy and earning carbon offsets by investing in critical minerals extends deep into the mining industry. Future Minerals Forum, a conference held in January in Riyadh, attracted an estimated 16,000 delegates that included a number of leading mining executives, such as former Anglo American CEO Mark Cutifani (now chair of Brazil’s Vale) and another Mark — Mark Bristow of Barrick Gold. The Industrial Development Corp was one of the event sponsors.

Anglo American sent people to the conference, though not its CEO, Duncan Wanblad. Wanblad nevertheless considers that Saudi Arabia has to be taken seriously in global mining as a rival to China.

We’ve had discussions with many of [their people]. We have skills they don’t have; they have deep pockets. There must be some synergy in that – Neal Froneman

“The incentives are high and Saudi Arabia is being active in making itself an attractive investment jurisdiction,” says Wanblad. “There’s very little bureaucracy for getting stuff done, and there are lots of incentives in terms of people and cost. I think there’s a world of possibility as long as you’re not betting the whole farm on subsidies.”

If Saudi Arabia were to join Brics it would give the bloc fresh economic impetus — but it hasn’t yet committed itself, despite international relations & co-operation minister Naledi Pandor’s comment that it had done so. Whether it does or not, Saudi Arabia’s interest in expansion could lead it to invest here anyway. A market source says the kingdom has a $16bn fund in development for investment in South Africa’s mining sector. For this country’s struggling mineral exploration and development sector, attracting capital funding of that magnitude would be a godsend.

“Clearly, [the two countries] are aligned in strategy, in that we have access to critical metals,” says Neal Froneman, CEO of Sibanye-Stillwater. His company is actively looking at investments outside South Africa — which he says is too high risk for all but the firm’s largest-margin projects — and sees Saudi Arabia as a potential new market.

“We’ve had discussions with many of [their people]. We have skills they don’t have; they have deep pockets. There must be some synergy in that.”

Perseus Mining would probably agree. On February 21 the Sydney-listed gold miner announced entered into a cooperation agreement with Saudi Arabia to seek out late stage projects in Africa and exploration ventures.

The partners will look at relatively under-explored regions of Africa including Algeria, Eritrea, Ethiopia, Egypt and Sudan at projects with a published feasibility study that can be advanced in the medium term.

“To be gaining access to these areas in partnership with a Saudi based company gives us a high level of confidence that we will be well equipped to manage the culturally different settings that we may encounter and to navigate the challenges that arise in these jurisdictions from time to time,” said Jeff Quartermaine in a Perseus Mining statement.

A version of this article first appeared in the Financial Mail.



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