Yuliya Fedorinova Moscow
NORILSK Nickel sees South African output of platinum group metals (PGMs) declining in the next several years as the Russian mining firm leads investors in creating a $2 billion (R24bn) palladium fund.
“Investments in a vast amount of projects in South Africa were delayed and it’s hard to expect an increase in output in the region,” Anton Berlin, the head of strategic marketing at Norilsk, said on Monday. “Most likely, it will even fall.”
This year, South African output would recover to match its 2013 level of 4.4 million ounces of platinum and 2.4 million ounces of palladium following a sharp decline caused by five months of strikes last year, he said.
Production of platinum and palladium, which are mined from the same deposits and used in automobile catalytic converters, has been lower than demand since at least 2012.
Opaque stockpiles held by hedge funds have contributed to price volatility, according to Norilsk. More than 1 million ounces of potential output were lost during strikes in South Africa that ended in June, according to research by Johnson Matthey.
The platinum market had a deficit of almost 1 million ounces last year, which should narrow to 500 000 ounces this year, Norilsk’s estimates show.
South Africa’s ore quality has declined over the past decade, and mining firms are having to seek reserves deeper underground, raising development costs, according to Berlin, adding that low metals prices made investments less attractive at the moment.
Platinum has declined more than 18 percent in the past 12 months. Yesterday it was fixed at $1 167 an ounce in the afternoon in London. Palladium was little changed at $775 an ounce.
Price volatility had been intensified by undisclosed stockpiles of PGMs, with hedge funds posing the biggest danger, Berlin said.
The investors are seeking to reach an agreement with hedge funds on purchases in the third or fourth quarter, according to Berlin. The Bank of Russia has agreed to sell palladium from its stockpiles, billionaire Norilsk co-owner and chief executive Vladimir Potanin said last month. Norilsk is ready to invest $200m in the fund with an equal amount coming from Interros, Potanin’s investment company. Another Norilsk investor, Roman Abramovich, may also participate, according to Potanin.
The group had agreed with an international bank on a loan for 80 percent of the potential fund, or $1.6bn, he said, declining to name the bank. The metal will be used as collateral.
Last year, Potanin said Bank of America was interested in the deal. The bank’s external service in Moscow declined to comment yesterday.
The fund would sell palladium only to industrial clients, Berlin said. “Demand is high and even all of Norilsk’s output can’t satisfy it.” – Bloomberg