Subdued PGM prices could dent investor sentiment in Southern Palladium

North-west-facing view across Eerste Geluk (foreground) and Nooitverwacht. Image: Southern Palladium website

North-west-facing view across Eerste Geluk (foreground) and Nooitverwacht. Image: Southern Palladium website

Published Mar 15, 2024


Depressed platinum group metals (PGM) prices could affect sentiment in Southern Palladium’s flagship Bengwenyama project, the company said yesterday.

The Bengwenyama project is an advanced exploration stage project focused on PGM mineralisation run by Southern Palladium in the Bushveld Complex of South Africa.

The share price rose 6.58% to R5.99 yesterday on the JSE.

Southern Palladium is worried that platinum, palladium and rhodium prices can fluctuate significantly and cast doubt and uncertainty on the company due to factors beyond its control.

“A significant decrease in commodity prices is likely to adversely affect sentiment towards the company and market support towards the company’s development of the project,” Southern Palladium said.

Despite the depressed platinum prices that have forced some bigger South African miners of the precious metal to close some shafts and retrench workers, platinum stocks such as Sibanye-Stillwater, Impala Platinum and Anglo American Platinum have rallied on the JSE in the past few days.

Shares in Impala Platinum have been 33.05% at around R73.97 in the past seven days while Anglo American Platinum is 15.81% stronger at R764.45 over the same period.

Shares in Sibanye-Stillwater are up 18.88% over the seven-day period at R21.05 while Southern Palladium, which rose 6.58% yesterday, is trading 24.89% higher at R5.99 on the JSE.

Analysts have attributed most of the surge in PGM prices on the JSE to an expected recovery in palladium prices on world markets.

Anchor Capital analyst Seleho Tsatsi, at a media round-table yesterday, said over the past two to three weeks there had been “a bounce off the bottom for palladium”.

But the average for palladium in 2023 was at about $1 300 an ounce, while the price was currently at between $1 070 to $1 080 – $200 off of the average for last year.

“But if you look at what the share prices have done over the last week or so, clearly people are starting to get excited about the prospect of of the basket price moving higher,” Tsatsi said, adding that “things are still very tough”.

“Platinum is picking up, palladium is holding above the 200-month average and rhodium appears to have stabilised above $4 000 (R74 496) after falling from close to $30 000,” said investment analyst Karin Richards.

For Southern Palladium, the company is operating against the backdrop of “exchange rate risks” as initial public offering funds were raised in Australian dollars and exploration expenditure was largely expended in South African rand or US dollars.

“It is likely that future development funds will be partly provided from external debt providers in US dollars. It is anticipated that future project revenues will largely be denominated in US dollars which is expected to provide a natural hedge in respect of debt servicing requirements,” the company said.

During the half-year period to December, Southern Palladium raised revenues by 819% to A$435 475 (R5.4 million) compared to A$47 391 a year earlier. Operating loss from operations for the period decreased to A$3.2m against a loss of A$3.8m in the previous contrasting period.

This translated to a basic loss per share which decreased to A$0.035, down 33%, with the headline loss per share decreasing to A$0.035, also weaker by 33% over the prior year same period.

Although well funded to complete the pre-feasibility at Bengwenyama, which already contains an Indicated and Inferred Mineral Resource Estimate of 26.22 million ounces, Southern Palladium has a net present value of $700m and an internal rate of return of 21%.

It has projected free cash flows amounting to about $135m “at a steady state, projected over a 30-year mine” life. Total tonnage mined is estimated to be around 52 million tons, resulting in an average annual production rate of 330 000 ounces of PGM.

Initial direct capital expenditure for the development of the mine is anticipated to total $408m, with the project forecast to achieve payback within four and a half years from the start of planned production.