Rhodium may turn out to be the metal of the decade – Northam

JOHANNESBURG (miningweekly.com) – Rhodium may turn out to be the metal of the decade, Northam CEO Paul Dunne said on Friday.

Speaking at the JSE-listed company’s presentation of outstanding results, which saw the company shrug off the Covid-19 pandemic to report a record financial year in the 12 months to June 30, Dunne said rhodium, which was in strong demand and short supply, would continue as the only viable solution for the control of nitrous oxides (NOx). (Also watch attached Creamer Media video.)

Close to 90% of all the world’s rhodium is produced from the upper group two (UG2) orebodies, which predominantly exist within South Africa’s Bushveld Complex.

Rhodium is now several times more costly than gold. The price quoted by one prominent manufacturer of autocatalysts showed rhodium to have clawed back much of its Covid losses to trade at $12 200/oz.

“A cleaner, greener world needs platinum group metals (PGMs). We need PGMs and rhodium in particular has the strongest fundamentals,” said Dunne, who projected the sales of the light-duty vehicles that make use of rhodium and other PGMs at around 72-million units for this calendar year.

“So, we’re slightly more positive than we were in May and June. But this is down from what light-duty vehicles may have been pre-Covid, which is 90-million units.

“We see sales of 82-million units in calendar year 2021, reflecting a gradual economic recovery across the world – again slightly better than our view in May and June.

“Given this outlook, and bearing in mind that automotive demand is the most important sector of demand for these metals, it is our considered opinion that, firstly, the market for palladium has moved closer to balance, that of rhodium remains in significant deficit, and whilst platinum is in surplus, it is viewed as an investment case offering good relative value,” said Dunne.

Palladium remained the metal of choice for gasoline engines for the foreseeable future, although some traction for around 15% platinum substitution in the medium term was becoming more likely, he added.

In response to a question put by Noah Capital mining analyst René Hochreiter, Dunne said: “We see rhodium demand being very, very strong. Let’s start with the legislation across the world, illustrated by the ‘6’ legislation, China 6, Euro 6, Bharat in India and the US equivalents. They are all focused on a range of pollutants, but quite heavily on the control of nitrous oxides.

“That’s a health issue and it’s also quite a heavy greenhouse gas, but predominantly the health issue – smog –  in cities is created by nitrous oxides, which have a big constituent of smog. The world’s governments are really being quite pressing now in terms of enacting and enforcing tighter legislation that is focused on NOx. Rhodium is a very special metal in terms of its performance in that reaction and will continue to be the metal of choice for the control of NOx.

“If you look at loadings. If I look back five years ago, loadings per vehicle for rhodium was perhaps 0.3 g per vehicle on average for light-duty vehicles. We believe that will rise to 0.45 g per vehicle. So, you’re looking at a 50% increase in rhodium loadings from five years past to five years forward, which is very significant.

“When you accumulate that all together, we see an accumulative demand for rhodium in the next five years approaching 1.4-million ounces and maybe even slightly more north of that. The supply of rhodium is somewhat constrained because the vast majority of rhodium comes from the UG2 orebodies in the South African Bushveld Complex and some of the parts of the UG2 are aged and have limited ability to grow production.

“So, the supply of rhodium is tightening, demand is growing and it’s a very important issue that it’s legislated and therefore we see that the fundamental industrial balance being the strongest of the three metals and should do well.

“The substitution ratio between palladium and rhodium is somewhere between four and five to one and you can see that the price differential is somewhere between five and six, in fact at this moment, for rhodium against palladium. If you had asked me six months ago, we would have said that palladium would lead the way, with rhodium second and that platinum would be the laggard. We changed that view. In the light of what’s happened, we believe rhodium will lead the way, palladium will still be the metal of choice, but not the runaway it was, and platinum is now following gold as an alternative investment and a good strong value proposition,” he told the results conference covered by Mining Weekly.

Northam reported its best ever annual revenue of R17.8-billion, record operating profit of R5.3-billion, record earnings before interest, taxes, depreciation and amortisation of R6-billion and record after-tax profit of R2.2-billion.

Sales revenue increased by 67.3% to R17.8-billion on a 60.8% rise in the four element (4E) basket price to $1 764/oz and a 10.9% weaker rand:dollar exchange rate realised.

Despite Covid-related logistical hurdles, including border closures that made the distribution of refined metal challenging, the group maintained robust refined metal sales of 560 238 4E oz, highlighting, the company said, its strong relationships with its industrial customer base.

The average dollar sales prices achieved during the year under review improved for most metals. Palladium  increased by 52.4% and rhodium by 169.8%. Platinum however, making up roughly 60% of the sales volume of Northam’s precious metals 4E basket, continued to be the laggard. The average platinum price achieved during the year was $858/oz, which impacted the 4E basket price achieved, the company said in a release.

Platinum now contributed only 28.0% to the 4E basket and any upward movement in the platinum price would have a positive impact on the profitability of the group, the release stated.

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