The Sunday Mail
Tawanda Musarurwa
Palladium has been growing in significance over the past decade, and latest figures provided by local platinum giant, Zimbabwe Platinum Holdings (Zimplats), point to this fact.
The numbers show that palladium currently contributes 35 percent of Zimplats’ revenue, compared to platinum’s 38 percent.
In 2009, palladium contributed 11 percent of Zimplats’ revenue, against platinum’s 68 percent at that time.
The trend has been
incremental
By 2012, palladium was contributing 19 percent to Zimplats’ bottomline, while platinum had declined to 55 percent.
And by 2015, palladium had grown to account for 27 percent of the platinum producer’s revenues, while platinum had further decreased to 49 percent.
Palladium is an important component in electronics, and it is used in many new technologies, such as fuel cells, and is particularly attractive to investors because it is not easily replaced by other metals.
Global metals experts — Money Metals Exchange — give a brief outline of the recent shifts in palladium:
“The metal began moving out of relative obscurity in the 1990s as automakers found it to be a great alternative to more expensive platinum. Prices accelerated upwards and peaked at over $1 000 early in the year 2000. The run upward in price was followed by a precipitous fall and the metal spent most of the next decade trading under $400 per ounce.
“Its fortunes changed in 2008 as interest in precious metals as a safe-haven began to surge. The precious metals complex put in a bottom in December 2015 and to date, palladium has been far and away the best performer in terms of price.
“The price per ounce eclipsed that of platinum for the first time ever in 2017. The metal rode a wave of increased investment demand, coupled with a recovery in the automotive manufacturing sector worldwide.”
Palladium is believed to be 30 times more rare than gold. It could therefore be the new quintessential “precious” metal, but it still has great industrial use, mainly in catalytic converters because the metal serves as a great catalyst that speeds up chemical reactions.
But Zimbabwe’s largest platinum producer isn’t concerned.
Zimplats is in the business of producing platinum and associated metals, the so-called platinum group metals (PGMs), which include palladium.
But for how long will palladium be considered an “associated metal”?
The ascendancy of palladium, at the expense of platinum, would entail a significant shift at the very core of how platinum producers operate.
However, Zimplats CEO Alex Mhembere thinks the rise of palladium is temporary and that platinum will regain its greater contribution to the company’s bottomline.
“We are not in a position to take that strong stance (to re-focus on palladium production) because it requires us to shift what we call the mining charter agreement. At this stage, we still think it is temporary and that platinum will overcome palladium,” said Mr Mhembere.
“We have seen the trend yes, but if that becomes a permanent position, there are two things that we have to do, first is to widen our mining charter or shift the mining plant to palladium. Palladium ore tends to occur below the platinum ore.”
Income tax rate change
hits Zimplats
Meanwhile, in terms of financial performance, Zimplats’ profit for the year to June 30, 2018 slid 94 percent to $2,6 million from $45,5 million in the prior comparable period.
During the period under review, the platinum giant’s deferred tax charge was significantly higher than the prior year because of the change of the operating subsidiary’s status from being a special mining lease (SML) holder to a mining lease (ML) holder.
The group said a deferred tax charge of approximately $95,4 million was recognised in FY2018 arising from the change in an income tax rate of 15,45 percent under the SML tax regime to 25,75 percent under the ML tax regime (inclusive of AIDS levy).
As a result, profitability during the year was significantly depressed.
Revenue for the year increased by 14 percent from $512,5 million in FY2017 to $582,5 million despite a 2 percent decrease in 4E sales volumes from 555 892 ounces to 542 085 ounces.
Management attributed this to an increase in the average prices received for palladium, nickel, rhodium and copper; which resulted in a 17 percent increase in gross revenue per platinum ounce from $1 868 to $2 184.
Operating cost was down 5 percent to $1 290 per platinum ounce.
Profit before tax rose 64 percent to $166 million, but the group incurred a once-off tax expense of $163,3 million, which knocked down profitability for the period. The income tax expense increased from $55,8 million in FY2017 to $163,3 million driven mainly by a $98,1 million deferred tax charge.
Cash generated for the period amounted to $195 million.
With regards to production, ore milled reached 6 570 000 tonnes, which is above the company’s nameplate capacity of 6 200 000 tonnes.
Total platinum ounces produced and sold in FY2018 decreased from 281 069 ounces and 274 364 ounces in FY2017 to 270 717 ounces and 266 720 ounces respectively.
