Podcast transcript: scroll to the areas that interest you

• IR: Iman Rappetti
• FM: Fanele Mondi
• AG: Ayan Gosh
• QA: Quentin Allison 

• 00:00: Intro

  IR: The world is in a race to transition from fossil fuels to sustainable energy solutions, and while there are a number of options on the table that will help us move to net zero, there is one essential piece of the puzzle that is, ironically, not known for its environmental credentials and that is mining.

  South Africa's biggest contributor to GDP, and employer of hundreds of thousands, the mining sector faces the simultaneous challenges of evolving into an environmentally responsible corporate citizen while trying to maintain its status as a vital cog in the country's economy.

  Mining is already leading the charge when it comes to the generation of renewable energy. According to the Minerals Council SA, 7.5GW of the planned 10.4GW from over 100 private sector renewable projects comes from the mines. If successful, the current private sector pipeline will be able to generate nearly half of Eskom's operational capacity.

  In addition to decarbonising its own operations, the South African mining sector faces a once-in-a-lifetime opportunity to capitalise on the global demand for rare minerals and metals needed to manufacture batteries for electric vehicles, solar panels and wind turbines. And indeed for other green technologies that are critical to carbon capture and the hydrogen market.

  It's clear that moving away from its legacy and into a sustainable future presents many challenges for the mining sector - but there are also many opportunities.

  Welcome to The Current - an Investec Focus Radio series that delves into South Africa’s energy transition. Over 10 episodes we explore the country’s energy crisis, and how we can collectively shape a resilient and sustainable energy future. I’m your host, Iman Rappetti, and in this series, I’ll be talking to industry experts, from inside Investec and beyond, about how South Africa can keep the lights on while moving towards more equitable and sustainable energy solutions.

  So far in this series, we've had an overview of South Africa’s energy transition, and have taken a look at the most pressing issues at Eskom. In this, the third episode, we're tackling a sector-specific topic: how mining can play its part in the energy transition. Let’s welcome my guests…

  FM: I am Fanele Mondi, the CEO of Energy Intensive Users Group, also known as EIUG for short.

  AG: I'm Ayan Ghosh. I cover investment strategy at Investec.

  QA: I'm Quentin Allison. I head up the commodity structuring and trading business at Investec. 

• 02:37 The energy trilemma

  We start with Fanele, and a look at the Energy Intensive Users Group.

  FM: We are an advocacy group which is member driven in terms of influencing the policy and its implementation in South Africa. Our members are, as the name implies, large power users in the country which constitutes about 40 percent of electricity of South Africa. We have members in the mining space as well as heavy manufacturing. Typically we're talking your Sasols, Anglo Americans, South 32, Sibanya, et cetera.

  We are interested in what is normally called the energy trilemma: it's about affordability of electricity, security of electricity the quality of electricity and the decarbonisation of our power systems., which is really about the environmental aspects of energy.

  Without energy security, we're not going to get investments in the country, as well as even on the operating plants. You'll start seeing them closing down. In terms of affordability, it's equally important. Most of our members, especially around mining and heavy manufacturing they built their facilities on the premise that we had the cheapest electricity in the world at the time. So if we get out of that space where we become the most expensive, that is going to be a huge challenge.

  The third part is the competitiveness in global markets. With our high carbon intensive electricity, that is going to put us in a disadvantage. So it is important, therefore, that as we transition, we take into account all of these aspects and develop a plan that is suitable for our country, it's suitable for its people, it's suitable for our economy.

  Our members in the EIUG have advocated quite strongly to the government to allow private sector to do their own projects on electricity. And luckily that was granted to us. As a result, we have quite a good pipeline of projects. At some point we had I think that was end of last year, almost 10,000 megawatts which were in the planning phases with close to 3,500 which is most likely to be achievable within the next five years or so.

• 04:53 Just transition and how to manage the loss of jobs from coal mining

  IR:  When it comes to the mining sector's impact on the energy transition, there are a number of factors to consider. It's not just about which resources will help South Africa move towards a sustainable future, but how the journey towards net zero might impact broader society. In episode 1 of this series, Investec's Samantha Mooi stressed the importance of the energy transition being centred around people - and people in the mining context means jobs.

  Fanele, the coal industry is a major employer in South Africa. One of the key concerns about decarbonising the power system is that it will have serious socioeconomic impacts. So how can the energy transition be done in a just manner?

  FM: I think it is true for starters that coal is one of the biggest contributors in terms of the GDP in the country, especially within the mining sector which I think is estimated somewhere around about 250 billion Rand, in terms of sales.

  So it is quite significant. In terms of employment, it's equally significant we're talking close to a hundred thousand, people who are directly employed by the coal mining sector. That excludes those who work for Eskom, who work in those power stations - just the mining part of it.

  And if you consider that out of the, I think it's about 230 megawatts which we produce in South Africa, half of that is used by Eskom. So there is a problem in terms of how then do we create employment for all of those people? The renewable sector will create jobs, both in terms of the building part of it, as well as a little bit in terms of operations.

  But what will be important is to establish some of these manufacturing facilities in the country where we can start creating permanent jobs. And then the question then that follows, will they replace the hundred thousand? My sense is that it's probably not possible. So one of the major things that needs to be considered is the upskilling of people so that they can be able to do other jobs.

• 07:00 Energy transition happening at a slow pace

  IR: While Ayan agrees that the need for upskilling is paramount, he believes that coal mining won’t be switched off overnight.

  AG: I'm hopeful that we do have time on our side. And what I do think is that this energy transition story will be far slower than anticipated. And the job losses will be very slow. And the reasons for that is if you look into the wind and the solar generation globally, it exceeded nuclear energy for the first time in 2021. If you look at projected renewable energy capacity additions over the next five years, that's around 2. 5 gigawatts. That's similar to the prior 20 years. Global energy use still is 80 percent reliant on fossil fuels and the global measure for fossil fuels has declined by only 5 percent since 2005.

  So all of this being said, while I do worry about job losses and we should keep an eye on this and we do need to upskill. What I do think is that this transition process will be far slower and the job losses will hopefully be far slower in South Africa. But I think the technology is evolving and hopefully we have time on our side to resolve for the crisis.

• 08:09 The promise of Platinum Group Metals (PGMs)

  IR: The technology to which Ayan is referring revolves largely around PGMs, or Platinum Group Metals. Taking up just 6 of the 118 spots on the Periodic Table, these metals hold the potential to accelerate the move towards a green energy.

  Quentin, Platinum Group Metals are considered an alternative in achieving global energy transition goals. What PGMs and what are their unique properties that can serve as a catalyst in generating electricity?

  QA: The metal subset PGMs are basically platinum, palladium, ruthenium, iridium, rhodium, and osmium. And these metals have unique catalytic properties. The first one being that they are chemically stable, so they're resistant to oxidation and corrosion.

  Secondly, they can actually fit into porous areas which in the catalyst is hugely beneficial. If the PGMs can actually fit in the gaps in the catalyst, there's more surface area for chemical reactions, so they're more efficient. The third thing with regards to PGMs that makes them attractive is their electro- catalytic properties, which essentially means that they are efficient at converting chemical energy into electrical energy.

  And then they have a tolerance to reaction conditions. So when you have a chemical reaction, it's pretty harsh, a lot of heat, some acidity, some humidity. So it's quite a harsh environment and these PGMs are well suited to operating efficiently in this environment.

  IR: So what's the role of PGMs in reducing greenhouse gas emissions, especially when we think about tackling global warming?

  QA: They're used in catalytic converters for engines. That's the predominant use of PGMs today. And in a combustion engine, you typically have carbon monoxide, for instance, as a direct result of the combustion process.

  Having a PGM catalyst in there can actually switch the carbon monoxide into carbon dioxide, which is more environmentally friendly. And It's not just that they reduce the harmful emissions into the atmosphere. having PGMs actually makes combustion engines more fuel efficient.

  Carbon capture is a big theme now in PGMs. And that's the way we actually talk about taking carbon dioxide that exists in the atmosphere and actually take it out.

  We've got a good example, a fertiliser producer in South Africa effectively in the fertiliser production process, they emit nitric oxide into the atmosphere. And they've actually added a catalyst in that industrial process. That catalyst recaptures the nitric oxide before it goes into the atmosphere and makes the whole process cleaner.

  There's a PGM application there that you wouldn't have typically foreseen. And this client actually financially benefits from that process because the Capex that they invested in the project to recapture the nitric oxide allows them to raise carbon credits, which they sell into the market to raise capital.

  You can also take that carbon, you can convert it into synfuels, potentially chemicals, polymers. And those have some economic downstream benefit, so it's a very exciting option that's related to PGMs there.

  IR: Our conversation with Fanele, Ayan and Quentin will continue after this.

• 10:56 Investec's Commodity Hedging and Working Capital Solutions

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• 11:20 How clean are PGMs, really?

  IR: While they may seem like a rhodium-plated bullet, PGMs currently face some harsh realities in their path to being a fixture on the energy mix. From the outset, their credentials as an eco-friendly option are tarnished by the fact that their extraction, like coal, is a dirty business. Quentin explains.

  QA: Obviously, coal mining does consume a lot of diesel; a lot of carbon goes into the atmosphere when you burn the coal downstream. It's famously negative for the environment.

  PGMs also consume potentially a lot of diesel, particularly with open pit mines. So they can be dirty, it's just the reality of the business they operate in. There's no way around it.

  What they can do and what we have seen in South Africa is they know they pollute X amount of tons of carbon, they could potentially go and buy carbon offsets via one of the gold standard, for instance, or Vera-certified emission reduction programs, and actually thereby offset the carbon that they are putting into the atmosphere, which does clean up the operation for them without directly changing the nature of their business.. 

• 12:19 EVs are eating PGM's lunch

  IR: And then there are the current market realities around PGMs. Despite reaching historic highs in 2021 and 2022, the current picture is less impressive - rather ironically, its lack-lustre performance is directly linked to one of its strengths.

  QA: The PGM sector is in a lot of strife, and it's largely driven actually on the back of EVs. As the world switches from combustion engines to EV, it effectively means there's less demand for PGMs because there are no PGMs used in EV. So the feeling at the moment is that's really what's dragging mining share prices down.

   We have to find some new demand for PGMs to actually stimulate these mines to produce more, because we know they're going to need it in the long term.

  These mines are struggling at the moment purely because of the low PGM prices that they're ultimately receiving. The reality is that switch from combustion to EV is taking a little bit longer than people anticipated.

  So we're hoping that allows these mines to survive. Over the next five years, we're probably going to be in a scenario where there is a lack of demand for PGMs.

• 13:15 PGMs and hydrogen fuel energy

  IR: So... PGMs aren't necessarily environmentally friendly to mine, nor are they in great demand. Which begs the question: why are some framing this particular resource as a key element of the energy transition? Well, two major factors are abundance, and the technologies involved in hydrogen power - more specifically, how they rely on PGMs.

  The first point: South Africa is world's second largest producer of palladium, and the largest producer fo platinum, ahead of Russia, Canada and the US. There are about 70 000 metric tons of platinum worldwide, and about 63 000 metric tons come from under the South African soil. And it's not just about what's been mined so far. Quentin explains.

  QA: There's still a massive amount of reserves underground. So it's a hugely significant contributor to South African GDP. It creates a lot of jobs in this country. And also it's very important to our international stakeholders. You've got foreign industry manufacturing that rely on South African PGMs in those processes.

  They need our production and what you actually see in particular in the platinum market is these guys look at South African production in order to predict pricing and literally prices will change based on our production estimates.

  IR: So we can be influential in the market as well.

  QA: 100 percent correct, yeah.

  IR: The second point: producing hydrogen. Without wanting to regress too far back into high school science classes, hydrogen production is done using electrolysis. Electrolysis requires catalysts. And the catalysts used in hydrogen production are more often than not one of the PGMs. Here's a practical example from Quentin.

  QA: When you take, for instance, green hydrogen, you're effectively cracking water into the hydrogen-oxygen component. That requires a lot of energy. And so using a PGM catalyst in that process is one of the benefits of the product.

  IR: Hydrogen is an energy carrier, rather than an energy source, able to store and transport energy produced from renewables like wind and solar, which South Africa has in abundance.

  Quentin explains what the country's prospects in the hydrogen economy look like.

  QA: So it's basically a future economic system where hydrogen is the key energy carrier. And what we're talking about here is effectively hydrogen plays a role in transportation, industry, power generation.

  Green hydrogen is the most popular one that's discussed at the moment, but there are other forms: pink hydrogen, which is derived from nuclear energy, blue hydrogen from natural gas, you've got black hydrogen from coal.

  But green hydrogen in South Africa is a huge opportunity largely because we have a lot of wind and we have a lot of space for solar, so renewables are critical in that process.

  Effectively what happens is renewable energy or electricity is used in the electrolysers to break up water into hydrogen into oxygen, and then that hydrogen is transported to a different destination. And then once you have the hydrogen, you can actually use it in a fuel cell. And in fuel cells you also use PGMs right, where you convert hydrogen into electricity.

  What we're talking about here is effectively replacing fossil fuel energy consumption with hydrogen fuel consumption. And that process, the guys are projecting by 2050, we hopefully hit net zero to do that.

  We probably need somewhere between 10 and 20 percent of our total energy consumption coming from that. So it's a big number and hugely important to us.

• 16:27 South Africa's potential as a leader in the hydrogen economy

  IR: So Ayan, there we are. South Africa is the largest producer of platinum in the world. Do you think that as a country we have the potential to become a global leader of the hydrogen economy?

  AG: The way I would put it is various studies suggest that Africa, including South Africa, along with India, Chile, has some of the best potential and the scale to produce green hydrogen at the lowest cost. What worries me, however, is some of these green hydrogen projections for Africa are very optimistic. For example, if you look into the Africa Green Hydrogen Alliance, which is an initiative launched at COP26, I think the alliance member country including Egypt, Kenya, Morocco, Namibia, South Africa would require a huge investment of $450 billion to $900 billion of investment by 2050.

  And to put this in context, some studies would suggest that Australia needs to build a staggering 228 gigawatt of new energy, solar and wind capacity in order to power the electrolysers that hydrogen developers have proposed within its borders.

  That's 13 times its current installed capacity of 17 gigawatts, that requires an investment close to five times that it's done over the last. 18 years.

  So all I'm trying to argue is I think it's still early days, and I think without adequate government support and without adequate funding, this looks like a challenge for now.

  IR: If we are, however, able to scale up the production of green hydrogen, what are South Africa’s chances of becoming a leading exporter of the gas?

  AG: I think there are a few challenges as we speak. So firstly, transporting green hydrogen from Africa is still a conundrum. I think what we've heard recently is in 2020, Siemens inaugurated the first industrial scale solar driven green hydrogen facility in the Middle East in Dubai.

  But also, Siemens has specifically said there's no immediate plans to engage in Africa on renewable hydrogen, and that's given concerns around political stability.

  The other way to develop or to become an exporter is can we develop a pipeline between Africa and Europe or to different parts of the world? But the question here is we need a lot of financial muscle and a lot of investment for such infrastructure to play out.

  IR: For Ayan, there is a benefit for every South African in improved demand for PGMs.

  AG: I think green hydrogen as we speak the technology is evolving, and it's hugely important for South Africa because it can really put a support on platinum and PGM prices, which are very depressed at this point of time.

  I think the best proxy for the Rand from a terms of trade perspective is PGM prices minus oil prices, so if PGM prices do recover, I'm very hopeful that the Rand will also recover.

  It does make a difference for all of us, and I do think that's exactly why it's very important to keep an eye on where this green hydrogen technology goes from here, and if we are ahead in the race in terms of hydrogen production, exports, and PGM prices.

  IR: If demand for green hydrogen expands, South Africa stands on the verge of what could be a big upswing in PGM demand; but there's another group of locally abundant metals that, like PGMs, play an important role in sustainable energy.

• 20:58 Other clean metals in the green energy transition

  IR: So Ayan, outside of PGMs are there any other critical minerals and metals that have a role to play in energy transition?

  AG: Some of these critical minerals, which include cobalt, copper, iridium, manganese, nickel, , they're all used in the production of these wind turbine magnets, nuclear reactors, photovoltaics, EVs. They're all very key to this whole global energy transition process that we are seeing.

  IR: The challenge is that many of these non-PGM minerals and metals are mined in some of the more risky corners of the world, which opens up an opportunity for South Africa – if we’re willing to put money into finding them.

  AG: I think the important point to make here is that the reliability of supply remains a concern, especially because these minerals come from sources where there are geopolitical risks.

  As a result of which, I do think that for South Africa to seize this opportunity, we need to get more funding to fund exploration of critical minerals, and the IDC, that's the Industrial Development Corporation with, in partnership with the DMRE, they've established a 400 million fund for mining exploration in South Africa.

  And that's specifically to look at exploration of the critical minerals. So I think we're going in the right direction on this. 

• 21:14 Nuclear energy in SA's energy mix

  IR: Another non-PGM that's coming to the fore is uranium, and South Africa's Minister of Mineral Resources and Energy has recently called for the country to produce its own yellow cake, a by-product of uranium processing that can be used to produce nuclear energy.

  Fanele, what are your thoughts on the contentious subject of nuclear?

  FM: We only have one station now, Koeberg. And when you look at the current IRP plan, there is a scenario where you could have more nuclear. I think at most by 2040, they are talking, I think, 4,000. Megawatts. I think that's what they are proposing. And then later on, another 16,000 or so.

  But that's looking at 2040 and 2050 period. So in terms of that mining then for domestic use I think there's limited opportunities at the moment, but certainly from an international perspective, I think we've got an opportunity to export uranium.

  We have one of the best, resources in terms of uranium. And we are seeing an uptake in other countries. I understand, for instance, France, they've got a clear plan in terms of increasing their nuclear capacity. So in an international market, probably there is opportunities.

  IR: Your thoughts, Quentin?

  QA: Yeah I'm 100 percent in the camp on the uranium side. I think it's the cleanest fuel. I think it gets a lot of bad publicity. I think we should be investing in it. I think there is an opportunity to export.

  Obviously, you've got to be careful around, the security concerns around exporting uranium. So as long as you can tick that box, I think certainly a very exciting opportunity for us. But like Fanele said, I think the infrastructure development and CAPEX required to set these facilities up takes a long time. 

  Mining obviously has to play its part in ensuring that South Africa is as well placed as possible to take advantage of the immense potential that PGMs have to play in sustainable energy. But the opportunity is there for the taking.

  AG: While this is a huge opportunity, it requires huge investment. I think the government should showcase to the world that we are increasingly going into a very stable political backdrop for foreigners to invest into this country. I think one needs to have confidence to invest here and that will possibly get us ahead in leaps and bounds. 

• 23:34 Will the hydrogen economy be a game changer for SA?

  QA: I think the hydrogen economy could be potentially a game changer for South Africa. At this point in time, the green energy is not competing on a price level with the fossil fuels. But obviously now things are changing, right? So if I look at particularly in the Eurozone, Investec is very active in the carbon trading mechanism in the Eurozone.

  And what that effectively does is it creates a financial cost to industry for polluting, right? That's going to precipitate to the rest of the world, I hope.

  And there you may start to see that the cost benefit of fossil fuels versus green energy starts to balance and creates the equilibrium that you need to make this market more competitive. So I think it's a big opportunity for us.

  IR: Thanks for listening to this episode of The Current, brought to you by Investec Focus Radio. In our next episode, we're focusing on the investment opportunities presented by the energy transition.

  You can find all episodes of this series at investec.com/thecurrent, or wherever you get your podcasts. If you enjoyed this episode, please rate it, leave a comment and forward it to your friends and colleagues. 

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