Despite questions about their timing, Pelagic Resources couldn’t have entered the market at a better time in the history of the world. Four years after it opened its doors for business, a long list of tragic world events would play in its favour and elevate the company to a top trader in the chrome and PGM space.
In 2016, the steel manufacturing industry was at sixes and sevens. Chrome and PGM prices were in the doldrums. While labour action at platinum and chrome mines disrupted operations in South Africa at the time, the coal sector boomed as globalization drove economic progress, and the coal price reached new heights as demand for fossil fuels peaked. Terms like green energy, energy transition and battery minerals were hardly used, and net zero was still wishful thinking.
At that time, when there was barely an appetite to invest in chrome and platinum, Russia continued churning out the PGMs, flooding the market when demand was at its lowest in a volatile market’s eb and flow. With the outlook dire, chrome, PGMs and battery minerals were arguably the easiest place for investors to burn their fingers. Moreover, Africa’s PGM and chrome stars were waning as the world turned to what they then perceived as a less risky Russia and Eastern Europe for their platinum and chromium needs.
Despite these headwinds, Pelagic Resources stuck to their guns and started investing in everything analysts believed were dead in the water at the time. Soon, they would be proven wrong and Pelagic would be rewarded for their extraordinary vision.
Covid-19 sparks an energy transition
As Covid-19 wreaked havoc across global markets in 2020, the energy transition started gaining traction. Net zero became a reality and overnight platinum, palladium and rhodium regained market share and prices spiked as vehicles rolled off the world’s conveyor belts in large numbers. Palladium is used in catalytic converters for cars fuelled by gasoline, while platinum is the metal of choice in diesel cars.
After the first year of hard Covid-19 lockdowns, steel construction in China took off, and chrome alloys were in fashion again as economies opened and demand for stainless steel picked up. However, just as PGM and chrome demand almost reached its zenith, supply dropped to precipitous levels when Russia invaded Ukraine early in 2022. Subsequent international sanctions have bitten large chunks out of Russia’s stockpiles. As Russian supply continues dwindling, and the world starts looking at alternative sources, Pelagic Resources finds itself in a very strategic position, six years after establishing the company.
Pelagic is focused on servicing the industrial manufacturing community via the supply of ore, concentrate and alloy for specific applications in the evolving complex of specialist steels with applications ranging from pure stainless-steel manufacturing to electric vehicle and battery development focused industrials. The company’s trade book includes chromium, PGM’s, copper, Ferrochrome, Lithium, manganese & vanadium. All its operations are based in Africa.
Their aim is to develop supply partners and international markets for African commodities at a time when global trade has been turned on its head by geopolitical turmoil. The company is actively looking for projects to support in Africa.
Developing chrome reserves
Pelagic has a 22% stake in JSE listed chrome and PGM producer Bauba Resources (JSE:BAU). Bauba owns and operates Moeijelijk chrome, the Kookfontein chrome project, Hartbeesfontein chrome and a platinum exploration project. Bauba has just been acquired by Raubex and subsequently delisted, though Pelagic retains its stake and marketing contract.
In July 2021 Pelagic provided a project-financing facility to develop Bauba’s Kookfontein and secured the contract to market its production. Kookfontein chrome reserves currently stands at 10 million tons.
Kookfontein is located on the Western limb of the Bushveld Igneous Complex (BIC). Its chromitite mineralisation is concentrated in the Lower Critical Zone and the Upper Critical Zone of the Rustenburg Layered Suite.
The location coincides with the Kookfontein “upfold” which forms the boundary zone between what is known as the Rustenburg sector and the Boshoek sector of the Western Lobe. LG and MG chromitites are well developed in the Boshoek sector whereas only MG group chromites are developed between Kookfontein and Rustenburg, as the Upper Critical Zone lies directly onto the floor quartzites in this area.
In April 2021 construction company Raubex (JSE: RBX), with a market cap of more than ZAR7.3-Billion, acquired a 23% majority stake in Bauba. The deal accelerated development at Kookfontein and boosted Pelagic’s position as one of the largest suppliers of chrome ore globally even further.
With a strong balance sheet and extensive experience in its management structures, Pelagic has shown strong growth in a competitive market over the last five years and is well positioned to do the same as demand for chrome and PGMs in Europe continues to spike.
Management boasts years of experience
Recently appointed Michael Techow will focus specifically on the European market. Techow, who earlier this year joined Pelagic’s senior management team, brings years of experience to the company’s chrome department. Techow has worked in the chrome space for more than 20 years. He was the Global Marketing Manager for German specialty chemicals company Lanxess, having worked there for over 40 years. He is also the chairperson of the chrome chemicals subcommittee at the International Chromium Development Association.
Managing Director Tom Baring has years of experience in commodities and metals trading and has spent the last 16 years residing in emerging economies where he has been operating. Baring has a keen understanding of the industry and its environment, and a strong business acumen.
Applications for chrome
After being written off only a few years ago, the chrome sector is on a recovery path as the world starts searching for more environmentally friendly solutions to construct new buildings. Stainless steel is the preferred material for green building in China and other parts of the world. Stainless steel can also be recycled.
Chromium is critical in the manufacturing of stainless steel. Stainless steel is an alloy mix of chromium and nickel. It must have a minimum of 10.5% chromium to be called stainless steel. Most stainless steel contains about 18% chromium. The chromium is what hardens and toughens steel and increases its resistance to corrosion, especially at high temperatures.
Chrome is used extensively across a range of applications including in vehicle exhaust systems. With the anticipated move towards electric vehicles (EVs) in the future, though, the traditional exhaust system might become redundant. However, predictions are that EVs will only take over the internal combustion engine vehicle market in the next decade or two.
Today, about 40 million tons of chrome is consumed per year. This is in comparison to the 23.6 million tons in 2010. Although chrome is seen as a mature market, demand for stainless steel materials will continue to drive the market dynamics, making it one of the critical strategic commodities of the energy transition. This, of course, bodes well for Pelagic, well on its way to become a global giant on the supply side of things.
The company’s business model has seen effective partnerships and the optimisation of bespoke virtual supply chain solutions to clients around the world. “It has built strong relationships with suppliers, banks, state-owned enterprises, traders and end-users and has created a best-in-class supply chain solution for its global client-base. This is key for anyone wanting to do business in emerging markets,” says MD Baring.
According to Fastmarkets risks to the chrome and stainless-steel industry includes an increase in the use of scrap in the production process, the transition to carbon steel, and the inability of domestic stainless-steel mills to keep up with chrome production.
In addition, and despite the dwindling supply of PGMs from Russia, there is the added risk of oversupply of chrome in the medium term.
The demand for stainless steel, which accounts for close to 80% of the demand for chrome, is likely to continue to be the main driver for the chrome market, but not at the same pace as the growth of the supply. Going forward, this could adversely affect the chrome production industry.”
Despite the risks, Pelagic Resources is on a good wicket and continues its excellent growth trajectory. The company timed the execution of its strategy to perfection and entered the market at the right time. Its spectacular growth is likely to continue over the next few years and with the Russian crisis deepening, it is set to play an even more dominating role in the world of chrome and PGM production, marketing and trading.
