Critical Juncture
Mining Weekly|January 20 - 26, 2017

South Africa’s mining sector at a crossroads, collaborative effort required.

Ilan Solomons

The global mining industry has been struggling since the 2008 international financial crisis set off a chain of events resulting in contracted growth in important markets, such as China, and recession in others, such as Europe, leading to severe declines in commodity prices.

In South Africa, the decline was exacerbated by cost increases well above the inflation rate, including the cost of electricity, which has trebled over the past eight years. Wages and the cost of storage and materials have been rising by 10% a year over the past five years and steel costs have risen by 12% a year. All these factors have led to the significant loss of about 60 000 jobs in the South African mining sector from 2012 to 2015, according to the Chamber of Mines (CoM) of South Africa.

Nonetheless, CoM CEO Roger Baxter tells Mining Weekly that mining remains important to the country, noting that, despite its depressed state, it directly contributes 9% to the country’s gross domestic product (GDP) and this figure doubles to 18% of GDP when mining inputs are taken into account.

“Therefore, the industry continues to have great potential,” he asserts.

Baxter also points out that, despite South Africa’s long mining history, it still hosts a substantial proportion of the world’s commodity reserves and resources.

“Given the right conditions and with continued efforts to modernise production methods, the non gold mining sector could grow by between 3% and 5% a year, and the rate at which the gold sector is slowing down could be delayed significantly,” he states.

Professional services firm EY mining and metals sector leader for Africa Wickus Botha adds that 2016 was a year of cash preservation and operational optimisation for most mining companies. He remarks that the companies that performed well in 2016 generated and managed their cash optimally. This included the mothballing of several marginal projects and concentrating on strengthening cash-positive mines.

Botha is optimistic about the global mining industry’s prospects in 2017, as the financial discipline shown by many miners in 2016 has enabled them to take advantage of any commodity price improvements that may occur in 2017. He also believes that this financial discipline has translated into investors regaining confidence in the sector.

“There certainly will not be a new commodities cycle boom in 2017, whereby prices will spike by 20% or more; however, it is likely there will be gradual improvements recorded across the board during the year.”

Botha highlights that the local mining sector’s biggest challenge is policy uncertainty. Baxter concurs, emphasising that the industry would like to see government finalise the Mineral and Petroleum Resources Development Act (MPRDA) amendments, “a mutually satisfactory conclusion” to the review of the Mining Charter and a fair and even-handed application of the law by regulators.

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