Insight
Mixed bag for SA
The 2018 financial year was a mixed bag of performance for South Africa’s
mining industry, according to PwC’s latest SA Mine report.
T
he 2018 financial year proved to
be a challenging year for South
African mining companies.
Globally, the financial performance
of the mining industry improved
considerably from the previous year. That
position was largely mirrored by South
African bulk commodity producers,
with iron ore, coal, manganese, and
chrome performing well. Unfortunately,
the aggregated South African mining
industry, which is more exposed to
precious metals, did not enjoy the same
benefit from price increases. These are
some of the key highlights from PwC’s
10th edition of SA Mine, a series of
publications that highlights trends in the
South African mining industry.
Michal Kotzé, PwC Africa Energy
Utilities & Resources leader, says: “2018
can be described as a mixed bag of
performance for South Africa’s mining
industry, with bulk commodity prices
continuing to rise during 2018 from the
lows at the beginning of 2016, while
precious metals continued to struggle.
“Cost-saving initiatives could not
offset the impact of input cost inflation.
The increased costs and production
challenges meant a weakening in
operating results. Together with the gold
and platinum impairments, it meant that
the industry recorded a loss for 2018.”
For the first time since 2012, capital
expenditure grew as the completion of
long-term platinum and gold projects
continues, while older and inefficient
shafts are being closed.
While the new Mining Charter
underlined the regulatory uncertainty,
the appointment of a new minister of
mineral resources in February 2018
brought hope of open dialogue and more
certainty to the industry.
Although the gazetted version of the
charter is likely to still receive some
criticism, there was a concerted effort by
industry and government to move closer
to each other. Environmental regulatory
changes are also receiving deserved
attention. In this edition, a brief look at
the regulatory changes in the DRC and
Tanzania is included.
Market capitalisation
Michal Kotzé.
www.miningmirror.co.za
In 2018, total market capitalisation
of the 31 companies analysed in this
report recovered to R482-billion
(2017: R420-billion). Although it is a
R62-billion increase on the previous
year, it is still below the June 2016 level
of R560-billion.
Gold and platinum group metals
(PGMs) continue to dominate the
share of market capitalisation of the
companies analysed, but experienced
declines of 4% and 5%, respectively.
Iron ore saw an increase of R40-billion
from 2017 to 2018; increasing the
commodity’s percentage share of
capitalisation from 13% to 20%. The rest
of the commodities remained stable.
Production
Manganese, iron ore, and chrome are
the only commodities that showed
real production growth over the past
15 years. Coal production showed a
marginal increase for the first time in
three years. However, it has remained
largely flat over the past 15 years. Gold
continues its long-term decline. The
ongoing low price environment for
platinum is likely to result in further
curtailment of supply in the absence of a
reasonable price increase.
Financial performance
Total revenue generated by the
companies analysed for the financial
year-end 30 June 2018, increased by
8% (R28-billion) from the prior year.
Increased coal and manganese revenues
mainly drove this. Coal grew its share
of total South African mining revenue
and leads at 29% of mining revenue for
the year. The increase was driven by good
rand price increases for the commodity,
with production marginally up. Platinum
and gold reflected a lower percentage on
the back of relatively weak prices and
low production for the year.
The rand strengthened in the second
half of the year, resulting in an average
decrease in prices received for gold,
platinum, and iron ore. “The decrease in
rand prices, as well as weaker production
for gold and platinum, are putting
deep-level South African gold and
platinum producers under significant
pressure, as reflected in the market
capitalisation of these entities,” adds
Andries Rossouw, PwC partner.
Despite various cost-saving initiatives,
above inflation cost increases continues
JANUARY 2019 MINING MIRROR
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