Bulk commodities drive uptick in SA mining

SA's mining industry showed an overall improvement during 2018, with bulk commodities offsetting the continued underperformance in gold and platinum.

In PwC's SA Mine report, the 10th in the series, it noted improved capital expenditure for the year to end-June, jumping 19% off a decade low, while the market capitalisation of the 31 companies surveyed improved to R482bn from R420bn. The bulk of that increase came from iron ore producer Kumba Iron Ore.

Revenue rose 8% to R28bn and dividends increased to R16bn from R6bn.

"With the Mining Charter now gazetted, it remains to be seen whether business and government can more effectively work towards a more stable South African mining environment," PwC said.

The difficulty of operating in SA and the downturn in commodity prices in recent years was highlighted by the R200bn worth of impairments mining companies have recorded against their assets in the past five years, according to the report.

“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," said Michal Kotzé, PwC Africa Energy Utilities & Resources leader.

Industry revenue grew to R398bn from R370bn, but operating costs expanded to R312bn from R278bn.

In the 2018 period, mining companies notched up impairments of R46bn compared to the previous year's R22bn, leaving the industry in an aggregated net loss position of R11bn from a R16bn profit before.

The net loss for platinum miners deepened to R24bn from R11bn, while the gold sector swung from a net profit of R6bn to a loss of R13bn in the past two years.

Net profit for other mining companies grew to R25bn from R22bn.

“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,” PwC partner Andries Rossouw said.

The total market capitalisation of the 31 companies included in the survey was R482bn, a R62bn improvement on the previous year, but still a long way off the June 2016 mark of R560bn.

The capitalisations of gold and platinum companies fell 4% and 5% respectively, for 2018, with iron ore offsetting those falls with a R40bn gain.

seccombea@businesslive.co.za