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2017 was another challenging year for South Africa’s mining industry. PwC’s ninth edition of SA Mine points to a decrease in dividends and market capitalisation, various retrenchments across the industry, and marginal increases in taxes paid as the primary reason for the pressure being felt by local miners. However, spot price increases for bulk commodities supported the industry and resulted in a return to profitability after the first substantial increase in revenues in five years.

Mining industry profitable again“The 2017 year can be described as a year of policy uncertainty and real questions over the long-term sustainability of the industry. After the price lows of December 2015 and January 2016, the current year saw US Dollar prices recover for most commodities with the exception of platinum. Although some US Dollar price gains were offset by a stronger rand, the improved prices did bring the industry as a whole back into profitability,” says Michal Kotzé, PwC Africa Energy Utilities and Resources Leader.

According to the report, revenue increased by 13% (R43 billion) from 2016. “It is notable that this is the first substantial increase in more than five years,” says Andries Rossouw, PwC Assurance Partner.

The gold companies’ revenue increased by 17%, equating to R23 billion, due to improvements in US Dollar gold prices and a weaker Rand for most of the reporting period. The platinum companies saw revenue increases of 4% from the prior year on the back of improved platinum prices for parts of the year.

Overall, operating expenses increased by R13 billion, which is a 5% increase from the prior year. “Continued low commodity prices have resulted in another year with significant impairments in the industry, with a total of R22 billion in impairment provisions. More than R100 billion was impaired over the last three years, more than wiping out the last two years of capital expenditure in the industry. After last year’s net loss the companies in this year’s analysis are back into a net profit position due to lower impairments. The EBITDA margin of 26% is 6% higher than the previous year.” the report says.

“It is encouraging that all commodities improved their EBITDA margins. However, the low platinum EBITDA margin (12%) is still a significant concern and threatens the sustainability of a number of operations,” Rossouw adds.

Labour still accounts for the majority of mining companies’ costs, accounting for approximately 44%. Labour costs increased by 4.5%, which was marginally below inflation.

SA Mine also provides insights into other elements affecting the South African mining industry over the past year, including safety and illegal mining activities; the adoption of emerging technologies in the industry, risks and value. It also looks at the mining industries of the DRC and Tanzania

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