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According to PWC’s 10th edition of SA Mine, the 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 SA mining industry, which is more exposed to precious metals, did not enjoy the same benefit from price increases.

2018 a mixed bag of performance for SAs mining industry2“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,” says Michal Kotzé, PwC Africa Energy Utilities & Resources Leader.

The report found that capital expenditure grew as the completion of long-term platinum and gold projects continued, for the first time since 2012, while older and inefficient shafts were 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,” it stated.

In 2018 total market capitalisation of the 31 companies analysed in the report recovered to R482 billion, compared to R420 billion in 2017. 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.

PWC found that manganese, iron ore and chrome are the only commodities that showed real production growth over the last 15 years. Coal production showed a marginal increase for the first time in three years, but remained largely flat over the last 15 years. Gold has continued 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,” the analysts said.

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,” says Andries Rossouw, PwC Partner.

According to the report, 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. Capital expenditure recovered from the lowest levels in ten years to reflect a 19% increase. Operating expenses increased by 13%. Labour costs continued to be the biggest cost driver in the mining industry.

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