The 2018 financial year proved to be a challenging year for South African mining companies, according to PwC’s 10th edition of SA Mine
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, said PwC.
Michal Kotzé, utilities and resources leader at PwC Africa Energy, said, “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 the 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, we have also included a brief look at the regulatory changes in the DRC and Tanzania.
Gold and platinum group metals (PGMs) continue to dominate the share of the market capitalisation of the companies analysed, but experienced declines of four per cent and five per cent respectively. Iron ore saw an increase of US$2.78bn from 2017 to 2018, increasing the commodity’s percentage share of capitalisation from 13 per cent to 20 per cent. The rest of the commodities remained stable.
The risk environment
The risks disclosed by global mining companies and those risks disclosed by South African mining companies largely collerates. However, the following matters stand out from the comparison: South Africa is less prone to natural disasters, although some mines have had to close in the past because of incidences such as flood damage and droughts. Technology and cyber risks are becoming more prominent in the global mining environment. Market competition is not disclosed in South Africa as a major risk.
