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PwC releases report on performance of South Africa’s mining industry

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Global Mining Review,

PricewaterhouseCoopers (PwC) has published a report on the performance of the South African mining industry in the 2018 financial year.

The report concludes that the 2018 financial year was ‘challenging’ for the industry in South Africa, despite the financial performance of the mining industry globally improving on the previous year.

Michal Kotzé, PwC Africa Energy Utilities & Resources Leader, 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.”

Report highlights

  • For the first time since 2012, CAPEX grew as the completion of long-term platinum and gold projects continues, while older and inefficient shafts are being closed.
  • In 2018 total market capitalisation of the 31 companies analysed in the report recovered to R482 billion, compared to R420 billion in 2017, but still below the June 2016 level of R560 billion.
  • Gold and platinum group metals continued to dominate the share of market capitalisation of the companies analysed, but declined by 4% and 5% respectively. Iron ore increased by R40 billion from 2017 to 2018; its percentage share of capitalisation rose from 13% to 20%. The rest of the commodities remained stable.
  • Manganese, iron ore and chrome are the only commodities to have real production growth over the last 15 years. Coal production showed a marginal increase for the first time in three years, but has remained largely flat over the last 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.
  • 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.
  • The rand strengthened in the second half of the year, leading to an average decrease in prices received for gold, platinum and iron ore.
  • Despite various cost saving initiatives, above inflation cost increases placed the industry under pressure with a decline in EBITDA.
  • While a new mining charter reflected 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.

For the full report, as well as PwC’s views on regulatory changes in the Democratic Republic of the Congo and Tanzania, click here.

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