SA mining industry in transition

Andries Rossouw, PwC Africa energy & resources leader

Overall revenue has grown over the reviewed period. “However, if you take the rand out of that then growth has remained flat,” says Andries Rossouw, PwC Africa energy & resources leader, at the launch of the 11th SA Mine 2019.

While the weaker rand has helped revenues and profits in short term, in the long term it is impacting costs. It is a short-term cash injection that does not support the long-term sustainability of the industry. “This is not a long-term solution for the industry,” he says.
He foresees that, running up to December 2019, the PwC’s 11th SA Mine 2019will still play a massive role. “Let’s hope this will help kickstart the industry and even help the economy as a whole.”

The report highlights that the finalisation of the Mining Charter has brought more optimism to the industry. However, the industry is still playing a wait-and-see game regarding the re-empowerment clause of the charter. “We cannot predict the outcome, we can only say that it is creating lots of uncertainty,” says Rossouw.

Carbon tax

The incoming carbon tax legislation is also creating uncertainty. “The waters are being tested and engagement with industry has been opened to ascertain the extent to which the carbon tax will affect the industry,” he says.

The purpose of the carbon tax is to change mindsets. “It will also lead to a much more efficient industry and it won’t be long before we see reinvestment in renewables,” he adds.

Coal is still king

For the period of the report, the industry has outperformed the JSE All Share Index, but it is still lagging the overall trend, which is in line with global trends. Coal is still the biggest revenue generator in South Africa, but price has not driven production. “It’s 28% of revenue locally is also in line with global trends for commodities.

The platinum and gold industries have both grown their share since last year, with the platinum industry aided by the platinum price. “The gold industry continues its decline, and with the cost base increasing as much as it has, this is probably a terminal decline and the reason why we are seeing the mine closures,” says Roussow.

Operating costs are still characterised by a labour-intensive industry with labour costs above inflation. Capital expenditure has remained flat, but the improved cash flow has led to a higher distribution to shareholder. While there has been an improvement in the dividend payment, compared to other industries the pay-out is much less. It is also well below what has been paid out in the past.