Grim forecast for some local mines

South African miners increasingly look to build or buy assets outside the country as their operating costs rise, Moody’s warns

Ratings agency Moody’s warned that regulatory uncertainty in SA, coupled with a firmer rand against the dollar, would hasten the closure of the country’s gold and platinum mines already buckling under high costs.

Moody’s ratings agency warns that regulatory uncertainty in SA, coupled with a firmer rand against the dollar, would hasten the closure of the country’s gold and platinum mines, which are already buckling under high costs.

South African mining companies were increasingly looking to build or buy assets abroad, making use of their capital generated from offshore assets as their domestic operations remained under pressure from rising costs and ore bodies that were becoming more difficult and expensive to mine, Moody’s said in a note on Tuesday.

“Gold and PGM (platinum group metals) miners will limit their investment in existing South African mines to sustaining capital. Without the substantial expansionary investment required to reconfigure unprofitable mining operations and make them profitable, mines will either be restructured or closed,” Moody’s said.

“Earnings from South African mines are not even sufficient to meet interest and tax payments, which then have to be supplemented by earnings from international mines,” it said, adding it expected capital expenditure at SA’s mines to continue falling.

In the platinum sector, 65% of mines are unprofitable, Anglo American Platinum CEO Chris Griffith has said as the company completes its strategy of disposing of expensive, deep-level mines to focus on mechanised, shallow mines.

In gold, AngloGold Ashanti and Sibanye Stillwater are preparing to shut old, unprofitable mines, with the loss of 16,000 jobs.

At a mining conference in Australia last week, Chamber of Mines CEO Roger Baxter said mining companies operating in SA had essentially frozen all investments in the country because of policy and regulatory uncertainty. Underlying the discontent was unhappiness with Mineral Resources Minister Mosebenzi Zwane, who was facing “significant corruption allegations”, resulting in the industry losing confidence in him, Baxter said.

The delays in establishing a regulatory framework, with a five-year wait for amendments to the Mineral and Petroleum Development Act, as well as the recently suspended third iteration of the Mining Charter, which the Chamber of Mines will attempt to interdict later this week, were creating a level of uncertainty that made investments in long-term projects unlikely, Moody’s said.

“Uncertainty over mining policy will continue to inhibit investment in SA’s mining industry beyond funds to sustain current operations. For the time being, we expect many South African miners to mine for cash and to limit capital spending as much as possible.

“At the same time, without investment — which often is significant in respect of the amount required — unprofitable mines are likely to be closed. As a result, the trend of restructuring and closure of operations to protect group free cash flow generation is expected to continue. This will also result in a steady decline in production contribution from SA,” it said.

Mining companies were investing abroad in newer, modern, mechanised and generally opencast mines, it said.