Light at the end of the tunnel
• A review of global trends by PwC says that the mining industry has begun to emerge from a crippling downturn
Miners saw the dust settle at long last in 2016, after a pulverising downturn ground the industry to a virtual halt. Today, after years of pulling back on investment, exploration and human resources, the world’s largest mining companies are ready to move ahead, according to PricewaterhouseCoopers’ (PwC) review of global trends in the mining industry, Mine 2017.
“They have cut debt, strengthened balance sheets and taken necessary impairments. In the process, these players have found themselves in step with an awakening global demand for most commodities, and they have watched their credit ratings rise and valuations grow,” says the review.
It says this year will be all about assessing options and making the right corporate decisions to sustain the market optimism these events have unleashed. “Mining companies need to impose better capital discipline in the decade ahead and, indeed, early evidence suggests that they began to do so in 2016. The industry must also consider the potential gain of bolder moves while costs are still relatively low.”
According to Mine 2017, the mining industry remains a long way off the peaks of previous cycles, but it has regrouped and begun to rise again.
“Credit ratings agencies rewarded miners for their debt management strategies by upgrading a number of players. The average rating rose from just-above-junk BBB– to BB+, and some major miners, such as Anglo American, restored their investment-grade status.”
Furthermore, Mine 2017 reports rising commodities prices promise a way forward.
Andries Rossouw, PwC partner, says in the last quarter of 2016 running into the first quarter of 2017 prices recovered nicely where commodities like coal and iron ore doubled in terms of US$-prices, which put the market back on its feet backed by miners improving their unit costs and strengthening their balance sheets.
“While the industry is not quite out of the woods yet, its position has certainly improved,” says Rossouw.
The conditions in SA’s mining industry must be seen in the context of the improving global mining landscape.
Rossouw says there have been similar trends in SA, however the strengthening rand over the same time-period offset some of the gains made by iron-ore and coal producers.
Rossouw contends that although South African miners have focused on reducing costs and improving production, the successes the industry has seen are not going to result in an overnight recovery. Furthermore, the changes suggested by the Department of Mineral Resources’ Reviewed Mining Charter have created uncertainty in the local industry.
Even though the Chamber of Mines reports that 2016 was a challenging year, the industry still managed to: contribute R304.4-billion to South Africa’s GDP; spend R211.8-billion on goods and services; employ 457,698 people, who earned around R120-billion, and support around 4.5-million people.
Mining plays a big role in six of SA’s provinces, offering not only employment but also supporting the respective provincial economies.