Opencast mines dominate growth

Improvements were made in manganese, chrome and iron ore, says PwC

A changing production profile away from gold into bulk commodities extracted mechanically from open pits combined with higher mineral prices gave the SA mining sector a shot in the financial arm. For investors in 26 JSE-listed mining companies, dividends rose to five-year highs as free cash flows increased, with notable improvements in production of manganese, chrome and iron ore.

A changing production profile away from gold into bulk commodities extracted mechanically from open pits, combined with higher mineral prices, have given the mining sector a shot in the financial arm.

For investors in 26 JSE-listed mining companies, dividends rose to five-year highs as free cash flows increased, according to PwC’s SA Mine 2019 report. Notable improvements were made in production of manganese, chrome and iron ore, while gold, the mainstay of SA’s economy for more than a century, continued to struggle.

The percentage growth in manganese outstrips all SA’s other mineral production, more than quadrupling since 2004. The railed movement of manganese ore to SA’s ports is testament to this, with Transnet Freight Rail chief customer officer Mike Fanucchi saying 2019’s target was 15-million tons, three times the 5-million tons moved in 2012.

SA is the world’s largest source of manganese, and the biggest deposit accounts for 80% of the ingredient used to make steel. The country is also host to the largest chrome and platinum group metals (PGM) deposits and has millions of ounces of unmined gold.

Chrome output has risen 2.5 times since 2004 and that of iron ore has nearly doubled.

SA’s manganese, chrome and iron ore come largely from open-pit mines, while the trend in PGM output is for shallow, mechanised operations. Gold, which has been mined for more than a century, has some of the world’s deepest mines, including Mponeng, the deepest at 4km below the surface.

“That transition is the reality for our industry for the next ten years, moving away from deeplevel, conventional mines,” said Andries Rossouw, PwC Africa energy utilities and resources leader.

Costs, which have more than doubled since 2004, have eroded gold industry profit margins. The industry will be in “terminal decline” unless there is a breakthrough in innovative technology to mine safely kilometres underground, Rossouw said.

COST BASE

“The increase in the cost base has just been too much for gold to remain profitable,” he said.

“If you speak to our mining companies, in order for them to make the same profits they made 10 years ago they would need to have double the current rand price even though that price is sitting at record highs,” Rossouw said.

The rand gold price is at more than R720,000/kg.

The gold industry employs 112,000 people, down 68,000 in 13 years, with 4,000 of those jobs lost in the past two years. Overall, SA’s mining sector has lost 30,000 jobs since 2014.

The fall in gold output from the 120-year-old industry has been precipitous, plunging below 130 tons, down from 1,000 tons in 1970, when SA was the dominant force in global gold production.

For the 18 companies surveyed, overall revenue grew 12% year on year to R443bn on higher commodity prices, including PGM stars palladium and rhodium, because of a continued and growing supply deficit in the construction of catalysts for petrol engines.

In a global environment where coal is increasingly shunned by funders and investors amid growing concerns about the negative effect on the climate of burning fossil fuels, coal remained the biggest revenue generator, accounting for 28% of income, similar to the year before.

“That’s why the transition to a noncarbon energy world will have such a big impact on the global mining community and locally. We, SA, will be burning coal for a very long time until we can replace it,” Rossouw said.

GOLD MINING FIRMS WOULD NEED TO HAVE DOUBLE THE CURRENT RAND PRICE EVEN THOUGH THAT PRICE IS SITTING AT RECORD HIGHS