Buds of optimism for mining

For most of this year there wasn’t much good news to write about in the mining sector.

But the latest PricewaterhouseCoopers SA Mine report released on Tuesday contains some buds of optimism: the mining index has outperformed the JSE All Share index (Alsi) for the better part of two years.

This is the first time in a decade that mines outperformed the rest of the JSE, but on a longer view, the mining index is exactly where it was 12 years ago.

The comparison with the JSE Alsi is flattering. Compared to the HSBC Global Mining index, the JSE Mining index is an underperformer due to the heavy weighting of gold and platinum in the local market.

The engine of this recent outperformance was bulk commodities such as coal and manganese, while gold and platinum continue their long-term decline.

Manganese, iron ore and coal are the only commodities to show real production growth in the last 15 years, though coal production is not much changed over this period.

Whereas SA used to be renowned for its gold, today coal is the biggest revenue generator, accounting for 29% of all mining revenues, followed by platinum group metals at 20% and gold at 16%.

The SA Mine report, based on data from 31 listed mine companies, shows a nearly 15% increase in combined market cap to R482 billion, from R420 billion in 2017. While gold and platinum still dominate the market cap rankings, their values declined 4% and 5% over the last year.

Another bit of good news: for the first time since 2012, capital expenditure grew as the completion of long-term platinum and gold projects continues, and older, less efficient shafts are being closed.

Capex was up 19% over the last year from its lowest levels in a decade. The see-saw rand played havoc with revenues. The rand strengthened towards the end of last year, reducing revenues received by gold, platinum and iron ore producers.

The weakened rand will be a boon to miners in the current financial year should it remain above R14 to the US dollar.