The financial year to June 30 was extremely challenging for South Africa’s mining industry, PwC stated in the seventh annual edition of its SA Mine series. Local cost pressures, labor action, and the ongoing downswing in commodity prices resulted in shrinking margins, as mining companies grappled to improve productivity and find a place in the demanding global and local mining environment.
A declining trend in market capitalization is ongoing, with few, if any, companies left unscathed. Market capitalization for the top 35 South African companies declined to R414 billion as of June 30 from R675 billion a year earlier.
Although iron ore and coal prices were the most severely impacted over the past year, platinum and gold mining companies did not escape the continuing downward slide in commodity prices. South Africa’s main revenue generating commodities have not experienced real prices as low as those experienced in 2015 in 10 years.
Despite a continued reduction in coal prices, coal remained the highest earning commodity in South Africa, built on a solid performance over the past decade.
A long-term decline in gold production was temporarily halted over the past two years. However, platinum group metal production has been severely impacted by industrial action since 2012 and by mine enclosures in the low-price environment. In the absence of a meaningful price increase, it is unlikely that platinum production levels will increase from the current lower base.
Labor costs still remain the biggest cost component in South Africa’s mining industry, accounting for 45% of total costs.