Patience and perseverance key to industry recovery in South Africa
The mining production data released recently by Statistics South Africa for October painted a gloomy picture of the sector, despite the positive contribution the sector made to the economy in the third quarter of 2016 and the hopes of a commodity rebound worldwide.
Annual production (12 months) fell by 4.6percent by the end of October. If the renewed weakness shown by the October decline (-3percent) in September is anything to go by, then the full year contraction may be even stronger. As at October (10 months) the sector’s production already declined by over 5percent this year. Relative to the peak production volumes at the beginning of 2005, the sector has now contracted by nearly 25percent.
Of the different mineral groups, only iron ore (+5.2percent) and coal (+8percent) production increased in October relative to September. All the others declined by between 5percent and 10percent. Due to the large increase in production of platinum group metals in recent months, it was the only group that recorded growth (+2.2percent) when measured over 12 months. However, it too recorded much lower production in October (on September) and may very well also show contraction by the end of the year.
Growth in mining production depends mostly on demand for its (exported) products emanating from growth in the international economy. South Africa exports close to 50percent of its minerals to western, eastern and southern Asia; with China’s growth forecast at a steady 6.5percent and Japan at about 0.5percent until 2018, not much acceleration in demand should be expected from those parts of the world economy. However, with better growth expected in the US (1.9percent rising to over 2percent) and the EU (around 1.6percent) (up to 2018) some improvement could be expected, albeit small. South Africa exports around 20percent of its production to the EU and about 10percent to the Americas.
The latest sales data for minerals is (hopefully) an early indication of some positive feedback into the South African mining sector. The considered view is that it is much too early to come to such a conclusion, especially when the impact of ever rising domestic production costs is discounted. An improvement in the situation cannot come too soon though as employment numbers continue to fall. The latest (second quarter) official employment data (Statistics South Africa) shows a decline in half year numbers of 6.4percent (from 488,746 to 457,585) and a decline of 5.3percent over 12 months.
All indications are that commodity prices are bottoming out this year and mild worldwide growth would lift prices over time. It is also true, however, that the exchange rates of commodity exporters usually strengthen (all other things being equal) when their export prices improve, which may neutralise some of the expected price windfalls.
There seems to be some hope that neither demand nor prices will fall further, but to engineer the recovery will take much patience and perseverance.
This report has been compiled by Henk Langenhoven, Chief Economist at the Chamber of Mines
Get in touch with our editor Dale Benton at [email protected]
Vale invests $150mn to extend life of Manitoba operations
Vale has announced a $150mn CAD investment to extend current mining activities in Thompson, Manitoba by 10 years while aggressive exploration drilling of known orebodies holds the promise of mining well past 2040.
Global energy transition is boosting the market for nickel
The Thompson Mine Expansion is a two-phase project. The announcement represents Phase 1 and includes critical infrastructure such as new ventilation raises and fans, increased backfill capacity and additional power distribution. The changes are forecast to improve current production by 30%.
“This is the largest single investment we have made in our Thompson operations in the past two decades,” said Mark Travers, Executive Vice-President for Base Metals with Vale. “It is significant news for our employees, for the Thompson community and for the Province of Manitoba.
“The global movement to electric vehicles, renewable energies and carbon reduction has shone a welcome spotlight on nickel – positioning the metal we mine as a key contributor to a greener future and boosting world demand. We are proud that Thompson can be part of that future and part of the low carbon solution.”
Vale continues drilling program at Manitoba
Coupled with today’s announcement, Vale is continuing an extensive drilling program to further define known orebodies and search for new mineralization.
“This $150mn investment is just one part of our ambitious Thompson turnaround story. It is an indicator of our confidence in a long future for the Thompson operations,” added Dino Otranto, Chief Operating Officer for Vale’s North Atlantic Base Metals operations.
“Active collaboration between our design team, technical services, USW Local 6166, and our entire Thompson workforce has delivered a safe, efficient and fit-for-purpose plan that will enable us to extract the Thompson nickel resources for many years to come.”
The Thompson orebody was first discovered in 1956 by Vale (then known as Inco) following the adoption of new exploration technology and the largest exploration program to-date in the company’s history. Mining of the Thompson orebody began in 1961.
“We see the lighting of a path forward to a sustainable and prosperous future for Vale Base Metals in Manitoba,” said Gary Annett, General Manager of Vale’s Manitoba Operations.