[REPORT]: Is the Mining Industry in South Africa in Decline?
Let’s not mince words here. To answer the question posed by the headline: yes, or at least that’s certainly what it looks like.
According to a report from professional services firm PricewaterhouseCoopers (PwC), a swelling cost base and shrinking margins have put some dents into the financial landscape of the South African mining industry over the last year. This has driven impairments up 145 percent to R49 million and resulted in a 19 percent contractor in the sector’s capital expenditure for the year to R57 billion.
According to PwC energy and mining assurance partner Dion Shango, other factors, such as a drop in demand and labor unrest, have contributed to less-than-stellar sector performance.
However, one material that performed well was platinum, as benefitted from a weakened rand and overtook 39 percent of the market. Coal also remained strong as the biggest revenue generator, accounting for 29 percent of South Africa’s R351.3 billion total mining revenue. Gold’s share of the market decreased, though it’s the only commodity to show real growth in South African since 2004.
While the market’s not in freefall, it’s certainly on unstable ground. According to Shango, the saving grace of the industry currently is the weak rand, though this only a temporary solution.
“Mining companies will have to find a better way of maintaining margins in a declining dollar environment,” he said.
Mining companies need to find new ways to manage risk and performance in order to stay afloat amid the rising tide of economic unrest—and action is certainly required.
“There is no point in knowing these risks if they are not managed accordingly,” PwC energy and mining assurance partner Andries Rossouw said. “For example, commodity prices can’t drop between 30% and 50% without it impacting on your business.”
Rossouw also explained that the industry needs to ditch the “instant gratification” mindset and focus on long-term goals.
“It’s not just labour that wants instant gratification in the form of higher wages without linked increases in productivity, but it is all stakeholders,” he said. “Government, for example, wants higher taxes while executives demand bonuses and increases and shareholders want dividends.”
To circle back to the initial question of if the industry is in decline, it would appear that the answer is yes, though the real trouble hasn’t yet occurred. There is still time for the industry to course correct and become prosperous once again.
Still, there’s a truth here that can’t be ignored, according to Shango: ““Never before has it been harder to manage a mining company in South Africa.”
Lithium producers bullish as EV revolution ramps demand
Rising demand for lithium is stoking prices for the electric vehicle battery metal, fueling long-delayed expansions that still may not produce adequate supplies that automakers need to meet aggressive production plans.
Growing industry optimism from higher lithium prices is a change from last year when funding for mines and processing plants dried up during the pandemic.
Albemarle Corp, Livent Corp and other producers are scrambling to make more lithium, but some analysts worry the recent price jump will not spur a big enough expansion to meet a planned wave of new EV models by mid-decade.
Since January, General Motors Co, Ford Motor Co LG Energy Solution and SK Innovation Co, along with other automakers and battery parts manufacturers, have said they will spend billions of dollars on EV plants.
U.S. President Joe Biden has proposed spending $174bn to boost EV sales and infrastructure. The European Union has similar plans, part of a rush to catch up with global EV leader China.
Those moves have helped an index of lithium prices jump 59 percent since April 2020, according to data from Benchmark Mineral Intelligence, a commodity pricing provider.
The rising demand “reflects what feels like a real and fundamental turning point in our industry,” said Paul Graves, chief executive of Livent Corp, which supplies Tesla Inc. On Monday, it said it would more than double its annual lithium production to 115,000 tonnes.
Graves warned, though, that “it will be a challenge for the lithium industry to produce sufficient qualified material in the near and medium term.”
Albemarle, the world’s largest lithium producer, aims to double its production capacity to 175,000 tonnes by the end of the year when two construction projects are complete. Albemarle's Q1 profit beat expectations thanks to rising lithium prices. Chile’s SQM, the No. 2 producer, said its goal to expand production of lithium carbonate by 71 percent to 120,000 tonnes should be complete by December.
Australia’s Orocobre is paying $1.4 billion for smaller rival Galaxy Resources, a strategy designed to boost scale and help it grow faster in regions closer to customers.
“The next few years are going to be critical in terms of whether there’s enough available lithium supply, and that’s why you’re starting to see commodity prices start to ramp,” said Chris Berry, an independent lithium industry consultant.
The price gains helped Albemarle and other major producers, including China’s Ganfeng Lithium Co and SQM, post big gains in first-quarter profit and boost forecasts for the year.
Even China’s Tianqi Lithium Corp, saddled with debt due to years of low lithium prices, signaled that recovering demand should help it swing to a profit this year.
Forecasts call for demand for the white metals to surge from about 320,000 tonnes annually last year to more than 1 million tonnes annually by 2025, when many automakers plan to launch new EV fleets, according to Benchmark.
Still, demand is expected to outstrip supply in 2025 by more than 200,000 tonnes, so lithium prices may need to rise to encourage producers to build more mines. That could boost the prices consumers pay for EVs. “Companies across the lithium-ion supply chain are in the best position they’ve been in for the last 5 years,” said Pedro Palandrani of the Global X Lithium & Battery Technology ETF , which has doubled in value in the past year.