[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.”
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.