South Africa’s mining sector is facing a crisis as its profits have slumped by almost half this year, according to a report by PwC. The report, cited by Fin24, an online financial news service, analyzed 29 domestic mining companies and found that their combined net income dropped from a record 206 billion rand ($5.2 billion) in their previous financial years to 108 billion rand in their latest ones.
The report attributed the decline in earnings to several factors, including lower commodity prices, crippling power cuts, rail network constraints, rising costs, and the impact of the Covid-19 pandemic. Transnet Freight Rail’s poor performance, especially on the export coal line, was a major challenge for the industry, the report said.
The mining sector’s woes will affect the government, which has benefited from windfall taxes and royalties in the past two years. According to the report, the sector’s reported tax expense declined by 34%.
The industry also faces increasing pressure to address its environmental impact and carbon footprint as key trade partners implement low-carbon commitments and net-zero targets. South Africa ranks in the top 20 of most carbon-intensive global economies on an emissions-per-GDP basis, with most of its emissions coming from indirect electricity use.
Two of the four most significant minerals in South Africa’s commodity footprint are at risk of reduced demand in the future: thermal coal and platinum group metals (PGMs). These two sectors account for about 50% of total sales in mining, with coal generating 139 billion rand and PGMs 125 billion rand in 2019.
However, the report highlighted some positive developments and opportunities for the mining sector. These include the recovery of commodity prices in the second half of 2020, the increased demand for battery metals such as lithium and cobalt, the potential for green hydrogen production using renewable energy sources, and the adoption of digital technologies to improve efficiency and safety.
The report urged the mining sector to collaborate with the government and other stakeholders to address the challenges and seize the opportunities. It also called for more investment in infrastructure, skills development, innovation, and social responsibility.
The mining sector remains a key contributor to South Africa’s economy, accounting for about 58% of total exports in the first six months of 2020 at 575 billion rand, according to South African Revenue Service figures. The sector also employs about 450,000 people directly and supports another four million indirectly.
The report concluded that despite the difficulties, the mining sector has shown resilience and adaptability despite unprecedented challenges. It said that with the right strategies and actions, the sector can overcome the crisis and emerge stronger and more sustainable.
Source: Bloomberg
