SA Mine 9th edition

Highlighting trends in SA Mining industry

The 2017 financial year was another tough one for stakeholders in the mining sector. Investors in aggregate saw a decrease in dividends and market capitalisation after a cautiously optimistic view on a recovery last year.

Overview

The 2017 financial year was another tough one for stakeholders in the mining sector. 
Despite the improved financial performance, regulatory announcements in June 2017 resulted in market capitalisation dropping to June 2015 levels. The subsequent recovery to the end of August was aided by improved USD prices and hope by investors that the suspended new Mining Charter would be revised before final implementation.

Market capitalisation by commodity

Key findings


South Africa’s mining landscape

The 2017 financial year was another tough one for stakeholders in the mining sector:

  • Investors in aggregate saw a decrease in dividends and market capitalisation after a cautiously optimistic view on a recovery last year;
  • Decreases in precious metal rand prices have put a lot of pressure on conventional deep-level platinum and gold mines’ profitability and sustainability;
  • Tax authorities only saw marginal increases in taxes paid;
  • Employees experienced further retrenchments with the prospect of more to come; and
  • On the fifth anniversary of the Marikana tragedy, communities around some mines are still desperate for improved service delivery and employment. 

The negative environment has been offset somewhat by the excellent recovery in the prices of coal, iron ore, manganese and chrome over the last 18 months. Mining companies that have repositioned themselves within the current low-price environment have also started to see the benefits of cost saving initiatives reflected in lower operating cost increases.


Identification of Risks

Cybersecurity

It is not surprising to see cybersecurity being included as a risk by some companies. PwC’s Global state of the information security survey data shows that the compound annual growth rate (CAGR) of detected security incidents has increased 66% year on year across all industries since 2012.

Safety

Safety remains a focus area for all mining management and is probably one of the biggest success stories for the mining industry over the last 20 years. Statistics provided by the DMR show a downward trend in fatalities for the industry as a whole over the past 10 years, indicating that investments made in safety initiatives by both companies and the DMR are delivering positive results.


Improving value to stakeholders

  • Total value created by the entities analysed increased by 12%, from R161 billion to R180 billion. The increase is largely attributed to improving commodity prices and a significant cost focus.
  • Funds reinvested in the form of capital additions and acquisitions is 12% of total value created (2016: 20%), which is significantly lower than previous years.
  • Companies continue to feel the burden of high labour costs, adding pressure on margins. This, despite a reduction in the number of employees. The value received by employees represented 40% of total value created (2016: 39%).

Financial performance

  • Revenue increased by 13% (R43 billion) from the prior year. This is the first substantial increase in more than five years.
  • Operating expenses increased by R13 billion, which is a 5% increase from the prior year.
  • Labour cost increased by 4.5%, which was marginally below inflation.
  • The ten-year summary shows flat revenue with significantly reduced profitability as a result of continued increases in cost pressures and marked impairments.
  • The improvement in the current year does provide hope of some recovery for the sector.

Contact us

Michal Kotze
Africa Energy, Utilities and Resources Leader
Tel: +27 (0)11 797 4603
Email

Andries Rossouw
Partner
Tel: +27 (0)11 797 4060
Email

Mining Enquiries
EU&R Centre of Excellence
Tel: +27 (0)11 797 5332
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