Higlighting trends in SA mining industry
With the general outlook for the industry remaining subdued at best, 2016 marked another challenging year for miners
Top -10 companies: 48% increase of R155bn to R478bn as at 30 June 2016
R46bn net loss (first aggregated net loss in 8 years of the analysis)
R49bn in capital expenditure down only R5bn from prior year
Flat revenues with higher cost base; another year of shrinking margins
The 2016 financial year was impacted by significant US-dollar commodity price decreases, which were offset by a substantially weaker rand from October 2015.
Despite flat revenues, increased costs continued to erode margins and with record impairments, resulted in the first aggregated loss since inception of this publication.
Companies had no choice but to cut back on new developments, refocus on profitable production rather than maximum production and reduce costs.
Market capitalisation by commodity | Source: I-Net Bridge, PwC analysis
With the general outlook for the industry remaining subdued at best, 2016 marked another challenging year for miners. Performance was impacted by a slower than expected rate of economic growth, a prolonged and continuing downswing in commodity prices, an increase in short-term volatility, increased pressure on operating models and regulatory uncertainty.
Adding to the challenge is the increased difficulty in raising capital due to a loss of confidence by investors and capital markets being seen as a last resort. South Africa’s possible credit ratings downgrade has also created some uncertainty within the market.
Given the current economic downturn and slump in commodity prices, coupled with negative investor sentiment, the mining industry is faced with many related challenges and risks that need to be effectively addressed to ensure survival of the companies and the industry.
In the current period we have noted companies increasingly focus in more significant detail on their risks, mainly due to the impact of the changing environment forcing management to make tough operational and financial decisions to ensure sustainability.
The highest-ranking risks included labour relations; sustainable business plans or budgets; the volatility of metal prices and exchange rates; infrastructure access and capacity; the regulatory, political and legal environments; high operating costs; and skills availability.