The “SA Mine 2022 Report” covers the period to the end of June 2022. It is eye-opening, even for those well versed in the sector’s performance.  

“The industry’s financial performance exceeded expectations on most fronts. Distributions to shareholders more than doubled to R190-billion, capital expenditure grew by 36% and taxes paid increased by 14% as South African mining companies in aggregate maintained profitability at last year’s high levels,” PwC said.  

“Growing demand for commodities in the sector saw record rand prices for the platinum group metals basket, iron ore and coal, while most other South African commodity prices remained at relatively high rand levels.” 

Other highlights include:

• Total revenue for the industry grew by 10% in rand terms in the year to June 2022, even though production only rose 5%. Coal led the way – defying predictions for now of its demise because of its undeniable link to climate change – with revenue in the sector growing 59% despite a 10% fall in production. Chromium was second, with a revenue lift of 24%.
• On the price front, coal was also king. PwC said the fossil fuel saw its price soar by a “never-before-seen increase of 403% over the two-year period”.
• The rand PGM basket price was 43% higher in the year to June, despite a cooling of prices since March/April.
• Dividend payments soared (see chart below) from less than 5% of revenue in 2016 to more than 25% this year.
• Minerals and metals accounted for more than half of South Africa’s export revenues in 2021.

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“Mining companies find themselves in a very strong financial position. Debt has largely been repaid and returns to shareholders at many companies have reached record rand levels. The fiscus also benefitted from increased direct and indirect taxes and mining royalties to the extent that it could support ongoing socioeconomic grants during the pandemic,” PwC said. 

Mined platinum rich rock sits inside a freight wagon in the mine shaft during a media tour of the Sibanye-Stillwater Khuseleka platinum mine, operated by Sibanye Gold Ltd., outside Rustenburg, South Africa on 16 October 2019. (Photo: Waldo Swiegers / Bloomberg via Getty Images)

One upshot has been a surge in M&A activity, with much of this being offshore acquisitions by South African mining companies. Disclosed M&A transactions – not all of them finalised – were worth more than $9.2-billion in 2022 versus $810-million in 2021, according to PwC. 

The 2022 total represented 25 deals, including Gold Fields’ $6.7-billion all-stock bid for TSE-listed gold producer, Yamana. Sibanye-Stillwater has also been adding to its green metals portfolio outside South Africa. 

Domestic activity includes Northam Platinum and Impala Platinum’s pursuit of Royal Bafokeng Platinum, but this and other local deals are dwarfed by those launched by South African mining companies overseas. 

South Africa’s litany of economic and policy woes give a context for this state of affairs, including the decline in mining production.  

“Mining activity experienced several challenges in the first half of 2022, resulting in mining output falling by 7% y-o-y in the first six months of the year. These challenges included labour strikes, higher-than-usual rainfall, and disruption to global supply chains. In June 2022, mining production was at around 11% below the comparative monthly average during 2016-2019,” Sizwe Masondo, PwC South Africa Energy, Utilities and Resources Assurance Leader, was quoted as saying. 

Some of these challenges are not unique to South Africa, but many others certainly are. Infrastructure across the board is in a state of decline: power supplies notably, but also road, rail and water networks – all crucial to the mining sector, which is increasingly stepping in to provide such services because a corrupt and broken state simply cannot. 

Lawlessness is rampant, with the sector subjected to “procurement mafias” that are literally trying to muscle their way into a lucrative cut of the mining pie, regardless of their ability to do the job properly. 

Illegal miners are a huge security concern and cost. And policy and governance remain hamstrung by the dysfunctional Department of Mineral Resources and Energy (DMRE), with choking backlogs in mining rights and related applications. 

For the past two years, the DMRE has been promising to replace its useless Samrad system for applications with a transparent mining cadastre. This is an online portal open to the public. It provides comprehensive geological data about a country or mining jurisdiction, gives information on mining permits that have been issued, including expiry dates, and lists available mining or prospecting rights and so on. 

In short, it would shine a light on the corruption and incompetence that have bedeviled the DMRE, which may explain why it seems incapable of getting one off the ground. 

The Joburg Mining Indaba takes place this week in Sandton (Wednesday and Thursday) and such issues are sure, like a broken record, to take centre stage. The sector has made a dramatic recovery in profits in recent years, especially in the platinum group metals space. 

But this has been in the face of a failing state, which could still bring it to its knees. DM/BM