Gold and Platinum continue to struggle against dipping prices in South Africa

15 October 2018 Authored by Consultancy.co.za

Global professional services firm PwC has released its latest analysis of the mining sector in South Africa, which reveals an overall increase in revenues for the sector. Coal remains the strongest performer in terms of commodities, while Gold and Platinum continue to struggle with low prices.

South Africa has been struggling with slow economic growth in recent years, a major contributor to which is trouble in the country’s mining sector, which constitutes 10% of its entire GDP. Global commodity prices took a plunge in 2014, causing a major drop in the market capitalisation of a number of metals.

Precious metals such as Gold and Platinum have been the most hard hit by the hike in prices. Last year, PwC released a report that revealed that Gold and Platinum had witnessed devastating dips in the market capitalisation. Gold, for instance, saw a dip of a staggering 52%, which translates to R114 billion.

Market capitalisation per commodity

Platinum’s market capitalisation, meanwhile, dropped by 21% last year. This year, the overall market capitalisation for the mining sector saw a recovery from a total of R420 billion last year to R482 billion this year. The recovery is far from complete, however, given that the market capitalisation stood at R560 billion in 2016.

The market capitalisation for Gold and Platinum continued their fall into this year, the former dropping by 4% from 25% of the total sector’s market capitalisation to 21%, while the latter dropped 5% from 34% to 29%. Another major drop was recorded by Iron Ore this year, which fell from 20% of the total to 13%.

A similar story is visible in the revenue contributions of Gold compared to other commodities in the sector. Gold contributed 16% of the total mining revenues, which represents a fall from its 18% contribution last year. Iron ore, on the other hand saw an increase in the share of revenues from 9% to 10%.

Mining revenues per commodity

One steady performer over the last two years has been Coal. The mineral contributed 28% of the total revenues in 2017, which increased to 29% this year. The commodity has seen steady increases in its revenue and market capitalisation levels for nearly a decade since 2009.

Coal’s growth has been driven primarily by steady increases in its price in recent years. Another commodity that has recorded consistent growth in its revenues and market capitalisation is Manganese, which contributed 9% of the revenues this year, up from 7% last year.

In terms of actors, a handful of mining companies dominate the production process across South Africa’s mining sector. The biggest of these firms is Anglo American Platinum, followed by Kumba Iron ore. AngloGold Ashanti was the largest contributor in June this year, but has since dropped to fourth place behind Exxaro Resources.

Top ten mining companies

Over the next few years, the mining sector is not only set to struggle with dipping prices but also with digital disruption. Earlier this year, Big Four accounting and advisory firm Deloitte launched an integrated technology solution for mining to be implemented across the sector. A number of major players will soon be adopting these solutions.

Commenting on the overall strategy over the last year, the report states, “Companies continued to position themselves for the future by realigning their portfolio of assets with their long-term strategies. This resulted in the ongoing disposals of non-core or long dated assets and significant increase in acquisitions. We’ve also seen the continuing closure of mines whose cost base does not justify production in the current price environment.”

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