South African mining industry drops in value, says PwC

07 December 2017 Authored by Consultancy.co.za

After a relatively promising and optimistic 2016, the mining industry in South Africa has had another challenging year, almost returning to 2015 levels. Low prices have beaten down overall dividends, and significantly reduced the market capitalisation of a number of mined commodities.

With a global dip in oil prices over the last few years, the entire region of Sub-Saharan Africa has taken a hit economically. The South African economy, in particular, has been in an extended period of slowdown since roughly 2014. A recent survey conducted by Grant Thornton revealed, unsurprisingly, that executives in South Africa were among the most pessimistic in the world.

In general, businesses across the country are dialing back investments, cancelling expansion plans, and even selling their firms in some cases. Through all this, the one industry that has kept the economy from disintegrating entirely is the mining industry. As the backbone of the South African economy, the mining sector contributes approximately 10% of the country’s GDP.

Market capitalisation per commodity

However, while it is comparatively better off than other sectors in the economy, the mining industry has taken its share of the beating from the overall economic scenario. According to a report from Big Four professional services firm PwC, the industry has hit a ten year low in capital expenditure, among other worrying trends. While some sections of the mining industry such as coal, iron ore, and manganese performed strongly this year, precious metals took a severe hit, holding the entire sector back.

In terms of market capitalisation, the value of the 29 firms analysed by PwC currently rests at R420 billion. This represents a decline of 25% from 2015, when the market capitalisation stood at R560 billion. The report attributes this decline to a significant drop in the prices of precious metals across the country, particularly those of gold and platinum.

Percentage mining revenue per commodity - 2017 vs 2016

Gold saw the most substantial dip in its market capitalisation. Prices of gold across the country fell by 15% in the last year, taking the market capitalisation down with it by a staggering 52%. In currency terms, the market capitalisaiton of gold fell by as much as R114 billion, which, incidentally, almost entirely nullifies the profits made by the Gold mining industry in the previous year.  

Platinum also experienced a significant fall, though not nearly as severe, with its market capitalisation falling by 21% to a value of R141 billion. As a result of this scenario, mining companies that are diversified beyond just precious metals in their offerings saw a boost in market capitalisation, primarily due to the strong performance of coal, iron ore and Manganese. Diversified offerings saw their market capitalisation soar by 39% to reach an overall value of R166 billion.

The difference in performance between precious metals and other mined commodities was reflected in their contributions to the GDP. Therefore, coal remained the highest contributor to overall mining industry revenues, generating R119 billion in revenues, and accounting for 27% of the total.

Annual revenue per commodity

Platinum group metals were the second largest contributors, at 22%. However, the dip in Platinum’s performance took this share down from 24% last year. Platinum group metals generated revenues of R94 billion this year. Similarly, Gold saw its share decrease by 2% also, falling from 18% to 16%, and generating revenues of R69 billion.

Meanwhile, like coal, iron ore revenues increased as well, by an impressive R10 billion. As a result, its contribution to the sector rose from 9% to 11%.

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