South African gold and platinum producers are under pressure due to a decrease in rand prices and weaker ore production experienced in 2018.
According to experts from leading research group PricewaterhouseCoopers (PwC), the 2018 financial year proved to be a challenging year for South African mining companies.
Globally, the financial performance of the mining industry improved considerably from the previous year. That position was largely mirrored by South African bulk commodity producers with iron ore, coal, manganese and chrome performing well.
On the other hand, the combined South African mining industry, which is more exposed to precious metals, did not enjoy the same benefit from price increases.
“2018 can be described as a mixed bag of performance for South Africa’s mining industry, with bulk commodity prices continuing to rise during 2018 from the lows at the beginning of 2016, while precious metals continued to struggle,” explained Michal Kotzé, PwC Africa Energy Utilities & Resources Leader.
“Cost-saving initiatives could not offset the impact of input cost inflation. The increased costs and production challenges meant a weakening in operating results. Together with the gold and platinum impairments, it meant that the industry recorded a loss for 2018,” he said in an announcement issued this week.
The rand strengthened in the second half of the year resulting in an average decrease in prices received for gold, platinum and iron ore.
“The decrease in rand prices, as well as weaker production for gold and platinum, are putting deep-level South African gold and platinum producers under significant pressure as reflected in the market capitalisation of these entities,” PwC Partner, Andries Rossouw added.
Despite various cost saving initiatives, above inflation cost increases continue to put the industry under pressure.
PwC, however, insists that the country’s mining industry continues to add significant value to the country and its people. Stakeholders in the industry include employees and their families, unions, government, shareholders, suppliers and customers.
“As reported in company value added statements, employees still take the lion share of value added at 47%, followed by government through direct taxes, as well as payroll and royalties with 24%. Shareholders got an improved share on the back of improved dividends from bulk commodity producers,” PwC said in its announcement.