A combination of reduced output from load-shedding, inefficiencies in rail transport, and delays at South African ports have caused miners to lose out on export opportunities and elevated commodity prices.
Mining output declined 3.4% in the last quarter of 2022, further reducing the sector’s contribution to the national GDP.
Even more concerning is the broad nature of the decline in output, with eight of the twelve mineral groups experiencing declines.
Diamonds were hit the hardest, with a decline in output of 32.4%.
Declining output is a direct consequence of load-shedding, with miners unable to operate during elevated stages of load-shedding due to health and safety standards.
Some miners do not operate when load-shedding reaches stage 5 and above, as taking miners underground and bringing them back up reliably is nearly impossible.
The mineral group hit the hardest is the platinum group metals (PGM), with Siberana Research estimating that 30% of annual PGM production could be lost if load-shedding remains elevated.
Transnet inefficiencies cost miners R150 billion
Load-shedding universally impacts business in South Africa, and miners are not excluded. However, they are uniquely exposed to Transnet’s failing rail infrastructure and port delays.
The Minerals Council of South Africa estimated that the mining sector could have earned R150 billion more in exports in 2022 than it did because of Transnet inefficiencies.
These additional exports would have added nearly R27 billion to the national fiscus.
Mining companies and their CEOs have been outspoken about the impact of Transnet on their operations in their latest trading updates.
In its preliminary results, Glencore pointed to logistics and port constraints as the reasons for its limited chrome ore supply from South Africa.
Its coal profits were also limited by “continued rail constraints”, exacerbated by a two-week Transnet strike.
Exxaro’s coal production decreased by 11% in 2022 “due to the poor rail performance from Transnet” and the “structural constraint of inadequate electricity supply”.
It has begun trucking coal to alternative ports to ensure it can meet export demand.
Sasol’s chemicals business saw a decrease of 5% in sales volumes, and its profit margin declined by 12% over the last six months of 2022.
This, according to Sasol, can be attributed to South Africa’s deteriorating infrastructure and the “structural constraint” of load-shedding.
“Persistent load-shedding, infrastructure constraints, in particular, the poor performance of the national provider of rail and port logistics services…continue to have a significant impact on our business,” it said.
Kumba Iron Ore had “lower throughput than expected” in 2022, with its production and sales disrupted by Transnet’s inefficient services and the prolonged strike.
Kumba has a “significant build-up of iron ore stockpiles” at their mines. Iron ore cannot be transported for export due to Transnet’s rail constraints.
Production at Kumba’s mines has decreased as the company ran out of space to store its iron ore prior to export.