The collapse of South African mining

South African mining output has collapsed, failing to grow since 2019 and adding little value to the country’s economy since then. 

Once the backbone of the local economy, South Africa’s mining industry has been steadily weakened by volatile labour relations, organised crime, and regulatory uncertainty. 

The sector is still vital to the economy despite these declines, employing over 477,000 South Africans and paying billions of rands worth of tax each year. 

However, this contribution is far less than what it used to be. In its latest Quarterly Bulletin, the South African Reserve Bank outlined this decline, which has accelerated over the past five years. 

Following an increase of 2.6% in the fourth quarter of 2023, the real output of the mining sector decreased by 2.3% in the first quarter of 2024 and negatively impacted the country’s GDP. 

Alarmingly, the production declines are widespread, with ten out of twelve mineral groups reporting lower output. 

In particular, platinum group metals (PGMs), coal, gold and manganese ore suffered major declines in output.  

The lower PGM production resulted largely from the closure of a shaft following a safety incident, along with lower PGM prices. 

In contrast, coal production continued to be impeded by electricity supply disruptions and insufficient rail capacity. 

Operational challenges weighed down gold production, including a shaft closure and slower production ramp-up following a large gold producer’s shutdown in December 2023. 

By contrast, the production of iron ore increased in the first quarter of 2024 due to higher demand for steel in China.

The Reserve Bank said this decline is part of a wider trend, with the mining sector’s output being suppressed by high operating costs, a difficult policy environment, inefficient logistics, lower commodity prices, and electricity disruptions. 

Simply put, South Africa is now viewed as an unattractive mining investment destination, with the Fraser Institute ranking it among the ten least attractive mining destinations. 

This was put into stark relief by BHP’s bid for Anglo American. The world’s largest mining company offered to buy Anglo, but only after it had spun off its South African assets. 

The graphs below, courtesy of the Reserve Bank, show how mining output in South Africa has stagnated since 2019 and the value it adds to the broader economy. 

This collapse has taken place over a much longer time frame than the Reserve Bank noted in its Bulletin, with mining output consistently declining since the 1990s. 

In recent years, the decline has been smoothed over by a commodity boom following supply shocks during the Covid-19 pandemic. 

This raised prices, masking the declining output by increasing the value of the commodities sold. 

However, the boom is over, and a near-perfect storm of load-shedding, logistical inefficiencies, declining prices, and poor labour relations have hit the mining industry and accelerated its decline. 

This has led many to discuss the need to restructure their unprofitable operations in South Africa. 

Some miners have already begun restructuring their operations, potentially impacting between 4,000 and 7,000 jobs in South Africa. 

PGM miners and others have also cut their production to reduce costs and because they cannot export their commodities due to deteriorating rail infrastructure and port backlogs. 

Since 1994, mining output has declined by a steady 0.4% annually, with gold, in particular, falling off a cliff and declining by 85%. 

Increased production of chrome and manganese has been able to offset this somewhat, increasing by 8.2% and 8.4% annually since 1994. 

The long-term decline in mining output is shown in the graph below.