South African miners in trouble

South African mining companies are battling a tough financial environment, with rising costs and shrinking profits squeezing their bottom line. This echoes a global trend, but local miners face additional challenges like poor infrastructure and low demand for key metals.

This is according to PwC, who said the global mining industry faced a challenge in 2023 that was both unprecedented and familiar.

The company explained that mining companies need to invest for growth and transformation despite facing a challenging financial environment with rising costs and shrinking profits.

“The financial performance of the world’s Top 40 mining companies was squeezed by falling commodity prices and rising costs, which resulted in revenues falling more than 7% – this despite increases in the production of key commodities.”

The company said these trends will continue in 2024, marking the first time since 2016 that industry revenues will fall for a second consecutive year.

South African mines have also been feeling this pressure, with high labour costs, poor infrastructure and low demand threatening their profitability.

Platinum group metal (PGM) miners, in particular, have been hard hit with steadily declining commodity prices.

Earlier this year, Sibanye Stillwater announced it would enter into Section 189 consultations to retrench over 4,000 workers amid the company’s restructuring towards the end of last year.

The miner reported a loss of R37.43 billion for the year that ended 31 December 2023.

Similarly, Anglo American Platinum and Impala Platinum reported a sharp drop in profits last year.

Mines have also been confronted with high labour costs and electricity expenses at a time when demand for metals such as platinum, palladium, and rhodium has declined.

Transnet’s inefficient railways and general lack of capacity have also contributed to the mining sector’s difficulties, with mines unable to move their materials.

The Minerals Council of South Africa estimated that poorly run ports and freight-rail lines may have cost the country R150 billion in exports in 2022.

PwC said that despite shrinking profits and sales, both temporary and long-term issues are forcing major mining companies to invest in growth and transformation.

“The world’s top mining companies are helping to feed widespread global communities while lighting the way to a low-carbon future and providing materials for infrastructure development and consumer demand,” George Arhin, PwC Ghana and West Africa Mining Leader, said.

“They are a force for good, and to tell their story, mining companies need to measure their impact – both the good and bad.”

Arhin explained that a more accurate and insightful reading on this front has many advantages.

“It provides investors with a useful gauge that goes beyond their returns, while capital allocation decisions can be directed where they will have maximum impact and be viewed through the prism of a broader lens.”

Arhin explained that other stakeholders, such as communities, unions and the wider public, would be more informed regarding their views of the industry.

“In PwC’s newly launched Mine 2024 report, the 21st global report of its kind, we focus on how the industry is planning for impact by retooling and reimagining itself to be a key contributor to growth,” Andries Rossouw, PwC Africa Energy, Utilities and Resources Leader said.

“It means delving into the potential and challenges of the complementary industry of urban mining – that is recycling. It also means harnessing technology – including the revolutionary implications of AI – to advance productivity, sustainability and safety.”

As the mining industry navigates a shifting landscape driven by new demands, mergers and acquisitions (M&A) continue to be a vital tool for miners to stay competitive, PwC explained.

There has been a significant increase in the number of completed mining deals by the Top 40 that were focussed on critical minerals. This figure rose from 22% in 2019 to 40% in 2023, highlighting a major shift driving M&A activity in the sector.

These deals have been dominated by copper and lithium, which accounted for over 70% of them by volume, up marginally from 2022.

“On this front, sustainability factors and considerations are key to such transactions,” Rossouw said.

“Investors are not interested only in the current bottom line, but want insight into how a company will perform and what it will look like in the future.”

In this vein, PwC added that mining companies are increasingly forming alliances beyond traditional boundaries as they seek the technical skills they lack and are also collaborating with governments to create these enabling environments.