Dark clouds gather over some of South Africa’s biggest employers

South African mining companies, particularly those producing platinum group metals, diamonds, and coal, are facing immense financial pressure as commodity prices remain weak and the operating environment is difficult. 

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. 

Despite declining output, the sector is still vital to the economy, employing over 477,000 South Africans and paying billions of rands in tax each year. 

The pressure these companies are under has been well-documented, with numerous rounds of job cuts and plummeting profits. 

However, their strain has become so severe that rating agency S&P Global has flagged a deterioration in their financial standing as a point of concern. 

The overall environment for South African corporates has been stable in recent months, with a peaceful transition to a coalition government and a dramatically improved performance from Eskom. 

As the overall environment stabilised, S&P expects local companies to benefit from improved sentiment towards South African assets and gradually grow their businesses. 

However, these positive factors are counterbalanced by below-trend economic growth, elevated interest rates, muted consumer demand, and persistent local and global supply-chain challenges. 

Logistics inefficiencies are particularly problematic in South Africa due to Transnet’s deteriorating performance. 

S&P said this reduces overall market efficiency and increases costs for local corporations, ultimately raising prices for consumers. 

While local transportation infrastructure-provider Transnet seems to have halted its collapse, port and rail services are far from delivering an adequate and efficient service, the agency said. 

Notably, some local and regional trade has shifted to neighbouring countries due to poor port performance in South Africa, with freight also increasingly being transported via road. 

Furthermore, Transnet’s 2025 recovery plan targets seem rather optimistic. The plan targets rail volumes of 170 million tons (mt) in Transnet’s 2025 financial year versus an outcome of 151.7 mt in 2024.

Mining companies are at the coal-face of many of these challenges and are coming under increasing financial pressure. 

“We are seeing a moderate weakening of financial metrics in a number of miners, particularly those producing platinum group metals, diamonds, and coal mining,” S&P said in its Credit Conditions Emerging Markets Q4 2024 report. 

For mined and many other commodities, lower demand and commodity prices seem to be persisting for longer than expected. 

While mining companies are used to the cyclical nature of their businesses, this prolonged period of low demand and prices is placing unusual pressure on their financial performance. 

In South Africa, this has been compounded with challenges relating to load-shedding and logistical inefficiencies as many companies cannot get their product to market. 

Companies have also had to pour financial resources and human capital into improving the performance of Eskom and Transnet. 

This may benefit them in the long run but increases the cost of doing business in South Africa, negatively impacting future investment in expanding operations. 

As a result, S&P said it has maintained the credit ratings of local miners at the current levels – for now. 

The only things preventing a downgrade are relatively low absolute debt and modest refinancing risk as interest rates come down. 

In response to these challenges and to maintain margins, South African miners have gone through several rounds of job cuts. 

Impala Platinum CEO Nico Muller even warned that more job cuts are on the horizon as reducing costs becomes required to keep the industry profitable.

Muller said that if Implats cannot reduce its costs, the miner risks undergoing significant restructuring or absolute closure.

He explained that the mining industry – particularly Platinum Group Metal (PGM) miners – is under significant pressure.

“If you look at all of the major forces impacting PGM prices, it is clear that there are significant downward pressures on the prices,” he said.

“The world is at a consensus that a major recovery is not expected in the near term. It is therefore reasonable to expect – with continued cost inflation – that we are at risk.”

Fellow PGM-miner Sibanye Stillwater has slashed over 11,000 jobs from its mines since the start of 2023.