One of South Africa’s largest employers in trouble

South Africa’s mining sector faces significant challenges, including declining employment and regulatory hurdles.

This is according to Hugo Pienaar, the Minerals Council of South Africa’s chief economist, who said the mining sector faced a notable setback in the second quarter of 2024.

In Q2 2024, employment in the mining sector declined by 6,926 workers to 472,153. 

The Q2 decline follows mining job losses of 2,696 in the first quarter of 2024. This implies that relative to the fourth quarter of 2023, mining sector employment declined by a meaningful 9,622 in the first half of 2024. 

“Although there was already talk of significant mining job losses in the second half of 2023, the formal processes were only concluded earlier this year, with the adverse impact on jobs now being picked up in the Quarterly Employment Statistics,” Pienaar said.

While there are some green shoots in the economy that will benefit the mining sector, Pienaar said industry-specific constraints are likely to continue to weigh on mining jobs. 

Low platinum group metals (PGMs) prices are top of mind. South Africa’s PGMs sector is by far the biggest employer in mining, providing roughly 183,000 jobs out of a total mining employment of 479,000 in 2023.

However, Pienaar said the ongoing uncertainty about future vehicle demand for PGMs remains a big concern. 

South Africa’s large PGM miners have experienced significant challenges over the past year that have seen the industry shed thousands of jobs.

A recent PwC report analysed the mining sector’s performance as a whole over the past year and found mixed results. 

Some commodities benefitted from rising prices, increased demand, and favourable exchange rates, while others suffered from declining markets, oversupply, and logistics constraints.

Specifically, while gold and diversified minerals miners benefited from share price growth over the last 12 months, those operating in coal and PGM’s saw a decline. 

“Despite a global push towards renewable energy, coal remains a critical part of South Africa’s energy mix due to local energy production challenges resulting in the extension of the lives of coal-fuelled power stations,” the firm said.

“The ongoing transition towards renewable energy and the emphasis on community development and environmental responsibility continue to impact the sector’s trajectory.” 

PwC found that the South African mining industry’s gross debt levels have been increasing over the past year while EBITDA has decreased, resulting in a higher gross leverage ratio. 

This is mainly due to the pressures experienced in the PGM sector. 

In the past year, the country‘s most prominent mining investors postponed plans for new projects in response to a slump in profits caused by myriad local challenges and weakening commodity prices, such as palladium. 

Many investors also paused expenditures due to the national elections held earlier this year, in which the governing ANC lost its majority for the first time since the dawn of democracy.

“Mining players were also impacted during the period by the sorry state of the railway network operated by Transnet,” PwC said. 

“Port inefficiencies, lack of rolling stock, cable theft and inadequate maintenance led to companies either stockpiling or scaling down production and laying off workers, given their inability to efficiently move products to export markets.”

Pienaar also highlighted the slow reform in South Africa’s struggling logistics industry as one of the mining sector’s biggest challenges.

“In the bulk commodity space, the slow, albeit welcome, improvement in Transnet’s operational performance suggests that the likes of coal and iron ore mining companies will not be expanding capacity and adding to their workforce anytime soon,” Pienaar said.

He said this raises the need for a mining-friendly regulatory environment in South Africa. 

This includes the fast-tracked implementation of the online mining cadastre, which includes processes to remove, among other things, the double-granting of exploration and mining rights. 

“In addition, we need to guard against any measures that have the potential to postpone a recovery in mining production and employment,” he said.

“Amongst these, Eskom’s application to increase electricity tariffs by more than 36% from April 2025 comes to mind.” 

“Such an increase will be untenable, both for energy-intensive sectors such as mining and households.”