The mine decline

According to Statistics South Africa, the outlook for the mining sector is not looking particularly promising. With an estimated 6.9% decrease in production at the start of 2017, severe cuts in expenditure and human capital are definitely on the cards. Investec economist Annabel Bishop tells Bizcommunity in an interview that this decline has a knock-on effect for other areas of the industry. “The effects of the low commodity price environment are compounded by the continued rise in operating cost,” she says. “These include above inflation increases in labour and electricity costs.” Another key area that is under strain is coal and iron ore production. The shift to cleaner, fossil fuels as an energy alternative is seeing the coal and iron ore industry depreciate rapidly.

According to economist Mike Schüssler, gold still has a strong future but he agrees with the fact that coal and iron ore’s outlook is grim. “Coal could face a terminal decline as the word switches to new technology to make increasing use of gas and renewable energy sources,” he explains. “Smaller minerals like manganese and chrome are also struggling.”

Stats SA released a report at the end of March this year, highlighting how manganese ore fell the hardest at 24.3%. Platinum metals was right behind at 23.7 %, iron ore at 21.4% and coal at 15.8%. “This is the biggest year-on-year decline I have ever witnessed, and confirms that both commodity prices and volumes are coming down sharply which has huge implications for the broader South African economy,” Mike tells Mineweb.

Year-on-year comparison of production in mining

PricewaterouseCoopers released a report on global mining trends called Mine 2016 and provided an insightful breakdown of resource demand from China specifically:

  • 40% of copper demand
  • 70% of iron ore demand

  • China’s demand for these metals has staggered, which then effects the entire global market and inevitably slows the industry’s output significantly. This means that eggs should be moved from this one basket (China), since it can’t be relied upon as the single operator behind the sector. This is especially so, as PwC has pointed out in their report, since China’s New Economic Plan details their move from manufacturing to service provision.

    Transforming the industry

    A R2.2-billion B-BBEE deal was struck between ArcelorMittal South Africa (AMSA) shareholders and Likamva Resources, with the latter holding 17% of shares in AMSA (around R1.75-billion). Part of the deal requires Likamva to integrate BBE parties from AMSA’s organisations into the stake.

    This fuels the aspirations of meeting transformation goals and generating a more inclusive landscape in the process. The AMSA has also set up an Employee Empowerment Share Trust that will have 5.1%, or R525-million worth of shares. “As a leader in the steel industry we have a significant role to play in ensuring the long-term sustainability of the local steel sector, and our recent discussions with Government have focused on a number of key initiatives that are necessary to ensure a successful steel industry that can continue contributing to the economic development of the country in the future,” says chief executive officer of ArcelorMittal South Africa, Wim de Klerk. “Maintaining our licence to operate is a strategic objective and these initiatives all play an important part of our efforts to position ArcelorMittal South Africa as a transformed and responsible business.”

    Transformation in business structures starts from the top and implementation of frameworks such as this will demonstrate to other industry heads the necessity and effectiveness of it. Contributing 1.1% to SA’s GDP, AMSA currently has over 9 000 employees and has created over 100 000 jobs across SA’s economy.