Mining has become ‘really, really tough’

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SIMON BROWN: I’m chatting now with Vuyiswa Khutlang, PwC South Africa energy, utilities and resources partner. Vuyiswa, I appreciate the early morning. In your latest mining report, 2023, SA mines [have] adapted to thrive after a strong post-Covid period for the miners. Things have got tough. They’ve got really, really tough, but still it remains a critical industry for our economy, data you’ve put in the report [that in the] first six months of the year they’re almost 60% of our exports, even with challenges and depressed commodity prices.

VUYISWA KHUTLANG: Yes. Morning, Simon, morning listeners. It really has been a challenging period for the miners. We seen a lot of the commodity prices have gone down, so our PGMs and our iron ore have gone down, and those are the big ones in this publication. So we look at 27 mining companies that have a market cap above R200 million, those will therefore have an impact on the revenue and profitability.

Our publication [covers] from July 1 to June 30, but we know that coal has also gone down. The prices of coal have gone down from those high levels that we saw previously. So it’s definitely a challenging period. Prices have gone down, costs have gone up, and the country will therefore feel the consequences.

SIMON BROWN: Looking through balance sheets – and you touch on the balance sheets and the key ratios – certainly there’s been some weakness in the key ratios; no surprises around that. And dividends are off the 2021/22 records, but we’re still seeing chunky dividends compared to the previous 15 years. And those balance sheets and key ratios are frankly looking quite strong. The mines are well positioned from a financial perspective.

VUYISWA KHUTLANG: Definitely. What has helped the mining companies is that the 2018/19 period was a difficult period for the mining companies and, when the recovery came, when the metal prices went up, a lot of them started paying back a lot of their debt. So we are seeing that the ratios are still very strong [with] a slight decline compared to the previous year. But the balance sheets are strong and therefore they’re able to still pay dividends and still invest in their operations. It’s really because they don’t have as much debt as they did historically.

SIMON BROWN: They paid it down. Reserves and resources are always a big issue. You make the point there that they are actually fairly strong. Iron ore is perhaps the lowest [in] some 13 years, but the other commodities all got pretty much double that or more.

We are not mining ourselves to extinction at this point in time, which is critically important, particularly considering the importance of it to our export demand.

VUYISWA KHUTLANG: Actually a lot of the mining, when you take out, for example, the gold and the coal, when you take out one or two operations, you see that on average we’re sitting with just about two decades for most of the commodities. And really the point of that article was to say for some of the areas we need to start discussing what the plans are. Start encouraging exploration and what can be done to get people to invest more in these minerals, because if you’re saying we are not exploring, for instance in the Free State, then you need to start having another conversation based on the currently declared reserves and resources, because then you’re sitting with a very short life of mine.

Therefore the investment, the conversation of transitioning from a mining town, has a huge impact on the employees. So we’re talking about rehab, we’re talking about reskilling. We are talking about the economies around the mine – and that’s something that you need to plan for. It involves a lot of people, so it’s a conversation that government, the mining companies and the communities need to start having.

SIMON BROWN: That’s a great point. And of course mining is way more than just mining and profits. It is communities. That’s a very important part of mining.

There’s also globally a shortage of energy metals. The projected mining production is nowhere near the demand that is expected to be out there. There certainly are opportunities for South African miners. We don’t have all the energy metals, but we’ve a lot of them. And this does represent a fair chunk of really good opportunity for the industry.

VUYISWA KHUTLANG: Yes. And really what we wanted to say is: Let’s seize this opportunity. It’s not all doom and gloom for the South African mining industries. We do have these big critical minerals that we can play in. And now is the time to start having those conversations and being active in trying to position ourselves as an alternative to other countries, to other suppliers of these metals, and be able to negotiate and go into partnerships with some of the people who beneficiate these metals.

We do have them. We’ve got copper, we’ve got PGMs, we’ve got Rems [rare-earth minerals]. So we are focused on the big six, and then we also have nickel in South Africa. So it becomes a question of do we have and are we talking the right legislative environment to encourage this investment?

But it’s to say let’s start planning now. We know there’s a shortage. Everyone is talking about this shortage. A lot of companies are diversifying into this. So we’ve seen Sibanye do it, we’ve seen Harmony looking into copper. And a lot of other international mining companies are going into these big critical minerals. So it’s time for South Africa also to play big in there.

SIMON BROWN: But I like that point: mining is not doom and gloom. I know from an investor perspective it might feel like it, but if you look at the opportunity and you read the report, it’s not doom and gloom out there. It’s just that mining is cyclical. At this point it’s a tough part of the cyclicality.

We will leave it there. Vuyiswa Khutlang from PwC South Africa, the energy, utilities and resources partner, I appreciate the early morning.

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