The JSE's Thato Matsafu on South Africa's mining sector

Foreword

Foreword

The SA mining sector has experienced some dramatic changes over the past decade, with its fair share of controversies. Nonetheless, in December 2019, the General Mining Index rose to its highest level since January 2018, making a significant contribution of 39% to the mining industry’s annual increase, which is the sector’s best performance since 2016.

We also saw the mining sector outperform the JSE All Share Index for the first time in two years, with platinum group metals (PGMs) producers enjoying the majority of recovery as they restructured and cut back in order to survive the low commodity price environment that has been prevalent for some years now.

What is also good to see is that market capitalisation for both Industrial Metals and Mining has increased to R3.2 trillion, which is well up from R2.7 trillion in 2018. The exchange uses the JSE Mining Index to measure the sector’s performance. What we can ascertain from this is that from June 2015, when the country experienced political uncertainty and underperforming precious metals, the industry has fractionally closed the gap but is still below the 2003 average. The ultimate goal must be to reach the highs of 2007/8; even the marginally smaller highs of 2010/11 would be enough to boost much-needed investor confidence.

As we progress into 2020, we see mine management continuing to take a much more disciplined approach to capital expenditure costs. This is compounded by factoring in the recently introduced, but welcomed, Carbon Tax Act as well as compliance with environmental regulations, while still retaining a high employee base, which analysts suggest is some 450 000 direct jobs.

And all this amid the crisis of Eskom’s load shedding, which resulted in some underground mines suspending operations in December last year, with a number of economists suggesting that shift cancellations cost the sector up to R1 billion.

On the other hand, SA mines are transitioning from a traditional, labour-intensive environment to a more mechanised and technologically driven industry, which sees us moving away from fossil fuel mining towards greater exploratory investment in minerals and metals that supply technological revolutions in transport and energy systems.

The World Bank, in its 2017 report titled the Growing Role of Minerals and Metals for a Low Carbon Future, predicted that metals demand would likely increase in forthcoming years for wind and solar technologies, and even higher for battery-storage solutions. For example, 16 different minerals and metals are used to produce solar panels, and SA currently mines at least five of those. In terms of global energy-storage technologies, SA ranks first for its reserves of aluminium silicates (ore), PGMs, and manganese and chrome.

Such demand opportunities present new ways of future mining. Automation will improve production and robots will replace people in hazardous environments. The use of unmanned aerial vehicles (UAVs) is likely to transform geological exploration. Sensors on UAVs can detect geothermal activity, which will enable exploration firms to drill and sample only in areas that indicate resources. This will result in cost savings and minimal environmental damage.

With declining ore grades and the need to mine deeper ore bodies, new methods to reduce rock movement mean that mines will be more selective, with specific emphasis on quality over quantity. To counter the effect of job losses due to automation, SA must focus on creating new job opportunities in the upstream sector, such as the production of truck fleets, excavators, crushers and other equipment used in mining operations.

The most positive aspect of mining is that it is resilient – it endures and shapes itself to new markets, environments and opportunities. Mining has always been the base for SA’s economy, and I have no doubt this sector will rise above its current challenges.

Thato Matsafu
JSE Head: Primary Markets
Capital Markets