Rock solid

The country’s mining sector remains resilient, with a generally positive outlook

Rock solid

SA’s mining sector has a knack for turning grit into glitter. The past year was another difficult one, as challenges such as regulatory uncertainty, rail and port inefficiencies, and crime continued to plague the sector. But once again, SA mining proved to be resilient and made the best out of a challenging operating environment. Importantly, the challenges are mostly commodity specific.

‘In the bulk commodity space – coal, iron ore, chrome and manganese – Transnet rail and port inefficiencies remain a notable constraint, albeit that we seem to have bottomed on rail tonnages,’ says Hugo Pienaar, chief economist at the Minerals Council South Africa (MCSA). ‘Commodity prices were mixed over the past 12 months, with the platinum group metals basket price remaining low while gold scaled multiple new nominal record highs. The iron ore price also moved lower, on Chinese economic concerns.’

For the gold mining sector, the record prices came as a much-needed lifeline. The geopolitical conflicts in Ukraine and Gaza, as well as market uncertainty linked to the US elections, central bank purchasing of gold and interest rate cuts, have contributed to the rising demand for gold, as investors seek safe-haven assets. Profitability in SA’s gold sector was up, and along with it the export earnings and corporate tax revenue from the mining sector.

One of the gold producers that benefited is Harmony, whose operational performance for FY24 ‘elevated the company to new heights’, according to then-CEO Peter Steenkamp, who has since retired and was replaced by Beyers Nel as group CEO and Floyd Masemula as deputy group CEO in January this year. Steenkamp announced a 132% increase in headline earnings per share, as well as a 25% increase in group revenue to R61 379 million in 2024 from R49 275 million in 2023.

Yet SA hasn’t been able to fully benefit from the elevated gold price in 2024, according to Pienaar. ‘The reason for this is that gold production was down by more than 6% year-on-year in the year to September 2024. This continues the multi-decade deep structural decline in SA gold production.’ On the upside, he says the high gold price should sustain the more marginal mining operations for longer than would have been possible in the absence of the record gold price.

‘Mining remains so critical to South Africa through export and tax revenue that whatever happens in the mining sector significantly impacts the domestic economy,’ says Busisiwe Mavuso, CEO of Business Leadership South Africa. ‘When mining underperforms, there’s a negative ripple effect, but it works both ways, as the mining windfall in 2021/22 illustrated by bringing huge benefits to the fiscus and the economy.’

In 2023, mining contributed 6.3% (some R440.8 billion) to the national GDP, down from 7.3% the previous year, while its total tax contribution (PAYE, VAT, company taxes and royalties) increased by 11% (R17.6 billion) to R172.5 billion.

Mavuso emphasises the social impact of mining companies in creating employment (481 000 jobs in Q3/23) and enterprise development in their host communities, while also investing in education, health and infrastructure through their social and labour plans.

The mining sector is also instrumental in formal partnerships between organised business and government, having deployed several mining company CEOs to the National Energy Crisis Committee (NECOM), the National Logistics Crisis Committee and the Joint Initiative on Crime and Corruption – set up in 2022 by President Cyril Ramaphosa to address key challenges.

‘NECOM has enabled private-sector expertise to support Eskom in improving plant performance, all in line with the Energy Action Plan,’ says Mavuso, highlighting that business has helped with ending load shedding by embracing renewable energy generation. While load shedding and curtailment ended in March 2024, it will take more time for all green energy projects to come on stream.

Mining accounts for 70% of the confirmed utility-scale renewable energy projects (totalling 22 500 MW and R390 billion in investment value), according to Operation Vulindlela, which aims to modernise and transform network industries. This means that 90 of the 130 projects are in mining, totalling almost 15 800 MW, with an estimated investment value of R275 billion over the next several years, says Pienaar. Green energy is crucial in reducing exposure to Eskom tariff increases and in meeting decarbonisation targets (for example, future-proofing against UK and EU policies such as the Carbon Border Adjustment Mechanism). ‘But mining companies are now allocating capital to renewables out of necessity – funds that could have been invested elsewhere, for example into exploration,’ says Pienaar. ‘This highlights a critical issue – even though electricity is more readily available, affordability challenges result in significant opportunity costs for the sector.’

Meanwhile the National Logistics Crisis Committee, in collaboration with Transnet, is slowly moving in the right direction. The rail tonnages stabilised and modestly improved from 149.5 million tons in 2023 to 151.7 million tons in Transnet’s financial year ending March 2024. The target for the year ending March 2025 is 170 million tons (with an internal ‘stretch target’ of 193 million tons).

According to Pienaar, the improvement in chrome and manganese is hard to gauge, because they are being transported by road. He has, however, seen some improvement in coal railed to the Richards Bay Coal Terminal. Rail and port inefficiencies cost SA’s coal and iron ore bulk mining an estimated R140 billion in lost revenue from 2021 to 2023, according to Kumba Iron Ore. Returning bulk commodities to rail is a priority for mining, as heavy trucking is far more expensive and inefficient, while also degrading the road network, posing a risk to community health and traffic safety, as well as polluting the environment.

Mavuso warns that the country’s logistical challenges are so impactful that the IMF revised SA’s economic growth forecast for 2024 downward from 1.8% to 1%. She therefore agrees with the MCSA that the new executive appointments at Transnet and Transnet Freight Rail (TFR) will stabilise and improve performance.

In another welcome development, TFR’s infrastructure management function has been split from the operations function. ‘The infrastructure manager began over a year ago, but has now been formally constituted as a separate division,’ Mavuso said in November 2024. ‘TFR will now be one of the operators, giving some level of independence to the infrastructure manager and a level playing field for operators to access the network.’ The revised Transnet network statement, released in mid-December 2024, will govern the process of private sector participation on the main commodity corridors.

To counter concerns that this is privatisation through the back door, Mavuso clarifies, ‘privatisation is transferring the ownership of an asset from the public to the private sector. That’s not what we’re doing here. Private-sector participation in rail means that private enterprises are going to be working with government to provide rail services – without transferring the ownership of anything’.

Transnet will remain the network owner and manager. But Mavuso argues that government simply doesn’t have the balance sheet and needs private-sector investment to get rail transport and logistics functioning.

According to Pienaar it’s paramount that institutions (such as SOEs and local authorities) that are responsible for maintaining infrastructure keep their end of the bargain and be held accountable if proper maintenance is not done.

Meanwhile, the Joint Initiative on Crime and Corruption is also slowly building capacity to curb the crime and corruption that plagues Eskom, Transnet and the broader economy. The new Government of National Unity is actively addressing extortion and illegal mining.

All these are vital factors in boosting business confidence in mining, but they must be supported by policy certainty. The MCSA calls for the removal of inconsistencies in the administration and application of legislation affecting the mining sector. For example, reviewing the targets set in the Mineral and Petroleum Resources Development Act every five years creates instability, which is unattractive to investors.

One major boost for mining will be the completion of the new cadastre system, which after years of delays is expected to become operational in June 2025. Minister of Mineral Resources and Energy Gwede Mantashe told the Joburg Indaba in October 2024 that the first phase of the new licensing system was completed, ‘which included the assessment of the current environment to establish the baseline and its readiness, and the requirements with respect to system hosting, software integration and the enhancement of cybersecurity’. While he admitted to still having a significant backlog in Mpumalanga, he reported that backlogs in the Northern Cape, Limpopo, North West, Eastern Cape and KwaZulu-Natal have been reduced.

‘To ensure greater transparency, we have resolved to publish on the department’s website the quarterly reports of applications processed and finalised,’ said Mantashe. Having the new online cadastral solution is expected to finally bring transparency into the licensing processes, while making it more streamlined and efficient. It’s what the sector needs to spark exploration and mining investment.

In further good news, the DMRE’s split into a Department of Minerals and a Department of Electricity and Energy by April 2025 will reduce conflicts of interest and sharpen the focus on mining.

Ultimately, these developments will bring the sector closer to what Pienaar considers the overarching answer to restoring the global attractiveness of SA – reducing the cost of operating mines in this country.

By Silke Colquhoun
Image: Gallo/Getty Images