The industry also added an estimated R229.1bn in the 2021 financial year to total government revenue, through the collection of direct and indirect taxes said the report. Picture: Neil Chatterjee, Reuters.
The industry also added an estimated R229.1bn in the 2021 financial year to total government revenue, through the collection of direct and indirect taxes said the report. Picture: Neil Chatterjee, Reuters.

Mining sector delivers record dividends this year on commodity price increases

By Dineo Faku Time of article published Oct 6, 2021

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SOUTH African mining companies distributed a whopping R76 billion to shareholders this financial year, well up from R43bn in 2020, on the back of improved free cash flows, according to PricewaterhouseCoopers (PwC) SA Mine 2021 Survey released yesterday.

Buoyed by the commodity super-cycle on rising global demand following intermittent lockdowns last year, cash flush mining companies have distributed not only solid dividends, but also royalties and taxes to the fiscus.

Kumba Iron Ore distributed R25bn in dividends up from R19bn in 2020, indicating that even during uncertain times, the companies were able to capitalise on the stronger commodity prices and were able to provide shareholders with even higher returns than the prior year, said the report.

Impala Platinum paid a dividend of R11bn during the year ended June 2021 up R900 million a year earlier, driven by the strong prices noted in the Platinum Group Metals (PGM) sector and higher production and sales volumes.

The PGM industry is in a commodity boom cycle given the increase in revenues and profitability, said the report. Free cash flow is defined as cash from operating activities less purchase of property, plant and equipment, and it provides an indication of a company’s ability to settle debt, pay dividends and fund acquisitions.

Free cash flow increased to R181bn up 141 percent from R75bn in 2020, the report said. Mineral royalties tax contributed R14.34bn to the South African fiscus during 2020/21, representing just over 1 percent of the fiscus’ revenue.

The industry also added an estimated R229.1bn in the 2021 financial year to total government revenue, through the collection of direct and indirect taxes said the report.

Andries Rossouw, PwC Africa Energy Utilities & Resources Leader, said the growth in SA’s mining industry confirmed the resilient nature of the sector and the opportunities that existed in rebuilding the South African economy. “With record rand prices for gold, the platinum group metals basket, iron ore and more recently, coal, it was no surprise that the industry’s financial performance exceeded expectations on most fronts,” he said.

Total market capitalisation for South African mining companies increased by 40 percent in the current year mainly attributable to the higher market value of companies within the diversified, iron ore and PGMs.

The report said diversified, iron ore and PGMs accounted for 88 percent of the market capitalisation of the companies analysed this year. It said although gold continued to be one of the dominating sectors, market capitalisation dropped by 19 percent.

“This was mainly driven by the declines in the gold prices. In addition, the Covid-19 vaccine roll-out in early December 2020 proved to be bearish for the ‘safe haven’ investment. The notable movements in the diversified, iron ore and PGMs sectors are mainly driven by strong financial performance, which is attributable to the higher commodity prices in these sectors,” said the report.

Despite the commodity boom the mining sector was negatively affected by operational challenges at Transnet. Locomotive unavailability, coal line shutdown interruptions, power outages and derailments, combined with vandalism and sabotage of rail equipment and pervasive cable theft were some of the major hurdles faced by Transnet, said the report.

“These chronic difficulties, particularly on Transnet’s coal rail line from Limpopo and Mpumalanga operations to Richards Bay Coal Terminal have crippled exports of coal and other commodities at a time when global commodity prices are booming,” said the report.

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BUSINESS REPORT ONLINE

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