LISTEN: Mining production surprises on the upside, driven by gold
CAPE TOWN – South Africa’s mining production got a rather unexpected boost in December as gold output surged the most in four years in December, increasing mining production by 1.8 percent year on year.
This after an upwardly revised decline of 1 percent in November (previously -3.1 percent), which was well above the Bloomberg consensus of a 3.5 percent decrease. This uptick follows four consecutive months of contracting production volumes, according to FNB senior economist Geoff Nolting.
Gold production rallied for a second consecutive month and was the largest positive contributor, increasing by 24.9 percent year on year and contributing 2.7 percentage points. Other notable contributions came from “other” non-metallic minerals, iron ore and chromium ore.
Nolting noted that excluding gold, however, mining production decreased by 1 percent year on year.
“Looking at 2019 as a whole, mining production contracted by 1.3 percent compared to the previous year. Excluding the months of May and July, the remaining 10 months all recorded negative year-on-year growth in 2019. Concerningly, the current production levels are 20 percent below the historical high reached in July 2004 – for the time period considered from 1980 onwards – as resources have become increasingly expensive to extract in South Africa.
“As with manufacturing production, we anticipate that mining production levels will remain under pressure given the reoccurrence of load-shedding, high input costs and subdued demand for many commodities. However, we are encouraged by the recent expansion in gold production; while the high prices of certain platinum group metals should incentivise miners to expand activity in their higher-cost mines,” he said.
The gold price that’s near a seven-year high prompted companies to boost production, even amid the deepest power cuts yet in December. The surge in the year-on-year number also reflects a slump in output in November and December 2018 due to a strike by members of the Association of Mineworkers and Construction Union, according to a report by Bloomberg.
Investec economist Lara Hodes said safe-haven buying, amid a global environment marred by trade and geopolitical uncertainty, saw the gold price reaching more than $1 520 per ounce at the end of 2019.
“Looking forward, demand for the metal could continue. Specifically, while China and US’s phase-one trade deal in January did support an increase in confidence, with risk-off sentiment receding somewhat, the subsequent outbreak of novel coronavirus has reignited fears of a global growth and trade fallout. Slowing Chinese growth would impact notably on demand for industrial metals, of which SA is a key exporter,” she said.
On the domestic front, Hodes said, the gold price had aided miners in this sector, who are struggling with lower ore grades they remain defenceless, along with the rest of the mining sector in the face of continued electricity supply disruptions.
Anglo Gold Ashanti recently announced its exit from South Africa, selling its remaining domestic gold assets to Harmony. The mining sector is reliant on stable, affordable electricity supply to operate optimally.
“We await further clarity on government policies and intended reforms in this evening’s State of the Nation Address (SONA). Transparency and decisive action are key to lift confidence, thereby driving investment and growth,” she said.
In his opening address at the Cape Town Mining Indaba, the Minister Gwede Mantashe echoed frustrations around the current state of the domestic electricity industry.