Market cap of SA mining has hit R1 trillion
JOHANNESBURG - The market cap of South African mining companies surged to more than R1 trillion in 2020, signalling that the industry had weathered the Covid-19 storm mostly unscathed.
A PricewaterhouseCoopers (PwC) SA Mine 2020 annual survey released yesterday showed that the total market capitalisation for the industry jumped 52percent to R1.28trillion from R840billion a year earlier mainly as a result of the increase in the gold and Platinum Group Metal (PGM) sectors.
The report said that gold and PGM accounted for 80percent of the companies’ annualised market capitalisation and continued to dominate the sector. Miners have recorded bumper profits on gold’s growing lustre as an investment hedge amid the Covid-19 pandemic and the strong PGM basket price environment helped by a softer rand.
The report, however, said that the weak rand benefit would, unfortunately, have to be “paid back” through higher input cost inflation.
PwC Africa Energy Utilities & Resources Leader Andries Rossouw said the mining industry continued to be a meaningful contributor to the economy and weathered the Covid-19 pandemic in many respects - showing good profitability and retaining strong balance sheets. “The long-term future is unknown, however, as there is little consensus on how the pandemic will impact the mining industry.
“The pandemic highlighted the absolute need to build back better and mining will play a key role in that recovery,” said Rossouw.
Key findings in the report included that iron ore was the top performer in 2020 as a result of the supply constraints from Brazil.
It said PGMs overtook coal as the biggest revenue generator for the first time since 2010. PGMs contributed the lion’s share to mining revenue followed by coal, gold and iron ore. Rossouw said PGMs demonstrated a 56percent increase in revenue compared to the previous year.
“When we started this publication in 2009, PGMs were the leading revenue generator, and they fell back to coal and we are pleased to see PGMs back on top again, followed by gold, and then iron ore,” said Rossouw.
He said going forward there was a need for continued progress in the regulatory environment, citing the need to improve the online application system for exploration, prospecting and mining rights Samrad to attract meaningful investment.
“I think that it is fair to say that it is broken. The whole process of applying for exploration rights, prospecting rights and mining rights needs to be improved. It needs to have much better reaction times,” Rossouw said.
“At the moment the delays in trying to get licences approved are not conducive to any meaningful investment. That is the first impression we give to external investors that want to invest in the country, and we are certainly failing and there is a desperate need to improve the transparency of the process.”
The report said Covid-19 hurt production, decimating it 8 percent year-on-year, with a 44percent decrease in production in April 2020 as a result of the pandemic.
Rossouw said that the tax environment in the mining industry also needed to be addressed given that it is based on old principles. “We believe there is scope for incentives in that space whether it is a flow-through tax scheme or something similar,” he said.
EY said in another report that South Africa and Africa dealt with the impact of Covid-19 relatively well, leading a prompt and effective response that allowed some mines to continue operating as they were classified as essential services, although with less people on-site.
“However, maintaining business continuity came at a cost, with mines facing added expenses relating to new procedures and protocols, the introduction of health testing equipment and ensuring that the workforce is supported appropriately,” said EY Africa energy and natural resources leader Wickus Botha.
“At the same time, the pandemic has heightened stakeholder expectations around how miners prepare for, manage and monitor all high-impact risk exposures.”