Douglas Rowlings, Moody’s vice-president, a senior analyst and author of a report titled “Restructuring of South African operations is credit positive for gold, platinum group metals (PGM) miners”, said South Africa’s appeal to mining companies had continued to decline, according to the Fraser Institute.
“Gold and PGM miners will limit their investment in existing South African mines to sustaining capital. Without the substantial expansionary investment required to reconfigure loss-making mining operations and make them profitable, mines will either be restructured or closed,” Rowlings said.
The report comes days after Chamber of Mines chief executive Roger Baxter told 1000 delegates at the Africa Down Under mining conference in Perth, Australia, that governance and policy challenges in South Africa had eroded business and investor confidence.
“Policy and regulatory uncertainty have frozen new investment in the sector. It is extremely difficult to get any company investment committee to approve any new greenfields project in South Africa today,” Baxter said.
Baxter also highlighted tensions between the Chamber and the Department of Mineral Resources after the gazetting of the third version of the mining charter in June, which prompted the Chamber to approach the court citing a lack of consultation.
The department suspended the charter pending the judicial review.
Rowlings said the restructuring initiatives by South African gold and PGM miners to protect the sustainability and profitability of their South African mines were benefiting their credit profiles.
“The initiatives will protect their credit quality by returning the operations to a state in which they are free cash-flow generating. Improved free cash-flow generation and accumulating offshore cash balances will be channelled towards expansion opportunities outside South Africa, reducing their operating risk profiles. This will shore up the production profiles of gold miners following a cycle of underinvestment in reserves development since 2013,” Rowlings said.
He said the country's gold and PGM mining operations’ profitability had been under increasing pressure owing to the still low, but slightly improved gold and PGM price environment.
“A strengthening of the rand against the US dollar, increasing mining costs in dollar terms, has exacerbated this situation,” he said.
Costs also naturally increase as mining companies need to go to ever-deeper levels and distances to extract gold. These trends were evident in the first-half 2017 operating performances of AngloGold Ashanti (Baa3 positive), Gold Fields (Ba1 positive) and Sibanye Gold (Ba2 stable).
About 20000 jobs are on the line in the mining industry as Sibanye Gold, AngloGold Ashanti and Bokoni Platinum, the joint venture between Anglo American Platinum and Atlatsa Resources, signalled their intention to restructure their operations.
- BUSINESS REPORT
About 70000 jobs have been lost in the industry in the past five years.