DATA published by the Chamber of Mines of South Africa delivered some much-needed good news for the country’s mining sector which last year showed “green shoots” recovery in terms of pretax profitability and a stabilisation in other metrics.
However, there was not enough evidence to confirm the sector had come through the worst of business conditions affected by poor world economic growth, low commodity prices and policy uncertainty in South Africa.
World economic growth “seems to be recovering” and commodity prices had “gone past the bottom of their cycles” but other data – produced by Statistics SA – indicated no production growth while the jury was out on employment numbers until the latest quarterly labour force figures were released (April 3), said Henk Langenhoven, chief economist for the chamber.
Of the most positive data, however, it was pretax profitability that stood out by dint of improved economic conditions and company restructuring in which costs had been cut.
In 2016 rand terms, pretax profits increased R72.2bn from 2015 to 2016 which returns South African mining to profitability of 2012 but still well below 2010 when the rot caused by lower world economic growth set in.
The sector produced combined pretax profits of R19.6bn in the 2013 and 2014 calendar years but fell by R68bn over 2014 and 2015 before improving again in 2016.
“The pattern of stagnant profitability seems to have established itself over the years since 2012, however,” said Langenhoven. “Mining sector profits before taxes were below the average for the last eight years during every quarter since the middle of 2012, barring the last quarter of 2016. The trend line seems to be improving though,” he said.
Mining production is still 15% below its 2005 peak and was moving in a band of 10% to 15% below the peak level, said Langenhoven. Production in 2016 was 4.5% lower.
“There is some hope though,” he said. “January 2017 production was nearly 2% better than December 2016 and over 2% better than during January last year. These short term improvements will have to continue for the trend to turn positive.”
