SA’s debt-laden mines with high fixed costs stand to lose between 10,000 and 45,000 jobs in the national lockdown if they receive no support, Minerals Council SA warned on Wednesday.
In an economic assessment of the lockdown that started on March 27 to curb the spread of Covid-19, the council warned that full-year mineral production would be 5% lower than 2019 if it resumed after the initial 21-day shut down, but more than 15% if the lockdown went on for a longer period.
Last Thursday, President Cyril Ramaphosa extended the lockdown by two weeks to the end of April.
“The industry’s high fixed-cost structure and high debt-leverage ratio, combined with the inability to produce sufficient volumes, will lead to the permanent closure of some operations and even companies, job losses and substantial negative impact on supplier and downstream industries, ultimately affecting the entire economy,” the council warned.
While some mining companies have successfully applied for permission to strictly limited mining at surface assets, and to operate furnaces and refineries, the bulk of SA’s mines are labour-intensive, underground operations and remain shut.
For the 21-day period, the council estimated 10,000 jobs out of the sector’s 450,000 jobs were at risk, while a longer lockdown “with lower production and no mechanisms in place to support the industry, could put 10% of the workforce, or 45,000 direct jobs, at risk”.
Mining has among the highest fixed costs in any industry in SA, with the council estimating these costs to make up 51% of mining companies’ annual expenditure. These costs are largely out of management’s control and include items such as electricity, the price of which has risen more than six-fold since 2006, labour and water.
The ongoing costs for mines, which incorporated paying wages during the lockdown as well as care and maintenance costs for suspended mines, have repercussions for companies, the council said.
“This will have a serious, detrimental impact on the financial viability of mining operations due to the significant decrease in revenues received by mining companies during the lockdown.”
Debt in the industry is, on average, 1.7 times the value of its equity.
The council and unions met mineral resources and energy minister Gwede Mantashe and senior departmental officials for two days last week to discuss the lockdown.
Mantashe is expected to take recommendations to the National Command Council for coronavirus, headed by Ramaphosa, on how to bring the industry back into production and to mitigate any health risks to employees returning to work.
The council said on Thursday it had made recommendations on how the government could support the industry during the lockdown.
These include improved licencing requirements for exploration; access to environmental trust funds; redirecting social and labour plan (SLP) funds to help communities; several proposals to National Treasury on possible tax relief; and a moratorium on contributions to skills development levies.
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