African Rainbow Minerals (ARM) executive chair Patrice Motsepe says SA’s water and logistics woes undermine the mining sector’s growth and contribution to the economy.
Motsepe in his letter to shareholders published in the group’s annual report said there was a lot still going for the industry, but that authorities needed to attend to bottlenecks hurting the sector’s growth.
“Despite a particularly challenging environment, mining is still a trillion-rand industry, and its economic contribution remains a key source of revenue for the government. However, constraints in state-supplied electricity, water and transport logistics undermine the potential growth of the mining industry and the SA economy,” Motsepe said.
“In calendar year 2023, the mining industry employed more than 479,000 people (up 2.1%), contributed R444bn or 6.3% directly to GDP (GDP) and exported R781bn worth of commodities. The industry paid R190bn in wages, salaries and benefits to employees who, in turn, support between 2.4-million to 4.8-million dependants.”
Motsepe noted some of the progress made in addressing the energy availability factor, which had hurt not only the industry but the broader economy.
“On the logistics front, Transnet’s operational performance is stabilising, but much needs to be done to restore peak levels of rail transportation. The outcome of the May 29 general elections and the resultant formation of the government of national unity have been well received by the domestic business sector, as well as global investors,” Motsepe said.
“The success of the mining industry relies heavily on the efficient provision of electricity, water and logistics infrastructure. ARM and other mining companies operating in SA are working with the government and relevant stakeholders to find sustainable solutions that benefit the industry, the fiscus and all stakeholders.”
On the logistics front, Transnet’s operational performance is stabilising, but much needs to be done to restore peak levels of rail transportation.
— African Rainbow Minerals executive chair Patrice Motsepe
While energy availability has improved with Eskom having not implemented load-shedding in more than 200 days, the cost of electricity has become a big-ticket item for mining firms, which consume a lot of energy.
A study by the Boston Consulting Group, released in July found that SA’s energy costs are the fourth highest in a comparison of similar mining jurisdictions and are expected to continue increasing as electricity prices become more reflective of their true costs.
Like many mining houses with exposure to the platinum group metals industry, ARM has also had to impair the value of its PGM portfolio in the face of muted prices.
The mining house also put Two Rivers Merensky project on care and maintenance due to the “current downward cycle in the PGM” prices market, saying it will re-evaluate its decision when PGM prices recover.
The diversified miner in September announced a plan to accelerate its pursuit of copper and chrome assets.
ARM CEO Phillip Tobias in his note to shareholders said the outlook for PGMs presented a mixed scenario of challenges and opportunities.
“Platinum is expected to record a significant supply shortfall due to reduced shipments and restructuring initiatives. Despite this, automotive demand for platinum is anticipated to remain strong, despite a slight decline,” Tobias said.
“Palladium demand from the automotive sector is projected to decrease, primarily driven by the rise of electric vehicles and increased use of platinum in gasoline autocatalysts. Rhodium is forecast to be in slight deficit, with automotive demand also expected to decline.
“Overall, the PGM market will be influenced by economic and geopolitical uncertainties, however, easing interest rates and tightening market fundamentals could support prices in the medium to long term.”
The past few months have seen renewed optimism in PGMs. This as governments and vehicle manufacturers around the world tone down their electric vehicles (EVs) incentives and production targets, respectively.
On the other hand, hybrid cars, which contain PGMs are the fastest-growing EV subset. This change in outlook has seen asset manager Coronation change its mind on the sector, just a year after it wrote it off and pulled its clients’ money from it.
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