The controversial tax measures proposed in finance minister Enoch Godongwana’s 2025 national budget this week highlight the urgent need for higher growth rates in SA’s mining sector, says the Minerals Council SA.
In a statement this week, the Minerals Council emphasised that this year’s proposed tax measures should be seen in the context of the mining sector’s profitability pressures.
Stats SA’s gross operating surplus data shows mining profits declining for the second consecutive year on an annual basis in 2024 with the pressure on profitability undermining the sector’s GDP and tax contribution.
Corporate tax collections from the domestic industry are expected to contract by 28% year on year in the latest financial year, according to provisional tax data in the budget, while revenue from mining and petroleum royalties is projected to be R4.6bn lower than in the 2023/24 financial year.
“Sustained weak real GDP growth, in part as a result of an underperforming mining sector, means that the economy is unable to generate sufficient revenue to, amongst others, finance large pro-poor expenditure, as well as a bulging public sector wage bill,” said Minerals Council chief economist Hugo Pienaar.
To guard against further tax hikes in the coming years, SA needs to unlock the full potential of its mining sector, said the council. This requires improvements in the country’s rail and port performance, electricity and water supply, and a more predictable regulatory environment.
Despite the persistent underperformance of SA’s major mineral export corridors, the council pointed out that no budget allocations were made to support the significant capital expenditure needed to improve Transnet’s rail infrastructure.
“From a mining industry perspective, this is a concern. The lack of support means that Transnet will need to find other funding sources, including through private sector participation on the major commodity corridors,” it said.
Some encouragement for the mining sector came from a proposed five-year extension of the commitment to electricity price neutrality, which prevents Eskom from incorporating the carbon tax in its electricity tariff applications and a proposed five percentage point increase in the carbon offset allowance from January 2026.
Additionally, the mining sector may directly benefit from an increase in investment provided through the Budget Facility for Infrastructure (BFI), with the Treasury earmarking R1.3bn for the expansion of a container terminal at Cape Town and R2bn for the improvement of a key freight rail corridor between Gauteng and the Eastern Cape.
However, recent data from Stats SA shows the domestic mining sector remained under pressure in January.
A drop in iron ore production saw SA’s mining output extending a three-month downward trend in January, with mineral production down 2.7% from a year ago, its steepest drop since June.
This follows a 2.4% year-on-year decline in December, with seasonally adjusted mining production decreasing by 1.2% over the first month of this year.
The primary culprit was SA’s iron ore sector, where output fell 15% year on year, shaving 2.7% points off the overall reading. Further pressure came from a 3.8% drop in platinum group metals (PGMs) and a 4.4% decline in coal production.
Iron ore prices fell by more than a quarter last year as China’s economic slowdown and stagnant property sector weighed on the country’s steelmaking demand, weakening its iron ore consumption in turn.
Research group Capital Economics expects that persistent headwinds will push prices lower in the coming years, with the weaker price outlook putting pressure on SA miners.
Kumba Iron Ore and African Rainbow Minerals (ARM) both reported weaker operational performances in 2024, with iron ore production and sales volumes down from the year before.
The low price environment resulted in a nearly 40% drop in Kumba’s full-year earnings last year, while ARM’s first-half earnings declined by 49% in the six months to end-December.
The drop in mining output saw SA’s mineral sales slump by 5.9% year on year in January, driven primarily by the gold and chromium ore sectors, where sales fell by 21% and 27%, respectively.
At current prices, however, seasonally adjusted mineral sales increased by 2.5% between December and January, with an uptick in coal sales providing some relief to the sector.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.