PwC: SA’s mining industry faces leaner times

By Rob Starr, Content Manager, Big4.com

According to a report issued by professional services firm PwC, a tough year for the mining industry lies ahead in the wake of recent industrial action, mounting cost pressure and shrinking profit margins.PwC’s fourth edition of ‘SA Mine’, is a series of publications that highlights trends in the South African mining industry.

The 2012 financial year saw the top 39 mining companies shed all the gains made since the 2008 financial crisis. Market capitalisation for the top 39 declined by 9% from R910 billion in 2011 to R833 billion in 2012, reflecting a 3% decrease in market capitalisation of R862 billion in 2010. On the back of strike action, the position weakened even further and reflected a market capitalisation of only R792 billion at the end of September 2012.

Coal overtook platinum as the highest earning commodity in South Africa. The report says that it is unlikely that platinum will regain the top spot in the short term due to the slower than expected recovery in global markets, the recent economic uncertainty and lower production as a result of industrial action. For the three main revenue generating commodities, gold is the only commodity to have gained in real terms, with the price of coal remaining flat.

Revenue increased by 16% in 2012 (compared to 36% for 2011) on the back of higher commodity prices and a weaker rand towards the end of the period. Gold companies reflected the best growth with a 25% increase, while platinum companies recorded merely 2% growth. The remainder of the companies recorded an average increase in revenue of 22%. Operating expenses increased by 13% as opposed to the 18% recorded in the prior year.

The requirements of the King III Report on Corporate Governance have resulted in improved disclosure of risks by all organisations, with mining companies in particular being good at disclosing these risks.