SA’s gold-production sector on its knees

The plunge in production in the key gold sector also played a significant role in the decrease in overall mining production, which fell 7.5percent year-on-year in February – the steepest decline in mining activity since March 2016.

Investec economist Lara Hodes said South Africa’s mining sector continued to be plagued by electricity-supply constraints, rising administered prices and waning productivity rates, impeding its operational performance.

“Recent challenges to the latest Mining Charter by the Minerals Council South Africa highlight the need for a competitive and predictable policy environment, in order to attract long-term investment into this essential primary sector,” Hodes said.

Diamond output plummeted 48percent in the period under review. Diamonds make up only 6.6percent of total mining output.

Production for iron ore declined 20.7percent in February. Other non-metallic minerals decline by 13.5percent and chromium ore by 8.3percent.

South Africa’s economy is a primary minerals-intensive economy, with almost one-fifth of the economy dependent on the mining sector.

The beleaguered power utility, Eskom, implemented stage 4 load shedding in February, which adversely affected the mining sector.

The National Energy Regulator of South Africa in March granted Eskom approval to implement annual tariff increases of 9.4percent in 2019/20, 8.1percent in 2020/21 and 5.2percent in 2021/22.

The 2019 increase came into effect at the beginning of this month.

The chief economist at the Minerals Council South Africa, Henk Langenhoven, said the cost of electricity constituted a significant component of the total input cost basket of mining, particularly in the gold and platinum sectors.

“There is no doubt that these substantial tariff increases will have a major impact on the industry’s cost structure, jeopardising the viability of marginal and loss-making mines and, inevitably, accelerating job losses at energy-intensive mines, in particular,” Langenhoven said.

The battered gold-mining sector has been shedding jobs at an alarming rate over the past two decades.

According to data from the Minerals Council South Africa, employment in the gold sector had continued to decline since the 1980s, with about 112200 workers currently employed.

The council last year warned that 75percent of the country’s gold mines were unprofitable.

FNB economist Jarred Sullivan said: “Overall, the mining sector has been plagued with slowing global growth (particularly in China), strike action, sluggish commodity prices and rotational load shedding. These factors all but confirm an uninspiring contribution from the mining sector in the first-quarter gross domestic product release, and present material headwinds for the remainder of the year.”

Meanwhile, Statistics SA said that manufacturing production in February slowed by 0.6percent year-on-year compared with a 0.9percent year-on-year increase in January.

The muted growth in manufacturing output was due to a slowdown in the production of furniture and other manufacturing; textiles, clothing, leather and footwear; as well as wood and wood products, paper, publishing and printing.

BUSINESS REPORT