Research and analysis

South Africa - mining sector - an update.

Published 29 January 2015

This research and analysis was withdrawn on 8 August 2016

This publication was archived on 5 August 2016. This article is no longer current. Please refer to Overseas Business Risk - South Africa.

0.1 This publication was archived on 5 August 2016.

This article is no longer current. Please refer to Overseas Business Risk - South Africa.

0.2 Summary

An overview of the current state of the SA mining sector. Challenges facing the sector, as well as opportunities. A once powerful industry.

0.3 Detail

South Africa is the world’s richest nation in commodity wealth. Total mineral reserves are estimated at $2.5 trillion – 56% more than their nearest competitor, Russia. The sector is SA’s second largest employer, after agriculture, responsible for 14% of employment. Primary mining exports account for close to 38% of SA’s total merchandise exports. 25% of all investment in the economy can be attributed to mining, and the sector is directly responsible for around 8% of GDP, and 17% indirectly.

…now facing significant challenges

However, this is a marked decrease from its peak in the 1970s when mining contributed 21% to GDP. Despite its mineral wealth, mining has been on a downward trend. The main problems facing the sector are:

• labour: . The battle is over higher wages, exacerbated by political power struggles between rival unions: the National Union of Mineworkers (NUM) and the Association of Miners and Construction Workers Union (AMCU). A violent 5 month strike in the platinum sector in 2014 cost companies £1.2 billion in revenue, and workers £580 million in wages. The strike contributed to a 0.6% decline in the economy (Q1). The killing of 44 people (34 miners) at Marikana in 2012 continues to cast a shadow.

• rising costs: labour and electricity charges, compounded by ageing infrastructure, are fuelling a decline in productivity. This, along with the increasing depth of mineral reserves, leave companies little choice but to cut costs. 2015 is likely to see many operations trimming their workforce.

• policy uncertainty: despite investor calls for greater certainty, regulatory ambiguity persists. The Minerals and Petroleum Resources Development Act (MPRDA) passed in 2014 was of concern to mining companies, because of issues such as increased powers to the Minister to de facto nationalise “strategic” assets and set export prices. President Zuma has not (not) approved the bill.

• power: Eskom’s inability to keep the lights on is a constraining factor throughout the economy . Most mining projects have reduced power usage by around 10%. This is hobbling output.

• global demand: a likely US recovery provides an upside for SA, but a slowdown in Chinese growth could hurt exports. China is SA’s largest trading partner with commodities comprising over 90% of exports. Subdued performance in the Eurozone has also negatively affected revenue.

0.4 Mining carries economic weight in a regional context too. Most countries are significant exporters of minerals, including to China. There are signs that investment flows in the mining sector, for the medium to long term, are moving northwards, with SA’s neighbours (especially Zambia, Namibia, and Zimbabwe) poised to benefit.

But opportunities remain – in SA and the region

Despite the challenges, there are opportunities for the UK. SA’s wide portfolio of minerals commodities, and the recent uptick in gold and platinum prices, provide some buffer. Sibanye Gold, with assets including three spin-off mines from Goldfields, was the best performer amongst 14 major bullion producers in 2014. There is talk of a long-term strategy involving the evolution of SA’s role from ‘miner to mining enabler,’ with a focus on innovation.

Lord Livingston, the Trade & Investment Minister, is attending the Mining Indaba 2015, large-scale industry conference, in Cape Town where UKTI is hosting a pavilion with 24 exhibitors. The Minister will undertake a series of meetings and events over 2 days with both African and South African interlocutors, including a Ministerial roundtable on the Voluntary Principles on Human Rights and Security. Our main focus through our new Regional Network, will be on identifying opportunities for UK business in the mining supply chain, within SA and across the region; and to promote a more transparent and competitive sector from which the UK is well placed to benefit.

0.5 Disclaimer

The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report. .