The postponement of this week’s judicial hearing on the controversial Mining Charter – and the potential of a positive outcome from the new spirit of engagement between mining and Cyril Ramaphosa’s administration – sharpens attention on the ecosystem in which mining either just survives, or thrives.
It may be stating the obvious, but viable business depends above all on a relatively simple mathematical calculation: the revenue that a firm is able to make must, over time, exceed the costs it incurs in the course of its activities. Where this calculation fails, business becomes – in a rational sense – impossible.
This equation is balefully relevant to South Africa’s mining industry. As the most recent iteration of PWC’s authoritative annual survey of the country’s mining industry – Mine SA – shows, mining in South Africa is today increasingly operating on flat revenues and thin profit margins, nervously watching for changes in the environment that could push it out of viability. This is despite the fact that commodity prices have been on the increase since the lows of early 2016. A brutal reality here is that it is becoming ever more expensive to keep mines operating.
A case in point is electricity. South Africa’s mining industry has spent the last decade in the shadow of the country’s electricity crisis. Mines are voracious electricity consumers, and rapidly escalating prices are imposing strains that many will not be able to withstand.
According to Ted Blom of the Organisation Undoing Tax Abuse (Outa), since 2007 Eskom has hiked its tariffs by around 500% – well ahead of inflation. Eskom’s recent application to the National Energy Regulator (Nersa), for an increase in its tariffs of some 19.9%, has sent a further shockwave through the mining industry. The Chamber of Mines estimates that this would add some R3.21 billion to the overall industry costs, which would in turn render around two thirds of gold and platinum mines ‘unsustainable’ – and cost as many as 48 000 jobs.
These are serious consequences. And electricity is but one input cost, not necessarily the most important. Looking at the past decade, SA Mine comments: ‘The reality is that mining input costs increased significantly more than the Consumer Price Index.’