One of South Africa’s biggest employers is crumbling

 ·10 Jul 2024

Mining in South Africa’s mineral-rich landscapes remains pivotal to the country’s economy and people’s livelihoods; however, the sector has been hampered by significant challenges.

Formally employing around 454,000 people (according to StatsSA) and paying over R140 billion in tax and royalties annually, “activity in the mining sector continue[s] to be suppressed,” said the Reserve Bank in its June 2024 quarterly bulletin.

The Reserve Bank pins some of the major factors hurting the sector in South Africa on:

  • High operating costs;
  • A difficult policy environment;
  • Inefficient rail and port infrastructure;
  • Lower commodity prices (which are cyclical and are largely determined by events outside the country’s control);
  • Electricity-supply disruptions.

Yeshiel Panchia from Mining Review Africa said that “mining in South Africa, a cornerstone of its economy, confronts a dire situation as falling platinum prices and logistical woes threaten job security.”

“A storm is brewing in the mining sector… [with] this crisis of mining emblematic of larger economic challenges facing [the country],” said Panchia.

In the first quarter (Q1) of 2024 alone, despite a 1.9% q/q increase in formal employment, the mining sector’s real output decreased by 2.3%, following a 2.6% increase in the last quarter of 2023.

This negatively impacted overall real GDP growth by 0.1 percentage points.

Following the decrease in Q1 2024, the level of real mining output was 0.2% lower than in the corresponding period of 2023. The quarterly decline was observed in 10 of the 12 mineral groups, with notable reductions in the production of PGMs

This is not an isolated incident but rather part of a larger trend exacerbated by factors such as high operating costs, policy uncertainties, infrastructure deficiencies, and volatile commodity prices.

The Minerals Council of South Africa has noted a 13% decline in total mining output in South Africa since 1994. However, excluding gold, production has actually increased by 65% over the last three decades.

South Africa’s gold industry has seen a sharp fall, with an 85.5% drop in production, diminishing its once-dominant global position.

The industry’s decline is tightly intertwined with national trends of increasing unemployment and economic slowdown.

Source: Hugo Pienaar, Minerals Council of South Africa, State of the Mining Nation

In response to these various challenges, mining companies are exploring different survival strategies – which does not necessarily spell good news.

The repositioning process comes during a challenging backdrop where:

  • South Africa’s mineral sales in nominal terms fell by more than 13% in the first ten months of 2023. posting the first calendar decline since 2015 and also the largest annual fall since the global financial crisis.
  • The direct contribution of mining to South Africa’s gross domestic product (GDP) fell by 12% to R425.6 billion, and its percentage contribution to GDP dropped to 6.2% from 7.3%.
  • Mineral exports fell by more than 11% to R781.6 billion.

However, positive mineral sales at current prices increased by 5,3% in the three months that ended February 2024 compared with the previous three months.

Source: StatsSA

However, the recent uptick in mineral sales does not mean the sector is out of the woods. Citing the Minerals Council South Africa, the Reserve Bank said that “the outlook for mining sector employment looks bleak due to planned retrenchments by several mining companies.”

These worries have taken shape.

A prevalent example of this is seen with precious metal and mining company Sibanye-Stillwater, which has carved away more than 11,000 jobs from its workforce in the past year and a half.

CEO Neal Froneman attributed this restructuring to the company needing to “align with the reduced operating footprint following the necessary operational restructuring for greater regional sustainability and profitability.”

Sibanye is not alone in this. Recently, Impala Platinum CEO Nico Muller joined the chorus of mining CEOs warning that more job cuts could materialse as reducing costs has become required to keep the industry profitable.

The Minerals Council said that any hopes of growth in mining sector employment will be impacted by the woes which have hurt the sector in the first place, including the availability of energy and the efficiency of logistical systems, together with movements in international commodity prices.

With South Africa’s seventh administration now taking effect, the sector hopes that much needed changes can take shape.

“Government interventions and corporate strategies are under the spotlight as the sector grapples with these challenges amidst a turbulent global economic landscape,” said Panchia.

Mzila Mthenjane, CEO of the Minerals Council of South Africa, said that “we need to prioritise the role of mining in revitalising the economy going into the future as a matter of urgency.”

“It is one of the key drivers of South Africa’s economy through its uncontested multiplier effects which can be realised by creating an enabling regulatory and operating environment,” he added.

Panchia said that “effective policy measures, infrastructure improvements, and direct support to the mining sector are essential to navigate through these challenges.”

The Minerals Council said that the priority for the mining industry in the seventh administration “is the need to harmonise the regulatory requirements in various departments to expedite processing of rights to explore, build a mine or expand an existing operation.”

“This requires the Department of Mineral and Petroleum Resources to lead and co-ordinate amongst the Departments of Water, Agriculture, Forestry, Fisheries and Environment, to name a few,” said the council.

“A collaborative approach involving the government, mining companies, and labor unions is crucial to finding sustainable solutions,” he added.

Additionally, the council says that if equal importance is the implementation of the mining cadastre, a digital platform to transparently and efficiently manage mineral right applications and licences.

Panchia said that South Africa’s mining sector is now at a pivotal moment, reflecting broader national issues, with the next few months critical for determining its future and impact on the economy.

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