Dark clouds gather over South Africa’s most important industry

South Africa’s mining industry remains one of the country’s most critical sectors, but it faces mounting challenges that threaten its stability, growth, and ability to create jobs.

Mining contributes significantly to the South African economy, accounting for around 6% of the country’s nominal GDP in the first three quarters of 2024.

Stats SA data further reveals that the sector is also a crucial source of employment, with approximately 471,882 formal jobs in Q3 2024.

The mining sector is also a key driver of tax revenue and foreign exchange earnings, making it crucial for the country’s well-being.

However, domestic and global factors have led to prolonged stagnation and decline in South Africa’s mining sector.

Stats SA data showed a decline of 1,785 jobs in the quarter and a cumulative loss of nearly 10,000 jobs throughout the year.

The decline in employment was driven largely by retrenchments in the platinum group metals (PGMs) sector, which was affected by sustained low metal prices.

Despite some job creation in primary chrome mining, the broader trend is one of contraction, raising concerns about the future of employment in the industry.

The South African Revenue Service (SARS) has noted a sharp decline in the mining sector’s Company Income Tax (CIT) revenue.

This downturn is primarily due to falling commodity prices, eroding the gains made during the previous two years of elevated prices.

Additional factors such as weak global growth, persistent power outages, and severe logistical disruptions have exacerbated the industry’s financial struggles.

The Minerals Council South Africa, representing 90% of the country’s mineral production, has highlighted several constraints inhibiting the sector’s growth.

CEO Mzila Mthenjane pointed to high crime levels, regulatory hurdles, steep electricity tariff increases, and deteriorating water infrastructure as key challenges.

He noted that despite some progress in 2024, actual mining production remains below pre-COVID levels, demonstrating that deep structural issues persist.

ArcelorMittal South Africa’s challenge

ArcelorMittal South Africa’s recent decision to shut down its long steel operations exemplify the fragility of the mining industry and its interdependence with other key sectors.

This move directly threatens around 3,500 jobs, but the broader impact on the steel supply chain could see up to 100,000 jobs lost.

ArcelorMittal CEO, Kobus Verster, has attributed the closure to global market pressures, high domestic production costs, and failed government policies to protect the industry.

He pointed out that competitors benefiting from subsidies and export taxes have a cost advantage of up to 40%, making it nearly impossible for ArcelorMittal to compete.

Thungela Resources CEO July Ndlovu has also criticised South Africa’s regulatory and licensing processes, calling them slow and unpredictable compared to other mining jurisdictions.

He emphasised the need for streamlined licensing, investment in logistics, and stronger efforts to combat illegal mining. These factors, he argued, are crucial for the sector’s long-term sustainability.

The broader mining sector has also suffered from deteriorating logistics infrastructure due to years of mismanagement and under-investment.

Transnet’s inefficiencies, particularly in rail freight, have compounded the sector’s challenges. Mining companies are forced to transport minerals by road, which is expensive.

The Reserve Bank estimated that transporting coal to Richards Bay via rail costs around $11 per tonne, while trucking costs companies roughly $70 per ton.

South Africa’s largest iron ore producer, Kumba Iron Ore, previously said that it had lost R6 billion from Transnet inefficiencies.

Meanwhile, Eskom’s load-shedding and rising electricity costs have increased operational expenses, further eroding profitability.

While some progress is expected on the energy front as new generation units come online, rail and port logistics improvements remain slow and uncertain.

Some optimism for 2025, but many risks remain

The mining sector is navigating an increasingly complex global environment. At the start of 2025, the Minerals Council South Africa has outlined hopes for a more robust recovery.

Resolving key infrastructure issues, improving governance at the municipal level, and ensuring a stable electricity supply will be key to this.

Transnet’s freight rail performance is expected to improve, with projected volumes rising to over 170 million tonnes, compared to an estimated 160 to 165 million tonnes in 2024/25.

However, global uncertainties, including geopolitical tensions and potential trade disruptions from the return of United States protectionist policies, pose additional risks.

Commodity prices will remain significant in determining the trajectory of South Africa’s mining sector over the next year.

While gold prices are expected to remain strong due to global economic uncertainty, trade wars and slower global growth could adversely affect industrial metals.

If global trade weakens, industrial metal prices could remain depressed, further impacting the mining sector’s profitability and tax contributions.

Despite these headwinds, stakeholders remain cautiously optimistic that structural reforms and targeted investments could help stabilise and eventually rejuvenate South Africa’s mining industry.

However, the sector risks continued declining without decisive action to address domestic bottlenecks and improve competitiveness.

Should this decline continue, it will have severe consequences for employment, revenue generation, and economic stability in South Africa.

Mining at a glance after 2024