Miners dig deep to beat COVID-19

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Despite an extremely challenging year, South Africa’s mining companies remained resilient and performed on all fronts.

Stakeholders benefited from the improved profitability with mining companies strengthening their true social licence to operate in supporting their employees and communities in which they operate. 

The mining industry weathered the COVID-19 storm, mostly unscathed, and certainly better than many other sectors.

Mining companies have continued to enjoy the gains in commodity prices, assisted by a weaker rand, as platinum basket prices increased and investors turned to gold as a safe investment amid concerns about the COVID-19 pandemic and global trade tensions.

These are some of the highlights from PwC’s 12th edition SA Mine, a series of publications that highlights trends in the South African mining industry released by PwC.

Andries Rossouw, PwC Africa Energy Utilities & Resources Leader, says: “South Africa’s mining sector continues to be a meaningful contributor to the economy and has weathered the COVID-19 pandemic in many respects – showing good profitability and retaining strong balance sheets.”

“The long-term future is unknown however as there is little consensus on how the pandemic will impact the mining industry. The pandemic highlighted the absolute need to build back better and Mining will play a key role in that recovery.”

 

Market Capitalisation

In 2020, total market capitalisation increased to R1,280 billion from R840 billion (about US$77 million to US$504 million).

This total is a 52 percent year-on-year increase from 2019, largely attributed to the increase in market capitalisation of companies within the gold and PGM sectors. 

Gold and PGM accounted for 80 percent of the market capitalisation of the companies analysed this year and continue to dominate the sector.

 

Financial Performance

The total revenue generated by the South African mining industry for the year ended 30 June 2020 grew by four percent. This was mainly driven by PGMs, gold and iron ore, which saw increases in revenue for the 12-month period. 

PGM generated the largest portion of revenue (28 percent),demonstrating a 56 percent increase from the previous year, overtaking coal for the first time since 2010. Gold mining companies had an increase of 35% in revenue. Revenue for the “other mining” segments increased by seven percent.

The impact of the COVID-19 pandemic was evident from April 2020, with reductions in revenue being seen across the industry. South African PGMs and gold are mainly mined in deep-level underground mines and were therefore hardest hit. 

PGM and gold producers indicated that they expect to reach full production levels by the end of the calendar year.

For the SA Mine entities, cash generated from operations after working capital changes increased by 50 percent from the previous year. The gold and PGM sectors were the largest contributors, each contributing R24 billion (US$1,4 billion) to the increase in cash generated from operating activities. 

Capital Expenditure

Impairments decreased by 50 percent when compared to the prior period which resulted in a R5.9 billion (US$354 million) charge to the income statement.
The average EBITDA (earnings before interest, taxes, depreciation, and amortisation) margin of the mining companies included in this analysis was 34 percent, a one percent increase from the previous period. 

Net profit grew by 60 percent as a result of the increase in PGM and gold prices in the current period. The aggregate tax expense for the mining companies was R37 billion (US$2,2 billion) with an effective tax rate of 26 percent. Furthermore, distribution to shareholders increased to R43 billion from R18 billion in 2019 (US$2,5 billion from US$1,08 billion) on the back of improved free cash flows and higher commodity prices.

Production decreased by percent year-on-year, with a 44 percet decrease in production noted in April 2020 as a result of the pandemic – the most significant of which was due to reductions in gold, diamonds and PGM outputs. Production levels increased in May 2020 following the easing of lockdown restrictions. – Mining Review

The original article can be accessed at https://www.miningreview.com/gold/south-africas-mining-industry-weathered-covid-19/

 

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