Johannesburg - A tough year for the mining industry lies ahead in the wake of recent industrial action‚ mounting cost pressure and shrinking profit margins‚ according to a report issued on Wednesday by professional services firm PwC.
While the 2009-2011 period was characterised by a recovery in overall commodity prices from the lows of the 2008 financial crisis‚ 2012 saw a slowdown in this recovery with gold the only commodity gaining value.
A weakening rand over the period managed to shield the South African mining industry from the decline‚ with prices remaining relatively flat. However‚ flat prices will not support the industry’s significantly increase cost base.
Hein Boegman‚ PwC African Mining Leader‚ said: “Generally balance sheets in the mining industry remained strong for 2012 with stable liquidity. However‚ the significant margin pressure will result in a challenging 2013.”
The 2012 financial year saw the country’s top 39 mining companies shed all the gains made since the 2008 financial crisis. Market capitalisation for the top 39 declined by 9% from R910bn in 2011 to R833bn in 2012‚ reflecting a 3% decrease in market capitalisation of R862bn in 2010.
On the back of strike action‚ the position weakened even further and reflected a market capitalisation of only R792bn at the end of September 2012.
“The tragic events at Marikana and widespread labour disputes have had a significant effect on the mining industry‚” said Boegman. “This has caused mining companies to rethink risk and the risk landscape they operate in. It is imperative now that they evolve their risk assessment practices to be more predictive in anticipating and planning for future potential risk events‚” said Boegman.
Although these events were not the only factors that affected market capitalisation‚ they played a key role in the decline of the top 39’s market capitalisation by 5% from June 2012 to September 2012. Of the top 10 companies‚ six posted declines with Anglo Platinum‚ Kumba Iron Ore and Exxaro Resources collectively losing R40bn in market value.