Johannesburg - South Africa is likely to be among the first to benefit when the global economy returns to strength.
This is according to a new market research report released by
companiesandmarkets.com.
The South African Mining Report Q1 2009 said the sheer size of the South African mining industry, representing 5.2% of South Africa's GDP in 2008, should ensure that the industry remains resilient through the current economic downturn.
This is not to say the industry will remain untouched.
"The combined effects of the global economic crisis, plummeting commodity prices and an earlier power crisis have greatly impacted the South African mining sector," reads the report.
The downturn has prompted many mining companies to scale back operations, cut proposed exploration and development projects, and lay off workers.
The Financial Times reported in January that up to 14 000 workers in the industry are facing redundancy.
But the report points out that some firms are weathering the slowdown better than others.
Maturing industry
"Iron ore producers in particular are benefiting from a strong market driven by China's high demand," the report claimed.
Accounting for nearly one-third of South Africa's total exports, mining is a vital industry for the country's economy. South Africa hosts the world's largest deposits of gold and about 80% of global platinum reserves.
The country is also a significant producer of diamonds, but the country's mining industry is observed to have matured and the pace of mineral exploration has fallen over the years, and even more so in recent months as firms reduce capital expenditure and scale back projects.
Major closures have taken place in the chromium and manganese sectors, with multiple furnaces shut down as demand slumped, as well as in the uranium sector.
South African gold production continued to decline, with a massive 14% drop in output in 2008, reported to be largely due to ongoing power rationing and labour unrest.
Diamond production also fell, but De Beers successfully opened its Voorspoed mine, while a crash in platinum prices in late 2008 impacted producers heavily.
Two major takeover bids by Impala Platinum (IMP) and global diversified mining group Xstrata were abandoned.
Coal exports fell in 2008 and some firms announced cuts of capital expenditure, but growth drivers for 2009 could include increased demand from the state-owned power company, Eskom, and modernisation of transportation links.
Iron ore production was largely sustained by high demand from China, and some iron ore producers pressed ahead with development projects.
The South African government has revived a dormant state company to start buying up assets within the mining sector.
The African Exploration, Finance and Mining Corporation will reportedly receive funding of R180m for three years of exploration. But the government faced criticism in
October 2008 over proposed exemptions for the company from requirements imposed on private firms, including applying for mining rights. Reuters reported that the Chamber of Mines, representing mining firms in South Africa, had expressed concern over the exemptions.
Industry monitor BMI forecasts that South Africa's mining sector will reach a value of $20.16 billion in 2013.
"However, how long the country can continue its relatively strong performance is yet to be seen. In the short term we expect growth to slow due to the impact of the financial crisis on global commodity prices, which is forcing producers to scale back production. Meanwhile, reserves are
depleting, which is slowing the rate of expansion, while power shortages and labour unrest are also disrupting the sector," the report stated.
- I-Net Bridge