SA mining sector delivers solid financial performance
The South Africa mining sector delivered a sterling performance in 2020-2021 with value delivered to all stakeholders, despite a challenging environment.
According to PwC’s SA Mine: Harvest season, call to action report the South African mining sector delivered a solid financial performance for the 2020-2021 financial years with value delivered to all stakeholders despite the current challenging pandemic environment.
The excellent financial performance resulted in mining companies being in a very strong financial position, with record distributions to shareholders and more than a tripling in taxes paid. Debt has largely been repaid and returns to shareholders reached record rand levels for many companies. These are some of the highlights from PwC’s 13th edition SA Mine, a series of publications that highlights trends in the South African mining industry released today.
According to Andries Rossouw, PwC Africa Energy Utilities & Resources Leader, the growth in South Africa’s mining industry confirms the resilient nature of the sector and the opportunities that exist in rebuilding the South African economy.
“With record rand prices for gold, the platinum group metals basket, iron ore and more recently, coal, it was no surprise that the industry’s financial performance exceeded expectations on most fronts.
“The Covid-19 pandemic has also added momentum to the already in focus importance of the environmental, social and governance (ESG) agendas across all industries in South Africa. Multiple stakeholders are increasingly challenging mining companies to make changes to their boardroom agendas on ESG. There is widespread recognition in the industry that for South Africa to achieve its net zero targets, ESG must be a core component of any mining company’s strategy and policies,” says Rossouw.
Production and a cleaner eceonomy
Manganese ore was the largest positive contributor to the sector in the 2020-2021 period with an average of 20% increase in output as operations recovered from an extended shutdown in response to Covid-19 restrictions and market conditions.
Diamond production grew the most by 30% while coal has seen the biggest drop in production from the prior year at an average of 6%.
As South Africa navigates its way through its transition to a cleaner economy, there are several factors to consider. The transition comes with employment opportunities in cleaner energy industries, such as renewable energy and battery storage.
It is key that these opportunities are maximised to the fullest to generate economic growth and employment opportunities for all. Companies will need to skill and reskill employees for this transition.
The just transition concept has put a lot of focus on the plight of communities in the coal mining areas. In a country with record unemployment and where the socio-economic challenges probably post the biggest risk, not only for the mining sector, but for the country as a whole, this focus might be too narrow. “We believe the socio-economic challenges need to be addressed on an integrated basis,” says Rossouw.
The limitations of supply of key commodities required for the total green energy value chain are likely to limit the pace of the energy transition to the extent that a realistic transition will result in most of the existing coal mines closing on their normal life of mine planned times. In fact, in the next decade, the country stands to lose more jobs in the gold sector for planned mine closures than in the coal sector.
The mining industry is well positioned to use the global energy transition opportunity to enable growth in South Africa. This includes the opportunity for research and development (R&D) and industries to support the renewable energy industry in general and the green hydrogen economy.
Transforming the workforce
The mining workforce — from a job role, digital skills, and behaviour perspective — is evolving continuously. In a recent PwC survey of digital transformation in the South African mining sector, most respondents believed that there will be a change in the nature of the workforce to more skilled employees over the next five years.
As major mining organisations think about their strategy and transformation journey from a digital and mining operations automation perspective, it is critical to understand, identify and start developing skills to support and undertake this transformation.
According to Marcia Mokone, Partner in PwC’s Mining Division upskilling and learning and development within mines needs to be carefully rethought with rapid technology adoption in mind. “Mining companies have a unique opportunity to manage digital transformation proactively and to minimise the potential negative impact on the workforce and operations through upskilling and reskilling,” says Mokone.
Although digitised training has a number of benefits, in the South African mining context there are some challenges that need to be considered: language barriers and literacy levels; workforce age groups, generational expectation differences, and cultural norms; physical infrastructure, and asset development and operating costs; and scalability, adaptability and accessibility of training.
“As mining organisations think about new ways of learning, they will need to put plans in place to future-proof their workforces in order to address these factors and, more importantly, the realities of diverse workforce generations, cultures and literacy levels,” says Mokone.
ESG in the mainstream
Many large mining companies are protecting their investments by diverting investments away from coal towards investments that are likely to support the net zero agenda.
Shareholders and other stakeholder scrutiny are turning up the heat on how mining companies operate – this is becoming a real concern for the industry.
There is widespread recognition in the industry that for South Africa to achieve its net zero ambitions, ESG must be a core component of any mining company’s strategy and policies. Mining companies have often been criticised for not doing ‘enough’ on ESG and consequently are increasingly challenged to make changes to their boardrooms.
“While the transition might present challenges, it also presents substantial opportunities for mining companies to create shared value and economic benefits for the communities in which they operate,” adds Mokone.
According to Rossouw, there is an obvious need to invest in the right skills, infrastructure, energy, and water and, in general, creating an enabling environment for exploration, mine development and production.
“Realising the full potential benefit of our resources and creating long-term sustainable outcomes will depend on our ability to mine cost competitively and to integrate various value chains profitably,” he says.
SA mining sector delivers solid financial performance
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