Date: Jan 10, 2019
Bulk commodity and base metal prices in South Africa have shown an impressive recovery over the last two years from the long-term lows experienced in the beginning of 2016.
These price recoveries were driven by global economic growth and China’s focus on greener production. Unfortunately precious metals didn’t have the same recovery and platinum prices for example are trading at severe lows, PwC partner Andries Rossouw tells SASCHA SOLOMONS.
“On a global basis mining companies benefited from the improved prices and cost management strategies previously implemented which resulted in an impressive increase in profitability and cash generation,” says Rossouw.
The improved cash generation allowed most companies to improve their balance sheets. However, overhang in supply has meant that capital expenditure was still at 10-year lows.
Commodities in 2018
While bulk commodity producers have enjoyed a more profitable year, precious metal producers have not experienced the same fortunes due to pressure on prices and a significantly higher cost base. This meant significant impairment provisions by precious metal miners.
Whether the trend for bulk commodities will continue into 2019 will largely depend on ongoing economic growth. The impact of global trade wars could negatively impact on prices and eventual profitability.
On the other hand most of South Africa’s gold and PGM production still comes from deep level labour intensive conventional mines. These producers weren’t only impacted by stagnant or lower prices, but also by significant cost increases over the last number of years.
