Founder: Turnaround Talk
A recurring theme in 2024 will be a focus on the three levers that are integral to South Africa’s economic growth. Chief among them is the performance of the mining industry. Equally important is the performance of Eskom and Transnet.
At the recently held Mining Indaba, an annual meeting of the mining industry held in Cape Town at the beginning of February, it became apparent that the fortunes of these three levers were inextricably linked with each other’s performance. The mining industry risks becoming distressed when there are intense loadshedding and logistics challenges. We, therefore, have greater insight into why there are concerns about the future of mining.
It also became apparent at the Mining Indaba that there is an urgent need for policy correction as Government is significantly behind the eight ball.
A troubled outlook
A News24 article points out that, after the prices of their major commodities crashed by between 20% to 60% over the past three years, the chief executives leading two of the world’s largest producers of platinum group metals (PGM) have a somewhat different outlook on where prices are heading.
Sibanye-Stillwater’s CEO firmly believes the platinum price “has bottomed out” at current levels, while Anglo-American Platinum reckons the road to higher prices “will still be bumpy in the short term.”
The News24 article adds that two years ago, platinum traded north of $1 300 an ounce. It is currently trading at around $880 per ounce, falling 11% since the start of 2024.
It is getting closer to the key $850 level, which some mining experts believe will spell existential trouble for the low-margin producers. This could cost thousands of jobs.
The prices of palladium and rhodium, which are produced alongside platinum and can be used interchangeably to reduce fuel emissions in motor vehicles, have had it even tougher than platinum. Last year, the price of palladium dropped 42% to the current $900 an ounce, while that of rhodium was down more than 60% in the period.
While there are differing views among the mining giants, both companies agree that austerity measures need to be urgently implemented.
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Correcting the course
The News24 article points out that in October (2023), Sibanye announced a Section 198 process at four of its shafts in the platinum group metal operations in South Africa. These included the 4B shaft at Marikana, Simunye shaft at the Kroondal operation as well as the Rowland shaft and the Siphumelele shaft in Rustenburg.
The company then announced that more than 4 000 employees – including 600 contractors – would be affected. Some shafts were closing after reaching the end of their life, or for being uneconomical to mine at the lower price levels. Some 100 employees and 187 people employed by contractors would also lose their jobs at Sibanye’s US operations.
The News24 article points out that CEO Neal Froneman indicated that the job losses may be less.
“When we announce the results during the next few weeks, we will be able to tell the market we have significantly minimised the job losses in this process during the Section 189,” said Froneman. He pointed out that he could not divulge any specific details as listed companies have to comply with strict regulations in communicating information that may affect the price of their shares. “What we can say is that the job losses are lower than we had guided last year,” he said.
As part of the preparations for a lower commodity price environment, last year Sibanye tapped the market to raise $500 million (then equivalent to more than R9 billion) in a five-year, senior unsecured convertible bond to fund the acquisition of the Reldan Group, a recycler of precious and industrial metals including silver, gold, copper, palladium and platinum, among others.
The article adds that while Sibanye focused its job cuts at the coal face, Anglo American Platinum started with staff at its head office. This resulted in a 30% reduction in roles at the head office in Johannesburg, said Miller. These included voluntary separation agreements with some employees.
The organisation said it would now look further down the staff ladder for more restructuring to reduce costs to cope with a lower commodity price environment. “This exercise is ongoing; we will announce to the market when there is something to announce,” said Craig Miller, Amplats CEO, adding the process cannot be rushed. “It really is important that we do this deliberately and get it right.”
While Anglo American Platinum has not yet announced any further retrenchments, it says it is setting itself up for a future in a low-price environment by reducing its capital costs and investing in key assets.
Miller believes it will still take some “bumpy ride in the short term” to get platinum prices at higher levels.
Heads in the cloud?
Moving from the operating environment to the DMRE, a News24 opinion piece (written by Nick Hedley) questions whether Mantashe has his head in the clouds.
The article points out that in an attempt to strengthen their argument that South Africa needs even more fossil fuels in its electricity mix, unscrupulous policymakers have claimed that Europe’s energy transition is failing and the region is returning to coal.
“The excitement of moving from coal to renewables is becoming a myth. Many think that renewables are the so-called saviour, and we know that it is not. Germany has learnt that painfully.”
Mantashe’s narrative, unsurprisingly, has been found wanting in the face of hard data. The News24 article points out that while Europe did initially scramble for new sources of fuel after the bloc turned its back on Russian fossil gas, that proved fleeting. In 2023, fossil fuel consumption in the EU’s power sector fell by a record 19%, per Ember’s data. As a result, fossil fuels now comprise less than one-third of the bloc’s electricity mix – the lowest share ever. Renewables, on the other hand, rose to a record 44% share. Together with nuclear, low-carbon technologies now account for more than two-thirds of the EU’s electricity supply. The surge in wind and solar installations has been a death knell for costly coal, which now accounts for just 12% of the electricity mix – down from 21% five years ago. The shift from the dirtiest fossil fuel will accelerate in the months ahead, with a wave of coal plant closures looming across the region.
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Germany – Mantashe’s old case study – will shut 10GW worth of coal capacity in the coming months. That’ll come on the back of a 27% decline in coal-fired power output in 2023. Gas is also on a steady decline across the EU as wind, solar, and big batteries advance. By 2030, it’s expected that the EU will be closing in on a 100% clean power mix, with the share of renewables surging to almost 70%.
How do we move on?
The News24 article points out that first, we can say goodbye to the good old days when we used to export coal to the EU. Our coal miners will still have a market in Asia – that is, if our crumbling logistics infrastructure doesn’t deteriorate further – but that too will shrink over time.
The sooner we accept this reality, the better for everyone who currently relies on the coal industry for a livelihood. We must prepare those workers and communities for the energy market of the 21st century.
The News24 article adds that second, Mantashe’s reasons for deepening South Africa’s already extreme reliance on fossil fuels have unravelled. His latest integrated resource plan – which touts massive investments in gas-fired power, delayed coal plant closures, scaled back renewables ambitions, and even crazy expensive and ineffective “clean coal” – is an utter embarrassment and is completely at odds with the direction the rest of the world is going.
Third, the increasing divergence between South Africa’s energy plan and the route that Europe and the rest of the world is taking means our exporters will be heavily penalised when shipping goods abroad. The EU’s carbon border adjustment mechanism – which is aimed at ensuring that goods imported into the bloc are subject to the same emissions prices as those made within it – will hit South Africa harder than any other country on the planet, according to an analysis by S&P. Our aluminium, steel and fertiliser manufacturers, in particular, will pay the price for the ruling party’s outdated ideologies.
The News24 article points out that, fourth, it’s abundantly clear that Mantashe is not fit for what’s arguably South Africa’s most important job. He either genuinely believes that Europe is returning to fossil fuels – in which case he’s worryingly misinformed about developments in global energy markets – or he’s willing to lie to get his way. Either way, South Africans deserve better.
Conclusion
A well-respected BRP pointed out that he sat with his company to investigate the landscape driving the business rescue profession. He indicated that, at the end of their exercise, it became apparent that the mining industry has become severely distressed and that many mining executives are looking for ways to address this.
What does the future hold for the South African mining industry? Is enough money being spent on research and development to find out what the international best practice principles are when it comes to mining and how this will change in five, ten, and 15 years? Have mining companies aligned their future value proposition with the global movement away from fossil fuels?
What is the DMRE doing to address administrative issues within its office?
These are all critical issues that will significantly influence the future profitability of this sector. An equally important conversation is the plans that Government has in place to diversify the South African economy. Overreliance on one industry is acceptable, provided the industry remains financially stable.
