Figure 1: Contributions to year to date mining production growth
  • In October, mining production lifted by 5.2% y/y compared to a contraction of 0.3% y/y in September.
  • Half of the 12 mineral groups registered production growth in October. The largest positive contributionsstemmed from iron ore, coal, other non-metallic minerals and manganese ore.
  • On a quarterly basis, mining production rose by 2.3%, seasonally adjusted, in October, compared to therise of 2.5% in Q3.16. This measure provides a guide to the mining sector’s potential contribution to Q4.17GDP and therefore suggests at this stage, the possibility of another positive contribution.
  • The Q3.17 GDP update showed that the sector’s contribution remained significant at 0.5%, followingcontributions of 0.6% and 0.9% in Q2.17 and Q1.17 respectively. According to Stats SA, the increase inreal value added by mining so far this year has been attributable mainly to gold, ‘other’ metal ores and theplatinum group metals industries.
  • In the first ten months of the year mining production rose by 4.0% y/y compared to a decline of 4.1% y/y inthe same period last year. The improved performance so far in 2017 is attributable to higher contributionsfrom iron ore, manganese ore, diamonds and other non-metallic minerals (see figure 1).
  • Growth in the mining sector has been aided by higher commodity prices, relative to decade lows reachedin early 2016. The rise in commodity prices is linked to stronger industrial demand, mine supply constraintsand to an extent, heightened geopolitical risks (see figures 3 and 4).
  • In its October Commodity Markets Outlook, the World Bank projects an easing in metals prices in 2018after an estimated 22% rise this year. Upside risks to this forecast include “more robust global demand andproduction shortages. Supply could be curtailed by E tighter environmental constraints, and policy actionE in China.” Gold prices are forecast to decline by 1% in 2018 as “as anticipated U.S. interest rate hikesmaterialize.” Platinum prices are expected to rise 4% in 2018 on “increasing catalyst demand and tighteningmine supply.” Upside risks to these forecasts include “widening geopolitical tensions, delays in central bankrate increases, a weaker-than expected dollar, and a mine supply shortfall.”
  • Heading into next year, the performance of the mining sector is likely to be affected by electricity tariff hikes,if NERSA grants Eskom the 19,9% increase the utility is seeking. The sector is already contending withhigh operating costs and a tariff increase of this magnitude would have a significant impact (see figure 5).
  • In the event, mining producers would likely rationalise costs which could include headcount reductions. TheChamber of Mines estimates that “47 492 employment opportunities (between gold and PGM commodities) are at risk from a 19.9% increase in electricity tariffs.”
Figure 2: Mining production volumes
Figure 3: Metal and mineral prices
Figure 4: Precious metal prices
Figure 5: Input cost bill increase on 19.9% electricity tariff hike