In 2020, total mining industry market capitalisation increased to R1,280 billion from R840 billion. This total is a R439 billion (52%) YOY increase from 2019, largely attributed to the increase in market capitalisation of companies within the gold and PGM sectors. Gold and PGM accounted for 80% of the market capitalisation of the companies analysed this year and continue to dominate the sector.
The total revenue generated by the South African mining industry for the year ended 30 June 2020 grew by 4%. This was mainly driven by PGMs, gold and iron ore, which saw increases in revenue for the 12-month period.
PGM generated the largest portion of revenue (28%), demonstrating a 56% increase from the previous year, overtaking coal for the first time since 2010. Gold mining companies had an increase of 35% in revenue. Revenue for the ‘other mining’ segments increased by 7%.
The impact of the COVID-19 pandemic was evident from April 2020, with reductions in revenue being seen across the industry. South African PGMs and gold are mainly mined in deep-level underground mines and were therefore hardest hit. PGM and gold producers indicated that they expect to reach full production levels by the end of the calendar year.
For the SA Mine entities, cash generated from operations after working capital changes increased by 50% from the previous year. The gold and PGM sectors were the largest contributors, each contributing R24bn to the increase in cash generated from operating activities. Capital expenditure grew with a net increase of 5%.
Impairments decreased by 50% when compared to the prior period which resulted in a R5.9 billion charge to the income statement.
Production decreased by 8% YOY, with a 44% decrease in production noted in April 2020 as a result of the pandemic – the most significant of which was due to reductions in gold, diamonds and PGM outputs. Production levels increased in May 2020 following the easing of lockdown restrictions.
The average EBITDA margin of the mining companies included in this analysis was 34%, a 1% increase from the previous period. Net profit grew by 60% as a result of the increase in PGM and gold prices in the current period.
The aggregate tax expense for the mining companies was R37 billion with an effective tax rate of 26%. Furthermore, distribution to shareholders increased to R43 billion (2019:R18 billion) on the back of improved free cash flows and higher commodity prices.
“SA’s mining sector continues to be a meaningful contributor to the economy and has weathered the COVID-19 pandemic in many respects – showing good profitability and retaining strong balance sheets,” said Andries Rossouw, PwC Africa Energy Utilities & Resources Leader.
“The long-term future is unknown however as there is little consensus on how the pandemic will impact the mining industry. The pandemic highlighted the absolute need to build back better and Mining will play a key role in that recovery.”
Companies and investors have increasingly been recognising the importance of prioritising environmental, social and governance (ESG) matters on the corporate agenda.
The PwC report identifies four key ESG focus areas that should be top of mind for any company that wants to build back better and ensure a just transition to a new economy and enhance their social license to operate. These are 1) supply chain resilience; 2) measuring impact; 3) climate-related risks, and 4) resource efficiency.