Maroc - dailynews.co.za - Business - 04/Aug 13:25

Rand stability, positive GNU sentiment provides some relief for SA mining firms

Relative stability in the rand exchange rate, positive sentiment around policy reforms under the Government of National Unity (GNU) and stable crude oil prices have provided some respite for South African mining companies, whose input costs reflected a deceleration during the month of June.According to the Minerals Council of South Africa, mining input costs rose 6.5% year on year in June, a slowdown from the 6.7% average recorded for May. For the second quarter to June, the rate of increase in costs for the South African large mining houses also slowed down 6.8% year on year compared to 6.9% recorded in the first quarter of the current year, and the 8.7% recorded a year earlier.The receding inflationary pressures have been attributed to positive sentiment surrounding the GNU consummated after the May, 2024 general election. Mining companies such as ArcelorMittal South Africa have also said the resurgence of services under Transnet and Eskom are key for production recovery.“The improved performance of the rand exchange rate after the May election and the establishment of the government of national unity, along with stable Brent crude oil prices are helping to lower import costs and petroleum expenses, and providing some relief to the mining sector,” said André Lourens, an economist with the Minerals Council.Among the major commodities mined in SA, the gold sector experienced the highest input cost increase at 7.8% in Q2 2024; followed by coal at 7.2%; and platinum group metals (PGMs) at 6.9%.Data from the Minerals Council shows persistently high inflation rates for electricity, which increased by 10.3% year on year, as a major contributor to the elevated mining costs.The Minerals Council does not expect electricity tariffs for South African miners to trend down “anytime soon” given the insistence by Eskom that power tariffs be reflective of electricity-generation costs. The representative grouping for large South African companies now sees tariff reforms as absolutely crucial.“Without fundamental reforms to the electricity pricing mechanism or increased availability of alternative, cheaper sources of electricity on the national grid, electricity prices will continue to exert pressure on the mining industry,” Lourens warned.Nonetheless, the Minerals Council notes that Eskom’s power plant performance is improving, with July showing further enhancements in the drivers of electricity provision in South Africa. There have been over 127 days without load shedding – a big relief to mining companies.Costs for finance, insurance, real estate, and business services remained elevated at 11.8%, though the cost of lending and trade financing is expected to come down over the next six months.Brent crude prices averaged $82.9 (R1 515) per barrel in June, 2024 compared to $75 a barrel a year earlier. According to the Minerals Council, increases in Brent prices over the past year led to higher costs for petrol, diesel, and engine oils which are extensively used in mining operations.However, a 7.3% decline in intermediate mining and quarrying inputs helped reduce overall input costs, with South Africa also benefiting from an overall stronger rand exchange rate since the formation of the government of national unity.“This strengthening of the nominal effective exchange rate by 4.8% year on year has reduced the costs of imported intermediate inputs for the sector,” Lourens said.BUSINESS REPORT