Boosted by a weaker exchange rate and sharply higher gold prices. From Moneyweb.
Gold was the stand-out performer on the JSE over the two years to June 2024, lofted by a weaker exchange rate and rising gold price.
Gold shares were up 87% in the period while precious metals and minerals dropped 33%, says the PwC Mine 2024 report released on Tuesday.
Coal shares were down 5% over the two years and diversified miners were down 4%.
Over the 12 months to June 2024, gold shares were up 37%, with Harmony Gold leading the charge with a gain of 108%.
SA gold miners benefitted from a 21% rise in the US dollar gold price and a weaker exchange rate over the past year.
The share price performance of SA gold miners is highly geared to gold price movements given their relatively fixed cost base, which translates into relatively larger profit gains in relatively small price movements.
Safe-haven status regained
“Gold has been one of the best-performing commodities over the past year as the metal regained its status as a safe-haven asset in times of uncertainty,” says PwC.
“Prices have reached new highs, driven by many factors, including escalating geopolitical risks, budget deficit concerns, persistent inflation and central bank buying. The recent Russia-Ukraine and Israel-Palestine conflicts have heightened geopolitical uncertainty.
“At the same time, the collapse of the property market in China has triggered a flight to traditional store-of-value assets, such as gold.”
The outlook for the gold sector remains positive as the factors supporting the gold price will likely persist, adds PwC.
This does not mean the path ahead is without challenges such as the depth and safety of mines, the availability and reliability of power supply, labour relations and wage negotiations, as well as the environmental and social impacts of mining.
Coal
Coal shares stood up relatively well given the 67% drop in US dollar coal prices over the last two years, reflecting weaker demand and market oversupply.
JSE coal shares were down an average 6% over the year to June 2024, while Thungela Resources slumped 21% as exporters battled with Transnet’s creaky rail infrastructure and had to rely on road freight.
Demand for coal is expected to weaken further in the coming years as the world transitions to green energy and funding for coal projects dries up. “The outlook for the coal sector remains restrained as global and domestic trends point to a structural decline in the industry,” says PwC.
Platinum group metals
It was a mixed bag for platinum group metals (PGMs) as different metals within the mix experienced different dynamics.
JSE-listed PGM miners are up 15% since June 2024, but down in value over the last 12 months due to difficulties in the South African environment and the overall PGM basket price.
There were modest gains for platinum, driven by growing industrial demand substitution for palladium, as well as investment interest.
Palladium crashed 20% in US dollar terms over the past year due to the rising adoption of electric vehicles, especially in China.
Demand for rhodium is on the rise, helped by growing interest in hydrogen fuel cells which use PGMs as catalysts.
Read: SA hydrogen economy gets a boost
Research and development into battery technologies using PGMs presents new opportunities for the sector.
There was an increase in exports of chrome, a by-product of PGM primary mining activities requiring minimal additional extraction costs, which served as an additional profit stream for PGM miners.
Another notable trend from the report is the rising demand for green metals such as copper, up 17% in US dollars over the past year, though lithium prices crashed 75% due to market oversupply.
Exploration budgets for lithium projects ramped up 78% in 2023 in anticipation of increased lithium demand for electric vehicles and batteries.
SA companies stand to benefit from the surge in demand for green metals, as demonstrated by SA-based Q Global Commodities raising $1 billion from international investors for investment into South African mines producing green metals.
M&A activity
The SA mining sector notched up 32 merger and acquistion (M&A) deals valued at about $10 billion (R173 billion) over the 12 months to June 2024. The figure would have been nearly six times bigger had BHP prevailed in its failed bid for Anglo American.
Much of the M&A activity was driven by the hunt for copper and other strategic minerals, as well as consolidation by miners seeking to lower costs and build scale.
One example of consolidation is the takeover by Impala Platinum of its neighbour Royal Bafokeng Platinum (RBPlats), with the transaction finalised in July 2023. The transaction allowed Impala to add to its production base in Rustenburg and to retain critical mass in the area. It will eventually allow for optimised processing infrastructure and other synergies.
Another example is the joint venture between Sylvania Platinum and Limberg Mining, a subsidiary of ChromTech Mining. The deal involves forming a new company, Sylvania Limberg, to operate the Limberg chrome tailings retreatment plant located in the western limb of the Bushveld Complex in South Africa.
Other notable deals were the African Rainbow Minerals’ acquisition of the remaining 50% in the JV operating the Nkomati Mine from Norilsk Nickel Africa and Menar Capital and Ntiso Investment’s agreement to acquire the Metalloys manganese alloy smelter from South32.
Another driver of M&A activity was diversification and strategic realignment to create shareholder value.
In February, Sibanye-Stillwater acquired US recycling group Reldan for $1.2 billion (R21 billion). Reldan reprocesses industrial and electronic waste, providing relatively low-cost access to extract green and precious metals.
Balance sheets in ‘good shape’
“Unlike the previous downcycle, conservative capital allocation and rapid reaction on lower prices meant that balance sheets are still in relatively good shape despite a slight weakening in the past year,” says Vuyiswa Khutlang, PwC SA mining assurance partner.
“A strong balance sheet provides options in sourcing capital, which is critical for a cyclical industry. There are numerous capital sourcing options, but one of the trends we have noted is that mining companies are increasingly using green and sustainability loans to support operations which align with their own and global sustainability goals.”
Another trend observed is the growth in debt, with a more than doubling in the gross leverage ratio since 2021, while profit levels have dropped – mainly due to the pressures in the PGM sector. This has forced miners to dip into cash reserves to survive the operational decline.
