Mining companies sail through Covid-19 storm thanks to commodity price boom – PwC report | Fin24

The South African mining sector made a strong comeback from the Covid-19 pandemic, on the back of a commodity price boom.

• Mining companies have seen the strongest recovery from the Covid-19 pandemic thanks to higher commodity prices.
• The distribution of dividends to shareholders increased to R76 billion in 2021, from R43 billion in 2020.
• Operational challenges in the local mining sector still remain, despite the record profits.

The mining industry in 2021 added an estimated R229.1 billion to government revenue through the collection of direct and indirect taxes, as the sector went through a commodity price boom that boosted profits, a report by PwC has showed.

Taxes paid to the government include corporate income tax, value-added tax, withholding taxes, import and export duties. There are also royalties and excess profits taxes.

Although the industry returned record dividends to shareholders and banked handsome profits, challenges in the sector such as lack of new investment and operating conditions still remain.

The report highlighted the “chronic difficulties” involving Transnet’s coal rail line from Limpopo and Mpumalanga operations to Richards Bay Coal Terminal (RBCT), which have crippled exports of coal and other commodities at a time when global commodity prices were booming.

Coal exports through the RBCT dropped to 70.2 million tons during 2020 from 72.2Mt in 2019. 

The rail infrastructure used to ferry coal to the Richards Bay terminal is operated by Transnet, and the state-owned entity has been hit by locomotive unavailability, coal line shutdown interruptions, power outages and derailments.

According to Andries Rossouw – PwC Africa energy, utilities and resources leader – the excellent financial performance resulted in mining companies being in a very strong financial position.

“Debt has largely been repaid and returns to shareholders reached record rand levels for many companies. The fiscus benefited from increased direct and indirect taxes and mining royalties to the extent that it could support ongoing socio-economic support during the pandemic.”

Rossouw also stated that the power challenges, led by a lack of investment in sustainable power generation infrastructure, have had a major impact on energy-intensive sectors in the economy.

Resilient

According to the report, which is released annually, the mining sector was one of the most resilient sectors, emerging strongly despite Covid-19 restrictions to deliver record financial results.

The Platinum Group Metals (PGM) basket generated the largest portion of revenue, followed by iron ore. Iron ore prices increased by more than 200% from the prior year, largely driven by China’s economic recovery and other major markets.

During the 2021 financial year, the rand PGM basket price increased by 55%, indicating strong fundamentals for the metal, particularly rhodium, which rose by 157%, the report noted.

“The growth in South Africa’s mining industry confirms the resilient nature of the sector and the opportunities that exist in rebuilding the South African economy,” said Rossouw.

“With record rand prices for gold, the platinum group metals basket, iron ore and more recently, coal, it was no surprise that the industry’s financial performance exceeded expectations on most fronts.”

The distribution of dividends to shareholders increased to R76 billion from R43 billion in 2020, on the back of improved free cash flows.