In election year, mines bleed cash, jobs

South Africa's mines, which laid the foundation for the nation's industrial growth well into the post-apartheid era, are cutting thousands of jobs and paying much less tax, muddying the domestic economic outlook months away from crucial elections.

The biggest mining investors are halting plans to spend billions on new projects in response to a slump in profits due to myriad local challenges and weakening prices of commodities such as platinum.

The layoffs and investment cuts come against a backdrop of high unemployment and weak economic growth looming large over the elections, due in May and likely to see the governing ANC lose its parliamentary majority for the first time in 30 years.

A rally in recent years in the price of commodities such as palladium, rhodium, coal and iron ore helped mining companies like Anglo American Platinum, Sibanye-Stillwater, Kumba Iron Ore, Exxaro Resources make windfall returns, allowing them to partly paper over domestic constraints including power cuts, a poor rail network and crime.

However, with prices plummeting since last year, companies are in restructuring mode and cutting jobs.

“The challenge is to be able to operate, to be able to produce on a continuous basis,” said Claude Baissac, CEO for Eunomix Research.

“Unless there is a fundamental change of policy and state capacity, we are going to end up with a marginal mining industry, providing marginal jobs.”

The mining sector's contribution to GDP stood at 6.2% last year from 7.3% in 2022 and 8.3% a decade earlier, according to Minerals Council SA, an industry lobby group. The sector employs about 477,000 people.

Anglo American's platinum and iron ore units this week announced plans to cut more than 4,000 jobs and review agreements with a combined 780 contractors.

The restructuring, which includes postponing spending plans at some platinum shafts and closing a metals processing plant, aims to save Anglo R13bn.

Fifteen of the biggest mining companies, including Amplats, Kumba and Glencore, contributed R110bn in taxes and royalties in 2021, the bulk of about R360bn in corporate tax collected by the Treasury, according to RMB Morgan Stanley analysts.

The analysts forecast that amount halved in 2023.

Sibanye, which is the top employer in the mining sector, plans to cut about 4,000 jobs at its platinum mines. Smaller platinum producers and some coal producers have also announced job cuts.

About half the platinum mines, some of which are the world's deepest and costly to operate, are loss-making at current prices, said Impala Platinum spokesperson Johan Theron.

“That means if nothing changes [in terms of prices], more than 50% of the industry will disappear in some shape or form over time,” he said.

“Nothing is sustainable that is fundamentally loss-making.”

Impala has said it may cut jobs and last year asked workers to take voluntary exit packages.

Last year coal exports hit the lowest level since 1992 because of the dire state of the railway network, operated by state group Transnet and hampered by a lack of wagons and spare parts, cable theft and inadequate maintenance. For a while companies stockpiled their commodities, hoping the situation would improve, but more recently they have been scaling down production and cutting jobs to cushion losses.

Anglo American's Kumba, Africa's top iron ore miner, has cut mining output for the next three years until rail capacity improves, CEO Mpumi Zikalala said on Tuesday.

Kumba had about 7-million tonnes of the steelmaking ingredient stockpiled at its mines in December.

“Clearly, for as long as there is no immediate solution to the electricity crisis, and rail and port infrastructure challenges, we will continue to lose jobs,” said the National Union of Mineworkers, one of the biggest and most powerful trade unions once led by President Cyril Ramaphosa.

Reuters