Regulatory uncertainty could hasten closure of SA's mines‚ Moody’s warns

Moody’s ratings agency warned on Tuesday that ongoing regulatory uncertainty in SA coupled with a firmer rand against the dollar would hasten the closure of the country’s gold and platinum mines.

South African mining companies were increasingly looking to build or buy assets abroad‚ making use of their capital generated from offshore assets as their domestic assets remained under pressure from rising costs and ore bodies that were becoming more difficult and expensive to mine‚ Moody’s said in a note.

“Gold and PGM (platinum group metals) miners will limit their investment in existing South African mines to sustaining capital. Without the substantial expansionary investment required to reconfigure loss-making mining operations and make them profitable‚ mines will either be restructured or closed‚” Moody’s said.

“Earnings from South African mines are not even sufficient to meet interest and tax payments‚ which then have to be supplemented by earnings from international mines‚” it said‚ adding it expected capital expenditure at SA’s mines to continue falling.

The delays in establishing a regulatory framework‚ with a five-year wait for amendments to the Mineral and Petroleum Development Act‚ as well as the recently suspended third-iteration of the Mining Charter‚ which the Chamber of Mines will attempt to interdict later this week‚ were creating a level of uncertainty that made investments in long-term projects unlikely‚ it said.

“Uncertainty over mining policy will continue to inhibit investment in South Africa's mining industry beyond funds to sustain current operations. For the time being‚ we expect many South African miners to mine for cash and to limit capital spending as much as possible‚” Moody’s said.

“At the same time‚ without investment – which often is significant in respect of the amount required – loss-making mines are likely to be closed. As a result‚ the trend of restructuring and closure of operations to protect group free cash flow generation is expected to continue. This will also result in a steady decline in production contribution from SA‚” it said.