SA mining prospects subdued in spite of sales picking up in July

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JOHANNESBURG – South Africa's mining prospects remain subdued despite July 2019 production and sales surprising the market yesterday on robust output from the coal and iron ore sectors.

The mining industry was the largest contributor to the overall economic growth in the second quarter.

Credit ratings agency Moody’s has said higher gross domestic product growth and lower fiscal deficits were key to South Africa's credit profile.

Statistics South Africa (Stats SA) said yesterday that mining production had rebounded 2.4 percent year-on-year in July 2019, up from a revised 4.1 percent year-on-year decline in June.

The rebound saw mining recording its biggest year-on-year gain since June last year, beating the market consensus of a 1.1 percent decline.

Stats SA said iron ore production had recorded a 23.7 percent year-on-year growth from a 1.9 percent year-on-year decline in June.

It said coal output had jumped 8.6 percent year-on-year in July from a 1.3 percent year-on-year fall in June, while platinum Group Metals (PGM) production rebounded by 2.7 percent year-on-year in July from a 6.3 percent year-on-year decrease recorded in June.

Gold production declined 13.1 percent year-on-year from a 16 percent year-on-year decrease in June.

Stats SA said diamond production had extended its downward trend to fall 39.1 percent year-on-year in July, from a 33.1 percent year-on-year decline in June, and that manganese ore production had declined 19 percent year-on-year in July from 26.2 percent year on year in June.

However, underlying activity in the mining sector remained fragile in July, with total output contracting by 3.8 percent in the month.

“Seasonally adjusted mining production decreased by 3.8 percent in July 2019 compared with June 2019. This followed month-on-month changes of 3 percent in June 2019 and 3.1 percent in May 2019,” Stats SA said.

Gold recorded a 3.5 percent increase in production month-on-month in July, as operations normalised following the five-month strike at Sibanye-Stillwater’s South African gold operations, which ended in April.

Stats SA said mineral sales had increased by 19.1 percent year-on-year in July 2019.

The Nedbank Group Economic unit said: “Domestically, a confluence of elevated operational costs, labour instability and an uncertain policy environment will keep investment and output activity subdued,” it said.

Nedbank said wage talks in the platinum sector were being watched closely. “Any work stoppages would disrupt activity in a sector that still has not fully recovered from the effects of labour instability in the period between 2012 and 2014. Any resumption of significant power cuts would also disrupt already weak momentum,” it said.

The Minerals Council chief executive Roger Baxter earlier yesterday emphasised the criticality of policy certainty, and in particular security of tenure for long-term investment in the mining sector to be re-ignited.

Mamello Matikinca-Ngwenya, FNB chief economist, said that excluding gold, mining production increased by 5 percent year-on-year in July.

“We are emboldened by the recovery in the sector and this could well set the tone for recovery in overall output heading into the close of the year,” Ngwenya said.

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