• FINANCE FORUM
PROTECTING YOUR PROFIT WHEN THE COMMODITY BOOM SLOWS DOWN
Managing director at OIM Consulting Arjen de Bruin says that by focusing on their people , mines can future proof their profits when the commodity cycle spins around .
Image by rodrigoandrade3880 from Pixabay
In a country that is , by now , quite jaded because of the sheer volume and frequency of bad news we seem to bear witness to , this year ’ s Budget Speech delivered a largely unexpected but well-received windfall , to the tune of around R300bn .
Due to a buoyancy in commodity prices – a direct result of the Russia-Ukraine war ( that ’ s the not-nice bit ) – the finance minister had the necessary wiggle room to pass on some desperatelyneeded relief to taxpayers . However , as the minister himself warned , the country couldn ’ t rely on this revenue for the longterm , given that commodity prices are determined by many macroeconomic variables .
And already , we have seen a shift over the past few months . While gold continues to shine , the price of iron ore has dropped , thanks to sluggish Chinese demand . Rhodium has plummeted by around 35 % since the beginning of the year ( triggering Northam Platinum to withdraw its offer to take control of Royal Bafokeng Platinum ), while other major mines have reported a slump in their profits . Earlier this year , Anglo American admitted that its 2022 profits had dropped by almost 50 % on the previous year thanks to soaring energy costs , while Rio Tinto announced a 41 % decline in their 2022 net earnings , which is attributed to downward pressure on commodity prices .
What do these movements tell us ? That mining remains cyclical , and at the mercy of macro-economics . As the World Bank states , “ Global macroeconomic shocks have become the main source of fluctuations in commodity prices , accounting for more than two-thirds of the variance of global commodity price growth . The swings in commodity prices witnessed in 2020-21 have brought to the fore the vulnerabilities of the many Emerging Market Developing Economies ( EMDE ), especially low-income countries ( LICs ), highly dependent on commodity exports .” In other words , countries
MD at OIM Consulting Arjen de Bruin . such as ours .
OIM Consulting
36 • African Mining • July 2023 www . africanmining . co . za