Insight
to put the industry under pressure with a
decline in EBITDA.
Capital expenditure recovered from
the lowest levels in 10 years to reflect
a 19% increase. Operating expenses
increased by 13%. Labour costs continue
to be the biggest cost driver in the
mining industry.
The current year impairment doubled
from the previous year, mainly because
of gold and platinum impairments.
After last year’s net profit, this year’s
companies are back in a loss-making
position due to the higher impairments
and lower EBITDA. The EBITDA
margin of 22% is lower than the
previous year’s 25%.
Andries Rossouw.
Net interest expense increased by
R2-billion from the prior year, mainly
because of borrowings used for business
combinations. The mining companies had
an aggregated tax expense of R9-billion
down from R10-billion on the previous
year, but reflected increased tax payments
of R18-billion — a 29% increase on the
prior year.
Solvency ratios decreased slightly
compared to the previous year as a result
of the net loss realized, due in the main
to impairment provisions recognised.
The aggregated liquidity position is
also healthy and better than for the
global mine position. Unfortunately, this
hides the challenges still experienced at
individual company level.
[40] MINING MIRROR JANUARY 2019
Risk environment
The risks disclosed by global mining
companies and those risks disclosed
by South African mining companies
largely correlate. However, the following
matters stand out from the comparison:
South Africa is less prone to natural
disasters, although some mines have
had to close in the past because of
incidences such as flood damage and
droughts. Technology and cyber risks
are becoming more prominent in the
global mining environment. Market
competition is not disclosed in South
Africa as a major risk.
Mining Charter
The revised Mining Charter was
released in June 2018 and gazetted
on 27 September 2018. New licence
holders are required to have 30% black
ownership. An added requirement is that
of carried interest (CI). The concept of
CI is not new to the mining industry.
CI means shares issued to qualifying
employees and host communities
at no cost to them and free of any
encumbrance. The cost for the carried
interest shall be recovered by a right
holder from development of the asset.
Many African countries have provisions
in their mining regulations that give
government a 5–15% free stake in
mining companies. However, this has
not always proved to have the desired
effect, as host states are often of the view
that mining companies do not make
dividend payments promptly.
In addition, the 20% black female
representation requirement has changed
from last year’s 25% black female
representation requirement.
It is notable that the Mineral and
Petroleum Resources Development
Amendment Bill, which has been subject
to legislative processes since 2013, has
been withdrawn.
With the Charter now gazetted, it
remains to be seen whether business and
government can more effectively work
towards a more stable South African
mining environment.
Value to mining investors
in SA
The mining industry continues to add
significant value to the country and its
people. Stakeholders in the industry
include employees and their families,
unions, government, shareholders,
suppliers, and customers. As reported
in company value added statements,
employees still take the lion’s share of value
added at 47%, followed by government
through direct taxes, as well as payroll and
royalties with 24%. Shareholders got an
improved share on the back of improved
dividends from bulk commodity producers.
The DRC
Some 16 years after the enactment of
the initial version of the mining code, an
economic crisis has hit the Democratic
Republic of the Congo (DRC). During
this time, cobalt has become the most
expensive material in the portable
lithium-ion battery used in smartphones
and electric vehicles (EVs), now
representing about half of the market
for the metal. The DRC has 69% of the
global cobalt production share.
A new mining code has been drafted
for stronger rules, more transparency,
opportunities for local development, and an
equitable fiscal regime. However, the final
version signed into law in March 2018 is
unsupported by many mining companies.
Tanzania
Tanzania recently introduced regulatory
changes for the mining sector, which appear
to have dampened investor sentiment.
These changes have not come about in
isolation, as several jurisdictions in Africa
have introduced more severe regulatory
regimes — but it does appear that Tanzania
may have gone further than most.
Some of these regulatory changes are
the new income tax regime introduced
in 2016; increased royalty rates and
a new ‘clearance fee’ charged on the
export of minerals; restrictions on VAT
input credit in relation to the export of
unprocessed ore; and new local content
requirements. b
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