Stats SA has reported that mining production decreased by 28.2% in June.
The mining production and sales report, released on Thursday, said the biggest drags in mining activity could be attributed to platinum group metals and gold.
“Coal also dragged down mining production in June, with output down 10.9% and contributing -2.7 percentage points,” read the report.
The sharp decreases in mining production were said to be a result of the Covid-19 pandemic. The lockdown regulations that came into effect on March 27 have had an extensive impact on economic activity and saw some mines pause production due to the spread of the virus.
The sector has also endured various challenges, ranging from electricity supply constraints and policy uncertainty to logistical difficulties.
Former Anglo American SA deputy chairperson Norman Mbazima said that, even before the impact of Covid-19, the country’s mining industry had been in a structural decline and that, without significant interventions to alter that trajectory, output, employment, GDP contribution and fiscal contribution would continue to decline.
Mbazima said the South African mining industry was estimated to have lost between R7 billion and R12 billion in output last year due to Eskom’s load shedding.
“This represents roughly 4% of total industry output and effectively cuts top-line revenue for most operations by an enormous quantum, not to mention the operational complexities introduced by load shedding. This, of course, is devastating for profitability,” he said.
Mbazima said there were five root causes of South Africa’s mining industry woes: electricity supply, logistical bottlenecks, regulatory uncertainty, cost competitiveness and the impact of Covid-19.
The nationwide lockdown had halted all economic activity. On April 23, government agreed to allow the mining sector to operate at 50% of its production capacity.
Stats SA reported that, although open-cast and underground mines were granted permission to operate at full capacity on May 1 and June 1, respectively, the country’s mining output contracted by 33.1% between March and May.
Fitch Solutions added that this was further impacted on by localised Covid-19 outbreaks among workers, which led to temporary closures, including at AngloGold Ashanti’s Mponeng mine and Anglo American Platinum’s Marula mine, in May.
“Failure to contain localised outbreaks could largely shutter production, thus posing a downside risk to our South African mining outlook,” read the Fitch Solutions article.
In an interview with SABC News, Henk Langenhoven – chief economist at the Minerals Council of SA – said that, despite the lower year-on-year production numbers, there was evidence that the sector was “bouncing back” from the impact of Covid-19 interruptions.
“We’re still hoping for a continuation of the recovery in the mining sector. The problem is that, in June last year we had a good month, so it’s a bit of what we call a ‘base effect’. We’re a little disappointed.
“We had a good bounceback in May from April, which was the worst month. We dropped basically 50% and recovered quite strongly. We were hoping that that recovery would continue, but it didn’t,” said Langenhoven.
“We’re now about 20% below the average levels per month in the pre-lockdown period. If you look at the 12 months to March, we’re only 20% below. So there was a good recovery, but we were hoping for better.”