Diamonds shine amid mining sales, output drop

Cape Town - Platinum was the biggest culprit responsible for the drop in mining production in June which fell by 0.8% compared to the same period last year.

According to numbers released by Statistics South Africa on Thursday, the platinum metals group (PGMs) was the largest negative contributor to mining production at -3%. Diamond production increased by 59% in the period under review.

Chamber of Mines CEO Roger Baxter wrote in the Chamber’s June quarterly update that some 60% of the platinum sector remains loss-making with the danger that unprofitable and labour-intensive mines might face closure.

READ: SA mining on its knees as woes grow 

Seasonally adjusted mining production increased by 0.6% in the second quarter of 2017 compared with the first quarter of 2017.

According to Elize Kruger, analyst at NKC African Economics, the mining sector managed to increase by 2.6% in the second quarter of 2017 on a quarter-on-quarter seasonally adjusted annualised basis, compared to a revised growth rate of 13.3% in the first quarter, despite a disappointing end to the second quarter.

"Mining production is up 5.1% year-on-year in the first half of 2017, which makes it one of the star performers in an otherwise dismal local economic environment. The mining sector’s improved performance is welcome news, given the importance of the sector in South Africa’s economy and in light of the dismal prospects for the rest of the economy."

Investec economist Kamilla Kaplan said as the quarterly seasonally adjusted mining production measure is used to calculate the sector’s contribution to GDP, it suggests that its contribution to the second quarter of this year was positive. 

She highlighted that the magnitude of the rebound in commodity prices seen in the second half of 2016 has faded somewhat, while cost pressures for mining producers remain elevated. This will likely temper the extent of recovery in the mining sector production this year from a 4.3% decline in 2016.

"The challenging broader economic growth backdrop coupled with persistent regulatory and policy uncertainty, linked to the revised Mining Charter, will continue to dampen business sentiment in the mining industry and so both fixed capital expenditure and employment growth in the sector.

Nedbank Group's economic unit said in the short term mining activity will be helped by the low base in 2016, but the global environment for mining remains fragile and uncertain due to cost pressures against the backdrop of generally "flat" mineral prices. "On the domestic policy front, the contested revised Mining Charter will hurt investment spending."

Meanwhile mineral sales in May dropped by 5.9% year-on-year in May 2017, according to the numbers released by Statistics South Africa. 

PGM sales decreased by 28.3%, gold by 16.8% and iron ore by 9.5%. Coal sales increased by 14.9% and chromium ore by 54.5%.

Seasonally adjusted mineral sales at current prices increased by 1.4% in May 2017 compared with April 2017. This followed month-on-month changes of -2.1% in April 2017 and 2.1% in March 2017.

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