AMN - Restructure or risk going under – comment by Yolanda Torrisi

South African mining companies must step up restructuring initiatives if they are to survive the crisis in the industry. With deposits becoming much more difficult, and costly, to mine, uncertain political and regulatory environments, labour issues and a strengthening of the rand against the US dollar, the mining industry is in a dire condition and miners must change.

The situation is the same across the board in South Africa but has hit the country's traditionally strong gold and PGM mines hardest, and has almost completely dried up internal and external investment in the sector.

Moody's Investment Service said there appeared little option for most miners than to restructure operations or shutter them and a number of miners have started this process, which includes limiting expenditure at gold and PGM operations to sustaining capital.

In discussing a recent report about the state of the mining industry, Moody's vice president Douglas Rowlings said South Africa’s appeal to mining companies had continued to decline. "Without the substantial expansionary investment required to reconfigure loss-making mining operations and make them profitable, mines will either be restructured or closed.”

His statements follow an address by Chamber of Mines CEO Roger Baxter at the Africa Down Under mining conference in Perth, Australia, who stated that governance and policy challenges had eroded business and investor confidence.

“Policy and regulatory uncertainty have frozen new investment in the sector. It is extremely difficult to get any company investment committee to approve any new greenfields project in South Africa today,” Roger Baxter said.

Douglas Rowlings said restructuring initiatives could protect the credit quality of gold and PGM miners by returning the operations to a state in which they were free cash-flow generating. "Improved free cash-flow generation and accumulating offshore cash balances will be channelled towards expansion opportunities outside South Africa, reducing their operating risk profiles. This will shore up the production profiles of gold miners following a cycle of underinvestment in reserves development since 2013.”

These trends were evident in the first-half 2017 operating performances of AngloGold Ashanti, Gold Fields and Sibanye Gold, according to Moody's.

Restructuring the industry will be a painful process and up to 20,000 jobs are on the line, adding to the 70,000 jobs lost in the industry in the past five years but unless it is done there could be no mining industry in South Africa within 10 years.

Yolanda Torrisi is Chairperson of The African Mining Network and comments on African mining issues and the growing global interest in the continent. Contact:yolanda@yolandatorrisi.com