It has been a difficult year for South Africa’s mining industry. Commodity prices, excluding gold, are under pressure, with both revenues and profits falling significantly. Headlines in the mining industry are dominated by job cuts, falling stock prices, restructuring for efficiency and efforts to become more fit for purpose. “These companies have had to look beyond mining to survive the downturn,” says Andries Rossoud, PwC Africa Energy, Utilities and Resources Leader. “Over the past year, we have seen that what many companies have in mind is protecting their balance sheets to weather the economic downturn and positioning themselves for an opportunistic outlook.”
The new PwC SA Mining Report 2024 takes a closer look at the challenges faced by mining companies over the past year, the surge in transactions seen across the sector and the survival mode adopted during these turbulent times.
Market performance, surge in M&A activity, industry trends
In today’s situation, a just energy transition is being pursued globally. This, combined with the need for efficiency, diversification and strategic alignment, has led to a surge in merger and acquisition (M&A) activity in the sector over the past year. “The exploration of copper and other strategic minerals, broader integration and synergies, and diversification and strategic realignment to create shareholder value are key themes emerging from M&A transactions,” Rossouw said. says.
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“The increase in transaction value is in line with global trends and is driven by the exploration of critical minerals,” said PwC South Africa Mining Assurance Partner Buiswa Kutran. “Globally, the minerals that have attracted significant attention for trading are gold and copper, whose prices have risen exceptionally this year. It has been no different for South African companies, as the world moves towards a low-carbon economy. As demand for clean energy solutions increases, copper and other strategic minerals are increasingly in demand, while gold continues to show that it stores value even in times of risk.”
Building resilience through your balance sheet
South Africa’s mining industry has not been spared recent instability, with many companies facing challenges. The general decline in commodity prices has re-emphasized the importance of having a strong balance sheet. As companies seek to navigate today’s challenging business conditions while sustaining investment and growth, balance sheets can be both a drag and a critical source of agility and strength.
“Unlike the previous downcycle, conservative capital allocation and quick reaction to price declines means our balance sheet remains in relatively good shape, even though it has deteriorated slightly over the past year.” he says. “Strong balance sheets provide options for raising capital, which is critical for circular industries. There are many financing options, but one trend we are noticing is that mining companies are increasing their We are increasingly using green and sustainability loans to support our operations in line with global sustainability goals.”
Our report examined the balance sheets of South Africa’s leading listed mining companies to uncover what tactics they are using, or could use, to build resilience. What became clear was that a resilient balance sheet had a fit-for-purpose capital structure that matched the strategic needs and direction of the business. If companies are not proactive in managing their balance sheets, deteriorating or unhealthy balance sheets are often not diagnosed early enough. “These situations often led to short-term actions being taken to correct the situation, such as raising more capital or selling assets at a discount.” Mr. Cutran explains.
“Mining is key to the economy. These companies play an important role in the communities in which they operate, not only as employers and drivers of the economy around them, but also through other services, such as clean water, that they provide to people. “community,” Rossow said. “It is therefore important that mining companies start thinking about and planning for a sustainable ecosystem once operations have finished, and where possible, mining companies can leverage available technology to improve safety, productivity and efficiency. It is also essential to improve and extend the life of the mine.”
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