South Africa’s mining industry experienced a challenging year, with commodity prices, barring that of gold, under pressure, leading to a significant drop in both revenue and profits. It is, therefore, important for mining companies to continue to build resilience through the balance sheet to mitigate this, PwC’s ‘SA Mine Report 2024’ shows.

The report shows that the South African mining industry’s revenues fell by 10% year-on-year to R582-billion.

The country’s mining industry was a mixed bag over the past year, with some commodities benefitting from rising prices, increased demand and favourable exchange rates, while others suffered from declining markets, oversupply and logistics constraints.

Mining industry headlines centred on retrenchments, falling stock prices, restructuring for efficiency and efforts to become more fit for purpose.

“These companies have had to look beyond just mining to survive the downturn. This past year, we observed that what was front of mind for many companies was safeguarding their balance sheets to survive the down cycle and to position them for opportunistic prospects,” says PwC Africa Energy, Utilities and Resources leader Andries Rossouw.

He says the general commodity price downturn has reiterated the importance of having a strong balance sheet, as this will assist companies to manage the current challenging operating conditions while sustaining investment and growth.

“Unlike the previous downcycle, conservative capital allocation and rapid reaction on lower prices meant that balance sheets are still in relatively good shape despite a slight weakening in the past year,” PwC South Africa Mining Assurance partner Vuyiswa Khutlang explains.

“A strong balance sheet provides options in sourcing capital, which is critical for a cyclical industry. There are numerous capital sourcing options, but one of the trends we have noted is that mining companies are increasingly using green and sustainability loans to support operations which align with their own and global sustainability goals,” she adds.

The report shows that, overall, South African companies balance sheets are stable, but this has to be monitored.

Overall, South African mining industry gross debt levels increased, while earnings before interest, taxes, depreciation and amortisation decreased, resulting in a higher gross leverage ratio, mainly owing to pressures in the platinum group metals sector.

Capital allocation discipline in the boom years and an expeditated cost-cutting response will support the industry despite the lower price levels, Rossouw says, adding that despite challenges, the industry has implemented steps to manage the current low prices.

The report examined the balance sheets of large listed South African mining businesses to identify what tactics they have used, or can use, to build resilience.

It shows that resilient balance sheets has a fit-for-purpose capital structure that aligns with the business’ strategic needs and direction.

When companies are not proactive in managing their balance sheets, deteriorating or unhealthy balance sheets are often not diagnosed early enough, the report reveals.

“These situations often resulted in short-term actions being undertaken to rectify the situation, including taking on more funding and selling assets at discounted value,” Khutlang says.

Meanwhile, the current global pursuit of a just energy transition, coupled with the need for efficiencies, diversification and strategic alignment, has resulted in the sector experiencing a hive of merger and acquisition (M&A) activity in the past year.

There were 32 deals undertaken to the value of about $10.09-million in the country’s mining sector in the year ended June 30.

“The quest for copper and other strategic minerals, broader consolidation and operational synergies, and diversification and strategic realignment to create shareholder value have been the main themes emerging from M&A transactions,” Rossouw informs.

“The increase in deal values aligns with global trends, and this is being driven by the quest for critical minerals. Globally, the deal-critical minerals of focus were gold and copper – the prices of which performed exceptionally in the current year,” Khutlang says.

“For South African companies, it was no different. Copper and other strategic minerals have become increasingly sought-after as the world transitions to a low-carbon economy and the demand for clean energy solutions surges.

“Gold, on the other hand, continues to demonstrate its store of value in times of risk,” she adds.

Rossouw also emphasises the importance of mining to the economy, as an employer and provider of services to communities in which they operate.

“It is therefore crucial to start thinking and planning for sustainable ecosystems once operations close. It is also imperative that, where possible, mining companies use available technologies to improve their safety, productivity and efficiency to extend the life of their mines,” he stresses.

Rossouw says that while some South African mining companies are incorporating emerging sustainability practices, this can be bolstered by recognising the value in diversified business models, unlocking the potential of scale and reinventions, and leveraging collaboration to drive progress, to ensure that mining is sustainable and continues to add value beyond 2050.