Market research company Frost & Sullivan Africa consultant Yaa Agyare-Dwomoh tells Mining Weekly that even though Covid-19 has negatively affected the majority of industries in South Africa, the mining industry proved to be relatively resilient, with mining companies enjoying increased gains.

She points out that some of the increased gains can be attributed to the platinum group metals (PGMs) basket price, which continued to rise, despite setbacks during the pandemic.

“During the height of the pandemic, the worst-hit commodities for African mining jurisdictions included diamonds and PGMs,” she says, adding that South Africa was the exception.

Since June 2020, the local mining industry has been demonstrating its ability to strengthen the South African economy, evidenced by the 4% total revenue growth. The commodities driving the local growth were PGMs, gold and iron-ore.

Notably, the South African mining industry contributed 1.1% growth to the South African economy during the first quarter of 2021, continuing its rebound from the Covid-19 pandemic.

This translates into an annualised growth rate of 4.6%, whereby the mining industry grew by 18.1% and contributed 1.2% points to gross domestic product growth.

“The sharp increase in price of PGMs is owing to the pandemic’s affecting the supply and dynamics of PGMs,” she stresses.

Supply vs Demand

The demand for precious metals fell by about 7%, while supply declined by 20%; consequently, the tighter supply constraints caused PGMs prices to rise substantially.

Agyare-Dwomoh adds that 73% of the world’s PGMs are mined in South Africa’s underground mines, where Covid-19 health risks were – and remain – greater because of the confined spaces. Restrictions and measures to safeguard employees resulted in shift changes, which, in turn, affected production.

The PGMs sector was further impacted on by the sharp decline in demand from the automotive, chemicals, oil refining, and glass manufacturing sectors, which are the predominant end-user markets for PGMs.

The decline in supply, coupled with the safe haven status of PGMs, and recoveries in demand, helped PGM prices recover by the second quarter of 2020.

Agyare-Dwomoh suggests that the demand for PGMs is likely to increase in the medium term, with the automotive industry being the primary driver.

The automotive industry tends to follow a similar trend as the manufacturing industry and, as such, the resurgence of manufacturing activity in recent months has boosted industrial demand for platinum to levels before the pandemic and has positive connotations for automotive demand.

The demand for platinum in the automotive industry will remain on a medium to high trajectory in the medium term, she says.

Trends

Agyare-Dwomoh suggests that technology is required to help bolster the PGMs sector, including electrification, as well as increased digitalisation and automation technologies.

“By implementing these critical trends, the mining industry in South Africa and sub-Saharan Africa will continue to meet their environmental and sustainability goals while remaining globally competitive.”

Although there are general concerns that an increase in automation and technology will negatively impact on the workforce, she explains that the boost in productivity will increase profits and gains and, “typically, mines that are profitable look to expand, which favours increased employment”.

She suggests that the actual risk to employment is mines’ not incorporating new automation and technology trends.

Agyare-Dwomoh notes that government’s Covid-19 economic recovery plan was implemented to ensure that mining remains a top priority and included a segment on means of potentially increasing South Africa’s share of global exploration expenditure from 1% t o 3%.

She says a boost in investor confidence – simplifying mining regulations, and fast-tracking approvals to allow for mining exploration and environmental permits to be granted faster – will assist the industry in achieving the exploration spend goal, which will, in turn, drive economic activity.