Overview of the South African Mining Industry CT Mining Indaba February 2015
www.chamberofmines.org.za
2
Presentation outline
Click to edit Master title style
SA mining industry
Snapshot of South Africa mining industry
Slide no
2
Gold mining industry
25
Coal mining industry
37
PGM mining industry
47
www.chamberofmines.org.za Putting South Africa First Putting South Africa First
Location of mineral deposits in relation to power stations and railway lines
3
Click to edit Master title style
Source: SA Chamber of mines, Bloomberg
Putting South Africa First Putting South Africa First
Globally mining sector struggling, JSE mining also weak
4
Click to edit Master title style
3.0
• Click to add text 2.5
S&P
Rebased to 1 in 2008
2.0 UK Mining 1.5 JSE Mining
FTSE JSE Platinum Index
1.0
FTSE JSE Gold Index
0.5
Source: SA Chamber of mines, SBG Securities, Bloomberg
Nov 14
Aug 14
May 14
Feb 14
Nov 13
Aug 13
May 13
Feb 13
Nov 12
Aug 12
May 12
Feb 12
Nov 11
Aug 11
May 11
Feb 11
Nov 10
Aug 10
May 10
Feb 10
Nov 09
Aug 09
May 09
Feb 09
Nov 08
0.0
Putting South Africa First Putting South Africa First
5
Rand weakness, has helped to off-set lower commodity prices
Click to edit Master title style
1.8
1.4
Rand Gold/oz Rand PGM/oz
1.2
Rand Oil/bbl 1.0 Rand Iron ore/t 0.8
Rand Mn Ore/mtu
0.6
Source: SA Chamber of mines, SBG Securities, Bloomberg
Dec 14
Jun 14
Dec 13
Jun 13
Dec 12
Jun 12
Dec 11
0.4
Jun 11
Rand commodity prices rebased to 1 at 2011
1.6
Putting South Africa First Putting South Africa First
6
Rand off-set some USD commodity price losses 2014
Click to edit Master title style Units
Spot (02Jan2015)
Spot % 2014 ave chng (YoY)
Rand Gold
R/oz
14 201
13 734
1.3
Rand PGM
R/oz
12 821
12 866
0.8
Rand Oil
R/bbl
632
1 076
-47.5
Rand Iron ore
R/t
779
1 031
-44.1
Rand Thermal coal
R/t
739
790
-21.4
Rand FerroChrome
R/lb
11.9
11.4
3.0
Rand/USD
R/USD
11.7
10.8
5.5
Gold
$/oz
1 210
1 268
-4.5
PGM
$/oz
1 093
1 190
-4.9
Iron Ore
$/t
66.4
95.5
-47.0
Thermal Coal
$/t
63
70
-18.0
Oil
$/bbl
54
100
-49.7
Copper
$/t
6 214
6 867
-13.6
Aluminium
$/t
1 787
1 865
6.6
Source: SA Chamber of mines, SBG Securities, Bloomberg
Ave 2014 vs 2013 % chg
- 40
- 30
- 20
- 10
-
10
20
2
9 1
- 21 -4 17
10
-7 -1 - 28 - 15 -8
-5 3
Putting South Africa First Putting South Africa First
7
Relative commodity demand growth vs global GDP
Click to edit Master title style
Commodity consumption and Global GDP %
Forecast
5,5
Global GDP
5,0
1,45
Nickel
1,40
4,5
1,35
Iron Ore
4,0 3,5
1,30 1,25
3,0
Copper
1,20
2,5
1,15
2,0
1,10
1,5
1,05
1,0
Platinum
1,00
0,5
0,95
0,0
0,90
-0,5 -1,0
2007
2008
2009
2010
2011
Annual Global GDP (LH Axis)
Pt Demand Ni Consumption Source: COM/AAP, IMF, Aaplc Commodity Research
2012
2013
2014
Cu Consumption Iron Ore Consumption
2015 0,85 0,80
7
Putting South Africa First Putting South Africa First
SA mining contribution on upper end compared to global peers
8
Click to edit Master title style
Low and middle income nations globally
South Africa FDI : 15 -25%
Exports: 30 – 35%
Government revenue: 6-8%
GDP: 8%
Employment: 8-15%
Putting South Africa First Putting South Africa First
Direct mining Contribution to GDP at 8%, indirect contribution additional average of 10%
9
Click to edit Master title style
3500000
12.0
3000000
R Millions
2500000
8.0
2000000 6.0 1500000 4.0
1000000
Mining as a % to GDP
10.0
2.0
500000 0
0.0 2005
2006
2007
2008
GDP at market prices
Source: SA Chamber of mines, StatsSA
2009
2010
2011
2012
2013
Mining contribution to GDP
Putting South Africa First Putting South Africa First
10
South African Mining Value Add to Mining GDP
Click to edit Master title style 250000
35.0
245000 30.0
25.0
Mining GDP
235000 230000
20.0
225000 15.0
220000 215000
10.0
Mining GDP components
240000
210000 5.0 205000 200000
0.0 2005
2006
2007
2008
2009
2010
2011
2012
2013
Mining contribution to GDP
Coal
Gold
PGM
Other metal Ores
Other Mining and Quarrying
Source: SA Chamber of mines, StatsSA
Putting South Africa First Putting South Africa First
11
SA Mining at 15 % of total SA Foreign Direct Investment 30%
Click to edit Master title style
Mining share of total FDI
25%
20%
15%
10%
5%
0% 2003
2004
2005
Source: SA Chamber of mines, SARB
2006
2007
2008
2009
2010
2011
2012
2013
Putting South Africa First Putting South Africa First
12
SA mining industry Income and Expenditure
Click to edit Master title style 50.0
Percentage Change
40.0 30.0 20.0 10.0 0.0 -10.0 -20.0 -30.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 mining industry income % change
Source: SA Chamber of mines, StatsSA
mining industry expense % change
Putting South Africa First Putting South Africa First
SA Mining Industry capital expenditure in relation to cash flow remains high
13
70 000
160%
60 000
140% 120%
R Million
50 000
100%
40 000
80% 30 000
60%
20 000
40%
10 000
20%
0
capex as a % of FCF after tax
Click to edit Master title style
0% 2007
2008
2009
2010
Mining capex
2011
2012
2013
2014E
Capex/FCF (after tax)
Source: SA Chamber of mines, Stats SA Putting South Africa First Putting South Africa First
14
SA Mineral Exports at 30% of Merchandise Exports
Click to edit Master title style
1000000
40.0
900000 800000
30.0 700000 25.0
R'millions
600000 500000
20.0
400000
15.0
300000 10.0 200000
Mineral export as a% of merchandise exports
35.0
5.0
100000 0
0.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total SA Merchandise Exports
Source: SA Chamber of mines, StatsSA
Primary mineral exports as % of total SA merchandise exports
Putting South Africa First Putting South Africa First
15
SA Mineral sales and exports per commodity 2013
Click to edit Master title style Contribution Contribution Local Export sales Total sales Export vs Sales (Rm)
(Rm)
(Rm)
total (%)
to total sales (%)
to export sales (%)
Gold
3 313
53 846
57 159
94
15
19
PGM
8 886
75 349
84 235
89
22
27
Iron Ore
5 782
57 361
63 143
91
16
21
Coal
49 569
51 813
101 383
51
26
19
Diamonds
7 544
4 792
12 336
39
3
2
Manganese
1 506
12 910
14 416
90
4
5
Chrome
5 871
5 892
11 763
50
3
2
Other
22 928
17 580
40 508
43
11
6
Total
105 399
279 543
384 942
73
100
100
Source: SA Chamber of mines, DMR, SAIMM
Putting South Africa First Putting South Africa First
16
Direct employment in SA mining sector 509 000, indirect employment additional average of 800 000
Click to edit Master title style
900 Other
800
Aggregate 700
Manganese
Labour (Thousands)
600
Chrome
500
Copper
400
Diamonds
300
Iron Ore Coal
200
PGM's
100
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
Gold
Source: Chamber of Mines, DMR Putting South Africa First Putting South Africa First
Mining input costs are increasing at a very rapid pace Click to edit Master title style
17
A large proportion of the input costs are driven by “administered prices” such as electricity & water or by international pricing (steel and diesel). Between 20072013:
Electricity prices to the mining sector has risen from 18 c/kWh in 2007 to 61 c/kWh in 2012. This is a significant 238% increase.
Diesel costs have risen by an average of 15.7% per annum on the back of higher international oil prices (up 69.3% overall).
Reinforcing steel prices have increased by 15.3% per annum in the same period (57.5% in total).
Average remuneration paid per worker employed in the RSA mining sector grew by 12% per annum between 2007 and 2012, nearly 5 percentage points higher than producer inflation. Source: Chamber of Mines, DMR, StatsSA Putting South Africa First Putting South Africa First
18
Inflation input costs has been high
Click to edit Master title style Cost inflation affecting the mining sector (Annual average increase 2007 to 2012) Electricity prices for mining
26
Pgm mining cash costs per 4e ounce
18.1
Diesel
15.7
Reinforcing steel
15.3
Labour costs
12
Structural steel
11.2
Cement
9.1
Total producer price inflation rate
7.2
Mining machinary
4.4 0
Source: Stats SA, CoM
5
10
15
20
25
30 18
Putting South Africa First Putting South Africa First
19
SA mining remuneration and employment increased since 2004
Click to edit Master title style
540000
250000
520000 200000
150000
480000
Rand
Employment
500000
460000
100000
440000 50000 420000 400000
0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Mining industry direct employment
Source: SA Chamber of mines, StatsSA
Average annual remuneration per mineworker
Putting South Africa First Putting South Africa First
Productivity has declined significantly over the past decade
20
Click to edit Master title style
225
200 175 150 125 100 75
PGM
Diamonds
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
50
Gold
Source: Chamber of Mines, DMR (based indexed to 1990) Putting South Africa First Putting South Africa First
21
Mining Phakisa good opportunity to work together with SA government and key stakeholders to ensure Click to edit Master title style growth and transformation Mining Phakisa and mini-labs planned for 2015 a focus for all players to work together and present an action plan for growth and transformation which encourages investment
In August 2013, the stakeholders developed a “Framework Agreement for a Sustainable Mining Industry” under the leadership of the country’s Deputy-President. This is now being driven by His Excellency President Zuma. The focus of the DP’s Mining dialogue process is to: – Stabilise the industrial relations environment. Promote law and order. Investigate the key negative issues in the migrant labour system (and to propose solutions) – Get the mining industry back on track from an investment and growth perspective.
MIGDETT tripartite revived, with focus on Coal and Mining Charter process The mining industry has made significant strides in achieving the transformation targets set by government. Mining Charter processes in 2015 critical for ensuring continued transformation while growing the sector.
Finality of MPRDA amendment bill remains focus - Legislation, regulation and policies should ensure an appropriate cost-benefit assessment and that it does not compromise on ensuring that value is unlocked Putting South Africa First Putting South Africa First
22
SA mining industry is at a critical cross-roads
Click to edit Master title style
The industry’s safety performance has improved considerably and is a very big focal point.
Commodity prices at low levels, implying flat to declining revenue growth amidst struggling volume growth.
Mining investment and capital expenditure impacted by SA credit rating downgrades and global capital constraints.
Input costs are rising too quickly (particularly driven by administered prices and falling production).
Productivity has been falling (declining grades, less time on the face, workplace stoppages, illegal mining).Technological progress and modernisation required for competitiveness.
The 5 month platinum strike cost the country about R50 billion (in lost sales and exports, lost wages, lost capex, lost incomes to suppliers, etc).
Section 54 stoppages were managed more effectively in 2013 but have emerged in 2014 as a challenge.
Electricity supply disruptions may curtail mining activity and growth. Water management remains key focus. Putting South Africa First Putting South Africa First
23
Vision for SA mining industry
Click to edit Master titleInvestors style
Government and trade unions: proud of and fully supportive of the mining industry and acknowledge industry as important for the country
Constructive Partnerships built on TRUST
Workforce, transformed, productive, fair wages and non-discriminatory, safe & healthy workplaces
Key exporter Key earner of foreign exchange Key taxpayer Creator of decent jobs Developer of skills Key contributor to economy
regard industry as a good investment destination
Management not only focus on profits, but provide decent jobs, play positive role in mining communities and sensitive to environment
Putting South Africa First Putting South Africa First
Mining matters for the growth, development and transformation of Click to edit Master title style South Africa
24
Putting South Africa First Putting South Africa First
25
Presentation outline
Click to edit Master title style
SA mining industry
Snapshot of South Africa mining industry
Slide no
2
Gold mining industry
25
Coal mining industry
37
PGM mining industry
47
www.chamberofmines.org.za Putting South Africa First Putting South Africa First
Since end of bull market in 2011, US$ prices fell and Rand prices have been range bound
26
Click to edit Master title style
2000
$/ounce gold price
18 000
R/ounce gold price
1800
16 000
1600
14 000
1400
$/ounce
1200 10 000
1000
Average Rand gold price since Sept 2011 R13 600 ounce
800
8 000
Rand/ounce
12 000
6 000
600
Dollar gold prices has declined by 32%
400
4 000 2 000
200
Source: SA Chamber of mines, Bloomberg
2015
2014
2013
2012
2011
-
2010
0
Putting South Africa First Putting South Africa First
27
Gold and Mining equities have underperformed equity markets
Click to edit Master title style
Equity indices returns of JSE and international stock exchanges (Annualised returns %) 1 year
5 years
10 years
20 15
Annualised returns
10
12.5
14.7
12.2
7.6
7.7
7.5
8.9
4.1
5
3.3
0 -5
-3.1
-4.1
-5.9
-10
-10.7
-15
-13.8
-20 All Share Index (Rands)
-17.7 SA Mining (Rands)
SA Gold Mining (Rands)
-15.2
-17.0 -18.3 Global gold mining Global equities ($) Global mining ($) ($)
Source: SA Chamber of mines, Inet, Bloomberg, Momentum Investment Managers
Putting South Africa First Putting South Africa First
China is the world’s largest gold producer, followed by Australia, Russia,Master Peru & South ClickUSA, to edit titleAfrica style
28
Equity indices returns of JSE and international stock exchanges (Annualised returns %) 3500
Uzbekistan Russia
3000 2500
Papua New Guinea Ghana Indonesia
tons
2000
1500
China Peru Australia
1000 500
Brazil Canada USA
0
Other
Putting South Africa First Putting South Africa First
29
South Africa’s gold production has declined the fastest in recent years
Click to edit Master title style Annual rate of growth (decline) in gold production from key countries, source: GFMS
China Canada
7.6 7.3
-0.1 6.6 6.6 6.2
Brazil Ghana
5.0
Russia
5.7
3.3
Indonesia
5.2
0.5
Australia
4.6
-0.3
total (mine) Uzbekistan
4.5
1.5 1.4
-0.2 0.2
Scrap USA
-2.0 1.4-
Peru
1.8-
Papua New Guinea South Africa
4.1
0.4-
0.9 last 5-years
-0.7
Last Decade
6.4-
-8.2 -10
8.5
-8
-6
-4
-2
0
2
4
6
8
10
% average annual growth rate Putting South Africa First Putting South Africa First
30
South Africa’s production market share has fallen from 13% in 2004 to 5.3% in 2013
Click to edit Master title style
SA Gold production
15
SA vs Global production
Tonnes
300
10
200
5
100 0
% global market share
400
0 2004
2005
2006
Source: SA Chamber of mines, SAIMM, StatsSA
2007
2008
2009
2010
2011
2012
2013
Putting South Africa First Putting South Africa First
Gold mineral sales contribution to SA total mineral sales has fallen from 30% in 2000 to 12% in 2014
31
Click to edit Master title style
SA gold mineral sales vs total SA mineral sales
70%
8
80% 70%
7
60%
6
50%
5
30%
4
40% 30%
3
2013
2011
2010
2008
2006
2005
2003
2002
2000
1999
1997
1995
1994
1992
1991
1989
0%
1987
0
1986
10%
1984
1
1983
12%20%
1981
2
1980
Monthly Gold Mineral sales R billion
Gold vs Total SA mineral sales - rhs
Gold % of total SA mineral sales
Gold mineral sales (R bn) lhs
9
Source: SA Chamber of mines, SAIMM, StatsSA Putting South Africa First Putting South Africa First
32
Profitability and cash flow in 2014 remained weak
Click to edit Master title style
Profitability still low and declining (%)
34.0
EBITDA margin 29.0
24.9 12.5
11.7
1.7
1H2012
FCF margin
2H2012
21.6
5.4
6.3
-9.2 1H2013 2H2013
1H2014
Source: Company information, Chamber of mines analysis Putting South Africa First Putting South Africa First
33
Capital spend resilient despite challenges
Click to edit Master title style SA gold mining sector capital expenditure
SA gold mining sector capital expenditure* remains strong
R12bn capital expenditure in FY2013 Average contribution to SA mining capital
in relation to sales is above SA and global averages
21% capex/sales ratio for the SA gold mining sector (FY2013) vs 10%, 19% for the SA and Global mining sectors respectively
of 20%
24%
16%
20%
15% 10%
5% 0% CY12
CY13
SA gold sector
25%
23%
1HCY14
Capital expenditure versus Revenue sales: SA gold sector vs SA and Global mining sector 30%
Capex to Sales
16 14 12 10 8 6 4 2 0
SA gold sector vs Total SA mining capex
R billion
SA Gold Mining sector capital spend in relation to total SA Mining sector
25%
SA mining sector
Global mining industry
25% 21%
20%
15%
15% 10%
5% 0%
CY12
CY13
1HCY14
Source for all graphs: Stats SA, SARB, Chamber of Mines analysis; * Includes maintenance and expansionary capex Putting South Africa First Putting South Africa First
Gold mining remains an important part of the SA economy
34
Click to edit Master title style
In 2013, the RSA gold mining sector:
was the third largest component of the South African mining sector on the basis of its contribution to GDP;
produced 167 tons of gold, valued at R64 billion; employed 131 591 employees and paid them R24 billion in salaries and wages;
was the second largest mineral exporter at R64 billion (behind platinum group metals);
was a major contributor to transformation through the Mining Charter and to community development through SLP’s;
paid R0.9 billion in corporate tax, a significant decline compared to previous years due to declining profitability; and
spent R11.7 billion in capex. Source: SA Chamber of Mines, StatsSA, SARB, DMR Putting South Africa First Putting South Africa First
35
Gold mining’s economic contribution remains NB
Click to edit Master title style 2007
Gold nominal GDP
R‘billion
Gold % of total GDP
2008
2009
2010
2011
2012
2013
30.6
31.8
31.9
36.4
44.2
43.8
52.6
%
1.6
1.5
1.4
1.5
1.6
1.5
1.7
GDP growth rate (gold) real
%
-7,1
-15,7
-7,0
-4,4
-4,5
-13,9
3,0
Gold Contribution to GDP + multipliers & induced effect
%
3.0
2.8
2.7
2.7
3.1
2.8
3,2
Gold Share of mining GDP
%
19.5
16.2
16.2
16.0
16.1
16.3
18.5
Taxes paid (CoM members) Dividends paid (CoM members)
R‘billion
1,0
3, 7
1,5
0,3
1, 8
2,1
0.9
R‘billion
0,7
0,4
0,5
0,6
0,1
0,1
0,2
Source: SA Chamber of Mines, StatsSA, SARB, DMR Putting South Africa First Putting South Africa First
36
Employment and wages
Click to edit Master title style 2007
Employment in Gold Mining
No.
Wages paid in Gold mines
R‘billion per annum
Average annual earnings per worker on gold mines
R per annum
2008
2009
2010
2011
2012
2013
169 057 166 063 159 925 157 019 144 799 142 201 131 591
14, 7
87 009
14,5
17,4
19,9
20,8
22,2
23,9
87 355 108 621 126 594 143 929 156 387 181 661
Source: Chamber of Mines, DMR Putting South Africa First Putting South Africa First
37
Presentation outline
Click to edit Master title style
SA mining industry
Snapshot of South Africa mining industry
Slide no
2
Gold mining industry
25
Coal mining industry
37
PGM mining industry
47
www.chamberofmines.org.za Putting South Africa First Putting South Africa First
Since end of bull market in 2011, US$ prices fell and Rand prices have been in decline
38
Click to edit Master title style $/tonne Coal price
1 100
R/tonne Coal price
140
Average Rand Coal price currently at R700/t, same level as 5 years ago in 2010
130
$/tonne
120
1 000
900
110
800
100
700
Rand/tonne
150
90
600 80
Source: SA Chamber of mines, Bloomberg
500
2015
2014
400
2013
2010
60
2012
70
2011
Dollar Coal prices has declined by 35%, since 2010 (-55%, 2012 peak)
Putting South Africa First Putting South Africa First
39
Supply growth since 2008 has increased significantly
Click to edit Master title style Supply of thermal coal globally (export seabourne market) Export seabourne million tonnes thermal coal
2014 market share % Other 1%
China 1% USA 4% Russia 4% South Africa 8% Colombia 10% Australia 22% Indonesia 49%
2008
2009
2010
Source: SA Chamber of mines, Industry research
2011
2012
2013
2014 Putting South Africa First Putting South Africa First
40
South Africa’s thermal coal exports have only grown 10mt (