Overview of the South African Mining Industry

Overview of the South African Mining Industry CT Mining Indaba February 2015 www.chamberofmines.org.za 2 Presentation outline Click to edit Maste...
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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

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Source: SA Chamber of mines, Bloomberg

Putting South Africa First Putting South Africa First

Globally mining sector struggling, JSE mining also weak

4

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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

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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

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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

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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

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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%

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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

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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

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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

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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

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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

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Productivity has declined significantly over the past decade

20

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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

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 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

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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

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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 (

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