MINERAL production costs declined in 2016 due to cost-cutting measures that were implemented by the mining sector.
BY BUSINESS REPORTER
In a State of the Mining Sector Report released on Monday, the Chamber of Mines said the sector had negotiated price reductions with suppliers, labour rationalisation (multi-skilling), retrenchments and negotiated wage reductions.
“Most minerals registered declined in production costs in 2016, compared to 2015, with 95% of respondents having reduced their costs in 2016 through the following, among other measures: aggressive value chain optimisation to reduce excessive use of consumables and improved efficiencies,” the report said.
The mining sector is expected to prop up production in 2017, as 40% of the respondents were bullish that the sector will grow by at least 5% in 2016.
The report states that 40% of the respondents are bullish, such that the sector will grow by at least 5% in 2016, while 50% plan to grow output by between 1% and 4%. Ten percent of the respondents are planning to maintain their output, while 90% of the value of mineral output is accounted for by five key minerals in 2016.
The report said average capacity utilisation for the mining sector increased from 60% in 2015, to 64% in 2016. It said the platinum sector continues to operate at full capacity, while gold recorded a 2% increase to 79%, from 77% in 2015.
Declines in capacity utilisation levels were recorded in respect of coal (50% to 30%) and nickel (55% to 41%).
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The report said the low capacity utilisation was due to capital shortages as the major constraints undermining capacity utilisation, coupled with high cost structure and ageing equipment.
“Survey findings show that labour (30%), supplies (36%), power (16%) and statutory payments accounted for an average 95% of total costs in 2016,” the Chamber of Mines said.
Average profitability in the gold and nickel subsectors improved in 2016, compared to 2015, while that for platinum producers remained subdued. In 2016, total payments to government and government-related institutions (based on survey respondents) averaged around 13% of revenues and 16,9% of total costs.
Highest proportions were found in the gold sector, with 22% of revenue and 38% of costs, while the lowest were recorded in nickel and ferrochrome line (profitability).
The report states that the demand for electricity is anticipated to increase to 170 megawatts (MW) in 2017, if the industry secures additional funding for investments, while at current levels of capitalisation, demand will moderately rise from the current 130MW to 140MW.
“All respondents from the gold industry indicated that the current tariff applicable to gold of 12,8 cents/KWh is too high and should be reviewed downwards. Ninety percent of other mineral categories felt that the prevailing tariff should be reduced and aligned to regional benchmarks. Ten percent of respondents proposed a commodity price-linked electricity tariff,” the report showed.
Of the 60% respondents who reduced headcounts in 2016, 30% retrenched, while for the remainder, the reduction was on account of natural attrition and expiration of contracts.
The major reason for retrenchments was given as curtailing costs.
