SA’s mining output plunged 15,9% in the year to September — the sharpest fall in 17 months — suggesting that the sector will be slow to benefit from soaring mineral prices.
Gold rallied briefly to a new record peak at 1122,85/oz yesterday, while platinum, palladium and rhodium all hit their highest levels in a year on a wave of speculative buying.
But SA’s gold production fell 9,3% in volume terms compared with September last year, official data showed yesterday.
In the first nine months of this year, total mining production fell 7,8%, compared with 6,4% in the corresponding period last year.
“The outlook remains uncertain and largely dependent on the pace and trend of the global economic recovery,” Investec said in a research note. “We only expect a recovery in the mining sector in the latter part of the first half of next year, gaining momentum in 2011.”
The contribution of mining to the economy has steadily declined in the past few years, now making up 4,7% of total economic output compared with 6% late in 2005.
Mineral products account for about half of SA’s exports, while mining companies account for more than a third of the capital of the JSE.
The sector also provides more than 500000 jobs.
That means mining is crucial to SA’s economy, which needs large foreign capital inflows to finance investment.
But it has been in decline since 2006, pressured by infrastructure constraints, power shortages and gains in the rand — which has appreciated by about 28% against the dollar this year. “Despite the rise in the dollar price of commodities, the rand’s strength since the beginning of the year has lowered the rand price of commodities,” Investec economist Annabel Bishop said.
Continuing, substantial rand strength would curb the expected recovery in SA’s mining, she warned. Plans for hefty electricity price hikes in the next three years would add to the sector’s woes, and could lead to the closure of marginal mines.
Mining output fell 8,4% in the year to August. In the second quarter, it rose 5,5% compared with the first quarter, when it shrank by a record 32,8%. Bishop believes that mining production contracted 7% in the third quarter of this year, seasonally adjusted and annualised.
The main causes of the plunge in output in September were strikes and mine accidents, which led to a 20% fall in the production of platinum group metals compared with output in the previous month.
In the year to September, output of platinum, palladium, rhodium and iridium slumped nearly 40%.
SA is the world’s largest producer of platinum, which is used in jewellery and vehicle exhausts.
But it now ranks only number three in terms of gold production, after China and the US.
