“The industry was somewhat rescued by the weak rand,” PwC energy and mining assurance partner Dion Shango said on Tuesday.
This was viewed as only a temporary respite because it would lead to inflation and cost pressures.
The total revenue for the mining industry, as reported by Statistics SA was R351.3 billion, marginally increased from R345.4bn the previous year but down from R358.4bn in 2012.
Shango said coal accounted for the biggest chunk of this year’s revenue generation at 29 percent (R101.4bn), one percent up from last year (R96bn).
Gold production remained stable, but in terms of revenue decreased from 20 percent last year (R70bn) to 14 percent (R48.1bn). Gold was the smallest revenue contributor.
Platinum mining, which was rocked by a five-month strike earlier this year, had its lower production balanced by the weaker rand so that platinum group metals accounted for 23 percent of total mining revenue for 2014 (R81.9bn), up one percent from last year (R77bn).
“We see an environment where increasing cost base and shrinking margins… are threatening the future of mining companies in South Africa.”
The biggest operating costs were labour at 40 percent, mining supplies and consumables at 21 percent, and water and electricity utilities at 10 percent.
Mining companies were seen to be cutting back on exploration in an attempt to reduce costs. However, this could have long-term consequences for sustainability.
The mining companies surveyed said the greatest risks their businesses faced were from labour unrest, volatile prices, and foreign exchange rates.
Infrastructure access and capacity were also problems, including constraints on power, as well as the regulatory uncertainty the industry faced.
At the end of this year, mining companies would have had their compliance with the Mining Charter evaluated.
PwC assurance partner Andries Rossouw said businesses were uncertain what sanctions would be applied where their Mining Charter obligations had not been met.
As such, mining companies needed to integrate these risks and performance management.
Rossouw said there was a need to align productivity with wages at all levels.
In wage negotiations, however, “the p-word”, productivity, was often overlooked.
At supervisor level, training could substantially help to increase productivity “giving them a wider understanding of the impact of what they do underground and how it reflects on financials”.
Shango said that in terms of market capitalisation, the JSE Mining Index underperformed when compared to the JSE All Share Index.
When compared with global mining industries’ performance, however, there was an “almost perfect correlation”.
Looking forward, the industry – and South Africa as a whole – still faced the problems of unemployment, poverty and inequality and needed to address these.
While the industry remained in a fairly strong position financially, an increasing cost base would be likely to erode margins.
Companies needed to be cautious when implementing cutbacks, as these could compromise long-term sustainability.
The platinum industry, in particular, could look forward to increased productivity since the Association of Mineworkers and Construction Union strike was resolved, but the low platinum price was unsustainable.
Low iron ore and coal prices remained a concern as they showed a lag between supply and demand, Shango said.
The mining industry needed to find a balance between preserving funds and making strategic investments for their long-term future.