SA mining falling to 1961 levels of production

Statistics South Africa’s preliminary
report on mining production and
sales for February 2012 has
revealed numbers that are the
lowest since 1961.
Mike Schüssler, founder and
economist at Economists.co.za, has
provided a graph that shows the dip
in the latest mining production
numbers outstripping the lowest
levels seen during the 2008
financial crisis and Black Monday in 1987.
Alarm bells started sounding when Statistics SA said in its report that February
was the largest year on year decrease in its mining production index since March
2008.
"A year-on-year decrease of 14.5% was recorded in February 2012 compared
with a revised 4.9% decrease in January 2012. The 14.5% decrease is the largest
year-on-year decrease since March 2008 (-16.8%) and in both instances PGMs
[Platinum Group Metals] made the largest contribution, with -9.8 percentage
points in March 2008 and -12.6 percentage points in February 2012" said the
report.
The fall in platinum is mainly as a result of the debilitating strike at Impala
Platinum’s Rustenburg operations that saw the miner lose approximately
100,000 ounces over the last week in January and all of February before the
strike ended in the first week of March.
Kobus Nell, an analyst at Stanlib, said that with reference to the 47% year on
year drop in PGM production, the strike at Impala which was exacerbated by
section 54 safety stoppages across the industry could easily account for a 35%
drop in monthly platinum production alone.
Over and above this Nell confirmed that markets are slow. "There is no question
about it – the market is in surplus. There is enough metal around".
The outlook doesn’t seem to appear any better. Nell said "the numbers we see
going forward will be lower on a like for like basis from last year. It is from both
sides [seller and buyer]. Demand is slow and there has also been a slowdown in
capex spend".
PGMs were not the only sufferer – gold dropped 11.5%, copper by 15%, nickel
by 34%, diamonds by 9% and non-metallic minerals by 21%. Gold mines have
also been hit hard with safety stoppages and fatalities during the quarter.
Schüssler said that with mining being a lead industry in South Africa, along with
its close link to manufacturing, the numbers were not a welcome sight.
Volume of mining production (Base: 2005=100)
Source: Statistics SA
The fall of production during a time of high commodity prices is a bitter pill to
swallow. The report points to a healthy increase of 14% in the total value of
mineral sales between January 2011 and January 2012 and a whopping 23%
increase year on year for the quarter.
Mineral sales at current prices Source: Statistics
SA
Nedbank’s economic unit said that the mining sector output was likely to remain
weak over the next few months and that mining would probably make a negative
contribution to the GDP numbers for the first quarter.
"Mining production will remain under pressure in the short term. Weaker global
growth prospects will be a drag on activity. China’s import growth weakened
sharply in the first quarter, reflecting a slowdown in commodity imports and this
trend will impact domestic mining activity negatively. In addition, domestic
constraints, related to both infrastructure and the regulatory environment, will
also continue to hurt the sector" said Nedbank’s email.
With regards to the regulatory environment, until there is certainty surrounding
the ANC’s draft proposals from its State Intervention in the Minerals Sector
(SIMS) report on the issue of resource rent taxes and the like, investors are likely
to drag their feet on any further investment or expansion plans.
On a positive note there were year on year volume increases for February for
iron ore (+14%), chrome ore (+19%) and manganese (+29%). Coal volumes
were flat. Nell said that the improvement in some of these numbers could be
Transnet playing its part in improving its performance.

(source:) www.mineweb.com/mineweb/view/mineweb/en/page72068?oid=149255&sn=Detail

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