“In addition, local cost pressures and international demand weaknesses resulted in shrinking margins and wide ranging impairment provisions,” read the PwC’s sixth edition of SA Mine report.
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“The significant decrease in profitability of the industry fuelled the contraction trend in market capitalisation of South African mining stocks.”
The report said, this decrease is in line with international mining counterparts also struggling with higher costs and lower prices.
PwC added that a weakening rand tended to shield the South African mining industry from the decline with rand prices remaining relatively flat.
Hein Boegman, PwC Mining African Leader, said the mining industry still adds significant value to the South African economy with regards to GDP contribution, employment, tax and export revenues.
“Leadership will be required from all stakeholders to ensure long-term optimisation of the industry as opposed to the threat of instant gratification claims by stakeholders,” said Boegman.
Dion Shango, PwC Energy and Mining Assurance Partner added that financial performance for the sector was downcast.
“As expected, financial performance for the South African mining industry in 2014 was downcast. However, not all is bad news for the industry. Revenue increased by 36 billion rand on last year, with the top 10 companies accounting for 81 per cent (R29 billion) of the revenue increase,” said Shango.
“It is imperative that mining companies rethink risks and the risk landscape in which they operate.”
Shango urged companies to integrate risk and performance management.
“Mining companies now need to integrate risk and performance management and they need to evolve risk management to be more predictive in order to anticipate and plan for potential negative events.”