South Africa's mining sector will face persistent headwinds due to labour unrest, mineral price weaknes s, further divestments and retrenchment.
Latest Updates And Structural Trends
Coal: As Anglo American is keen to offload the majority of its South-African assets, this could result in a significant decline in the country's coal production growth. As such, we revised down our 2016 and 2017 coal production forecast from 1.3% to -4.0% and 1.0% to -1.5%, respectively. Despite this, South Africa, which is Sub-Saharan Africa (SSA)'s largest coal producer, with a 94.6% share of regional coal production in 2015, will remain the region's largest coal producer. We forecast South Africa's coal production to grow from 252million tonnes (mnt) in 2016 to 264mnt in 2020. This would represent average annual growth of 0.1% during 2016-2020, slightly higher than the average 0.9% decline during 2010-2014.
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Gold: Both low gold prices and ongoing wage negotiations will continue to hurt the sector's growth output. Beyond 2016, we forecast output to average annual growth of 0.2% during 2016-2020, with output totalling 4.53moz by 2020.
Iron Ore: South Africa's iron ore production growth will slow as weak iron ore prices will force miners to cut capital expenditure (capex) and halt new projects from coming online. Further, as Anglo American is keen to offload the majority of its South-African assets, including Kumba Iron Ore, this could result in a significant decline in the country's iron ore production growth. As such, we revised down our production growth forecast from -1.5% to -3.0% and from -1.5% to -2.5% for 2016 and 2017, respectively.
Platinum: In 2015, South Africa's platinum output grew by 4.0% on the back of a stronger-than-expected recovery in production of the sector's top three producers, namely Lonmin, Anglo American and Impala Platinium. The strong recovery this is primarily due to production recovering following a 16.0% decline in 2014, resulting from a five-month strike at Lonmin's Marikana mine. Despite this, country's platinum production will decline from 3.8moz in 2016 to 3.5moz in 2020. This would represent an average annual contraction of 2.7% during 2016-2020, following an average annual decline of 4.8% during 2011-2015.
Palladium: We have revised up our palladium production forecast on the back of a stronger than expected production recovery in 2015. In 2015, the country's output grew by 10.9% annually, with production growing from 2.12million ounces in 2014 to 2.35moz in 2015. Despite this upwards revision, production growth will slow significantly on the back of low prices, rising operational costs, increasing government intervention and continued labour unrest.
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Market Report, "South Africa Mining Report Q2 2016", published
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