Modern Mining June 2023

COLUMNIST

Interest rates, untameable fires, and mining production collapse By Ross Harvey, director of research and programmes at Good Governance Africa (GGA) S outh African mining production is in the dol drums. No surprises there. Figures released by StatsSA in May show that year-on-year pro duction to March 2023 is down by 2.6%. The up every morning trying to make the country work. And, frustrating as things are, we are hardly Somalia. Her caution should be heeded. Nonetheless, the domestic factors driving down the value of the Rand do need to be recognised and analysed:

two most significant negative contributions were diamonds and platinum. Gold and manganese ore production were up, which is phenomenal given the loadshedding circumstances. Mineral sales, though, decreased by 15.1% year-on year to March 2023. Platinum group metals (PGMs) sales were down by 36.2%, in line with production slowdowns. Gold sales, despite production increases, were down by 20.9%, and coal declined by 23%. As expected, chro mium and manganese ore sales were up by 63% and 41% respectively, given that these are critical miner als for the global economic transition towards fewer carbon emissions. Mineral sales are still reasonably high in Rand terms, coming in at R70.9 billion for March 2023 compared to R83.5 billion the year prior. Rand weakness is a blessing and a curse in respect of commodities, though. The sales figures look alright because commodities are priced in US Dollars. So, when the Rand depreciates against the Dollar, the Rand sales figures hide the true picture of the fundamentals. And Rand depreciation in the current moment is almost entirely attributable to domestic policy blunders. Neal Froneman, Sibanye-Stillwater (a major global PGM player) CEO, has joined other big-business voices in South Africa lambasting the state: “My view now is that we are practically a failed state.” Tracey Davies, director of Just Share, has argued that the term should not be used so loosely, as it grabs head lines but does little to support those of us who get

First, some headline figures: The Economist Intelligence Unit (EIU) forecasts GDP growth for the South African economy at 0.5% for 2023. They are optimistic about the future, but it is hard to under stand why. Inflation is persisting at 7.2% at present, far above the midline of 4.5% that the Reserve Bank is trying to target (or at least get us below 6%). EIU projections place inflation at 5.2% for 2023, in line with global downturns in both oil and non-oil com modities. Economists really like to hedge their bets, and the EIU – in standard form – argues the following: “An uptick to 7% [now 7.2%!] in February highlights lingering pressures, although we expect the broad downward trend to continue, barring new shocks.” But new shocks keep coming. The loadshedding situation is far worse than the state appears willing to let on (a nice way of saying that someone is lying) despite electricity tariffs jumping by 18.6%. Yes, there is slackening aggregate demand, as many South Africans sink into deeper poverty, manufacturing capacity lies idle (causing further jobs and income losses), and the Reserve Bank relentlessly pumps up the interest rates. Second, Rand depreciation is driven by global market sentiment that is increasingly unfavourable towards South Africa. A Russian ship called Lady R docked (under cover of darkness – and not only because of loadshedding) in Simon’s Town naval base in early December 2022, shortly ahead of the ANC elective conference. The president has called for a commission of enquiry into the event, which strongly suggests that no one knows who is in charge. What we do know is that the Military Police oversaw the uploading of goods from Armscor trucks onto the Russian vessel, which had turned off all its identification equipment. Armscor is the procurement arm of the national defence force. It is not unreasonable to expect that arms, which Russia cannot procure because of international sanctions, were uploaded. South Africa has maintained a ‘non aligned’ stance by not condemning Putin’s invasion of Ukraine in February last year, in addition to holding joint military exercises with Russia and China earlier this year. The diplomatic messages are clear, and at odds with our national interest. The US ambassador to South Africa, Reuben Brigety, has made it clear that our trade deal with the United States (African

Ross Harvey, director of research and programmes at GGA.

Rand weakness is a blessing and a curse in respect of commodities, though. The sales figures look alright because commodities are priced in US Dollars. So, when the Rand depreciates against the Dollar, the Rand sales figures hide the true picture of the fundamentals.

Imported machinery is already expensive.

38  MODERN MINING  June 2023