South Africa’s mining sector has come under immense pressure in the past few years, with declining commodity prices and operational headwinds from the country’s ailing state-owned enterprises.

This has resulted in mining companies experiencing a significant decline in revenue and profitability, with many turning to job cuts to stay afloat.

Once the backbone of South Africa’s economy, the mining industry’s output has declined significantly over the past three decades.

It remains a vital industry, with its ability to rapidly absorb low-skilled workers and generate foreign exchange earnings through exports, greatly benefiting South Africa’s economy.

The Reserve Bank’s latest Quarterly Bulletin revealed that the sector still employs 470,900 South Africans but that the number of South Africans the sector employs declined by 1.9% in the past three months.

The Reserve Bank said the sector’s job losses are not confined to the gold mining sector, which has lagged its peers in the past five years as South Africa’s reserves are largely mined out.

This means job losses are starting to be seen in sectors where South Africa has ample reserves to tap, such as chrome and platinum group metals.

While mining employment recovered gradually after the pandemic, supported by higher international commodity prices, the decline in the prices of most commodities since mid-2022, alongside increased costs, contributed to profitability pressures.

In addition, logistical constraints caused by Transnet’s challenges continue to weigh on employment creation in this sector.

Mining is a highly cyclical industry, with the fortunes of companies and those they employ largely dictated by commodity prices.

Typically, as prices rise, mining companies ramp up production to meet the increased demand and benefit from the enhanced value of their mineral products, making huge profits in the process.

As a result, they employ more workers to increase production and tend to over-employ based on expectations that high prices will continue.

Thus, the initial spike in commodity prices is followed by a rise in mining employment.

However, the high prices do not last forever as demand eventually slows or production is ramped up to the extent where the market is oversupplied.

As increased employment follows higher commodity prices, job cuts follow a downturn in exported minerals’ prices.

With commodity prices decreasing sharply since their 2022 highs and remaining flat through 2024, mining sector employment has come under pressure. This and the above cycle are shown in the graph below.

South Africa’s mining troubles are not only due to declining commodity prices but also the country’s reputation as an investment destination, which has deteriorated significantly over the past decades.

The country was once among the best places to open and operate a mine, with investors pumping money into extracting resources for export.

However, constantly changing legislation and the constant threat of nationalisation have hamstrung the industry since the early 2000s.

This has resulted in plummeting investment in opening new mines, expanding existing ones, and exploration, leaving South Africa with 6,152 abandoned mines that have become hotspots for crime.

Operating a mine in South Africa presents massive challenges, including volatile labour relations, disputes with surrounding communities, and organised crime.

The industry is also hamstrung by regulatory uncertainty, unreasonable delays in processing applications and infrastructure bottlenecks.

The Fraser Institute, based in Canada, conducts an annual survey on the attractiveness of different countries as mining jurisdictions. These days, South Africa ranks among the ten least attractive mining destinations.

Local investors have limited appetite for supporting early-stage mining companies, and global investors have little appetite for investments in South Africa.

Little exploration is done despite geologists estimating that a rich natural bounty remains.

Mining analyst Peter Major at Modern Corporate Solutions recently explained to 702 why the country’s mining industry has collapsed in the past few decades.

“The simplest explanation is that you had an established mining law and protocol system on how to develop and run mines and who owned them,” Major said.

“That had been built up over 150 years and was working pretty well. It made us the number one mining country on the planet.”

Once the backbone of the local economy, South Africa’s mining output has steadily declined since the 1990s by around 0.4% annually, with gold, in particular, falling off a cliff and declining by 85%.

source:Dark clouds gather over one of South Africa’s largest employment sectors – Daily Investor