JOHANNESBURG (miningweekly.com) – Of the value created by 35 Johannesburg Stock Exchange-listed mining companies, a low 3% went to shareholders and a high 45% to employees, an analysis of the 12 months to June 2015 shows.

Net profit fell 75% to a mere R2-billion even though impairment provisions were 26% lower.

The free cash flow was insufficient to repay borrowings of the companies, which saw their market capitalisation shrink to R414-billion from R675-billion in the corresponding 12 months of 2014.

“You can understand why people don’t want to invest in the mining industry if their share of profits is only 3%,” PwC mining assurance partner Andries Rossouw outlined in a presentation on the findings of the seventh edition of ‘SA Mine’. (Also watch attached Creamer Media video).

Rossouw, who presented at the Joburg Indaba together with PwC Africa and Southern Africa CEO Dion Shango and PwC assurance partner Michal Kotze, said 30% of the value created was reinvested in mining where capital reinvestment is essential for sustainability.

Each of the 35 companies selected for the trend analysis has a market capitalisation of more than R200-million and primary South African listings. To arrive at the 3% dividend for shareholders and 45% contribution to employees, the figures for Kumba Iron Ore were stripped out.

While South African mining industry employment numbers have remained fairly flat at between 480 000 and 530 000 in the last eight years, production has declined, giving rise to a widening productivity gap.

“We do struggle with productivity when we compare our output per employee versus some other countries,” said Rossouw, who believed the 45% slice of value creation to employees was “unsustainably high” and that a relook at how productivity was derived could be expected.

The 18% of the value created that went to government in the form of taxes was also down on previous years owing to the “shrinking of the pie at a rapid rate”.

The prices being fetched by South Africa’s main revenue generating commodities are the lowest in ten years.

Given the low prices and high costs, there is growing concern that some mining companies may not be able to make terminal repayments from profits and may have to enter into negotiations with loan providers for more workable repayment arrangements.

Other risks identified by PwC include uncertainly around the legislative framework and water scarcity.

Rand weakness is not providing the help required to stop margin erosion, which is the order of the day.

The weak rand has been insufficient to compensate for lower coal and iron-ore prices, with iron-ore the only commodity to show substantial production growth in the 12-month period under analysis.