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Mining production in South Africa increased by 1.8% year-on-year in December, Statistics South Africa (Stats SA) reported on Thursday.
The largest contributors to this were gold, with output up 24.9% and contributing 2.7 percentage points; other nonmetallic minerals, which were up 24.1% contributing 1.3 percentage points; iron-ore, which increased by 9.8% and contributed 1.2 percentage points; and chromium ore, which increased by 26.6% and contributed 0.9 of a percentage point.
According to financial services company Investec, a disaggregation of the data "reveals that the resurgence in gold activity was primarily responsible for December's positive reading", highlighting in a separate statement on Thursday that production of the yellow metal had surged by 24.9% year-on-year, following November's 4.5% year-on-year rise.
As a result, Investec noted that it added a marked 2.7% to the headline result.
Safe haven buying, amid a global environment marred by trade and geopolitical uncertainty, saw the gold price reaching over $1 520/oz at the end of last year, the company added, forecasting that, looking forward, demand for the metal could continue to rise.
It said that, specifically, while China and the US’s phase-one trade deal in January did support an increase in confidence, with risk-off sentiment receding somewhat, the subsequent outbreak of the coronavirus had reignited fears of a global growth and trade fallout. Slowing Chinese growth, would impact notably on demand for industrial metals, of which South Africa is a key exporter.
On the domestic front, however, while the gold price has aided miners in this sector, who are struggling with lower ore grades, the gold miners remain defenseless along with the rest of the mining sector in the face of continued electricity supply disruptions. This was seen by gold miner Anglo Gold Ashanti recently announcing its exit from South Africa, and selling its remaining domestic gold assets to Harmony Gold.
The mining sector, according to Investec, is reliant on stable, affordable electricity supply to operate optimally.
Investec also referred to Mineral Resources and Energy Minister Gwede Mantashe's opening address at the Investing in Africa Mining Indaba, held in Cape Town last week, where the Minister echoed frustrations around the current state of the domestic electricity industry. The Minister’s announcement that the government is “in the process of gazetting a revised Schedule 2 of the Electricity Regulation Act; which will enable self-generation”, was greatly welcomed by the mining community, Investec said.
The company, however, said it was awaiting further clarity on government policies and intended reforms in Thursday’s State of the nation address (SoNA). In this regard, Investec noted that transparency and decisive action are "key to lift confidence, thereby driving investment and growth".
Turning back to the statistics, Stats SA said mining production for the full year was, however, 1.3% lower than in 2018. The 1.3% decrease in yearly production followed a decrease of 2.1% in 2018 and an increase of 4.6% in 2017.
Seasonally adjusted mining production decreased by 2.4% in December compared with November, and this followed month-on-month changes of -1.8% in November and 1.7% in October.
Seasonally adjusted mining production increased by 0.2% in the fourth quarter of 2019 compared with the third quarter, where the two largest contributors were iron-ore (7.4% and contributing 0.8 of a percentage point) and platinum-group metals (3.4% and contributing 0.8 of a percentage point).
Negative contributors for the quarter were coal, at -5.6% for the quarter and contributing -1.5 percentage points, and manganese ore at -8.8%, contributing -0.6 of a percentage point.
Mineral sales decreased by 6% year-on-year in December, with the largest negative contributors being coal, manganese ore and other nonmetallic minerals.
Coal sales contracted by 20.1% and contributed -5.7 percentage points; manganese ore sales contracted by 49% and contributed -4.9 percentage points; and other nonmetallic mineral sales contracted by 26.5% and contributed -1.3 percentage points.
Total mineral sales, according to Stats SA, were 10.6% higher in 2019 compared with 2018.
The 10.6% increase in yearly mineral sales followed increases of 5.2% in 2018 and 8.3% in 2017.
Seasonally adjusted mineral sales at current prices decreased by 9.9% in December when compared with November and followed month-on-month changes of 6.5% in November and -0.4% in October.
In the fourth quarter of 2019, the seasonally adjusted value of mineral sales at current prices was 1.3% higher compared with the third quarter of 2018.
According to Nedbank Group's Economic Unit, the latest mining production figures were reflective of a tough year, which was characterised by softer commodity prices and global growth as well as a host of domestic issues such as load shedding and problematic legislation weighing on the sector.
While it agreed that the December production figures were "better than what most would have thought", Nedbank did point out that this was as a the result of mining firms closing early in that month for the holidays.
Looking ahead, Nedbank forecast that domestic issues would continue to weigh on the sector, while the biggest buyer of South African commodities – China – also found itself in a vulnerable position with the novel coronavirus, which was likely to impact on growth and so demand for commodities from South Africa.
Additionally, Nedbank said the mining production figures impact the South African Reserve Bank’s (SARB's) monetary policy decision through the economic growth channel. "Weak mining statistics are indicative of softer growth and so further monetary accommodation, all else being equal.
However, the financial institution said the SARB considers several factors in its decision and the trajectory of the rand will at this time be of foremost importance, given the very high risk of a ratings downgrade by Moody’s credit rating agency.
"The Nedbank view is that while there might be room for further rate cuts, SARB is likely to take a more measured approach and leave rates on hold for the remainder of the year."
FNB, meanwhile, also in a separate statement on Thursday, said that, as with manufacturing production, it expects mining production levels to remain under pressure given the re-occurrence of load-shedding, high input costs and subdued demand for many commodities.
However, FNB said that it was "encouraged by the recent expansion in gold production", adding that the high prices of certain platinum-group metals should incentivise miners to expand activity in their higher-cost mines.