The combined effects of the global economic crisis, plummeting commodity prices and an earlier power crisis continue to impact the South African mining sector. The downturn has prompted many mining companies to scale back operations, cut proposed exploration and development projects, and lay off workers. The Financial Times reported in January 2009 that up to 14,000 workers in the industry are facing redundancy. However, some firms are weathering the slowdown better than others, with iron ore producers in particular benefiting from a strong market driven by China's high demand.



In May 2009, figures released by Statistics South Africa showed that the country entered recession during the first quarter of the year, for the first time since 1992. Mining and quarrying output fell by 1.7%.



Accounting for nearly one-third of South Africa's total exports, mining remains a vital industry for the country's economy. South Africa hosts the world's largest deposits of gold and about 80% of global platinum reserves. It is also a significant producer of diamonds. The country's mining industry has matured and the pace of mineral exploration has fallen over the years – even more so in recent months as firms reduce capital expenditure (capex) and scale back projects.



Major closures have taken place in the chromium and manganese sectors – with several furnaces shut down as demand slumped – as well as in the uranium sector. South African gold production continued to decline in 2008, with a massive 14% drop in output reported to be largely due to ongoing power rationing and labour unrest. Diamond production also fell, but De Beers successfully opened its Voorspoed mine.



A crash in platinum prices in late 2008 impacted producers heavily, and two major takeover bids by South African Impala Platinum and Swiss Xstrata were abandoned. Coal exports fell in 2008 and some firms announced cuts of capital expenditure, but growth drivers for 2009 could include increased demand from state-owned power company Eskom, and the modernisation of transportation links. Iron ore production was largely sustained by high demand from China, and some iron ore producers pressed ahead with development projects.



Significant job cuts have been announced by firms including Lonmin, DRDGOLD and Uranium One, and are being mooted by companies such as Anglo Platinum, Gold Fields, Simmer and Jack Mines, Petra Diamonds, Rockwell Diamonds and De Beers.



As previously reported, the South African government has revived a dormant state company to start buying up assets within the mining sector. The African Exploration, Finance and Mining Corporation will reportedly receive funding of ZAR180mn for three years of exploration. The CEO Sizwe Madondo told Mining Weekly Online that the Corporation was pursuing coal and uranium opportunities. However, the government faced criticism in October 2008 over proposed exemptions for the company from requirements imposed on private firms, including applying for mining rights. Reuters reported that the Chamber of Mines, representing mining firms in South Africa, had expressed concern over the exemptions. The Department of Minerals and Energy (DME) tried to downplay the concerns, with spokesman Bheki Khumalo saying that the company would only be 'required to inform… the DME of its mining interest rather than formally apply'.



Global overview On page 9 of this report, BMI examines the phenomenon of increased Chinese activity in the global mining sector and what this means for the industry moving forward.



Industry Forecast BMI forecasts that South Africa's mining sector will reach a value of US$21.50bn in 2013. However, how long the country can continue its relatively strong performance is yet to be seen. In the short term, we expect growth to slow due to the impact of the financial crisis on global commodity prices, which is forcing producers to scale back production. Meanwhile, reserves are depleting, which is slowing the rate of expansion, while power shortages and labour unrest are also disrupting the sector, Still, the sheer size of the mining industry, representing 5.2% of South Africa's GDP in 2008, should ensure that the industry remains resilient. The country is also likely to be among the first to benefit when the global economy returns to strength.