Job losses in South Africa’s mining sector in 2009 will be widespread as companies restructure their operations in view of weaker demand and lower resource prices, consultancy Frost & Sullivan said on Friday.
”Only the coal industry may be spared, as Eskom provides a ready market for all domestic produce and electricity generation expansion remains a top priority,” said Frost & Sullivan metals and mining analyst Wonder Nyanjowa.
South African mining companies would have to place greater emphasis on efficiencies and cost containment this year as the effects of the economic downturn continued to be felt on the commodities market, he added.
High-cost marginal operations would be dropped as mines looked to preserve cash and ensure profitability.
”Resource prices are likely to pick up at the tail end of second quarter once the global economic slow down starts lifting but not by the substantial margins that will spur increased production,” said Nyanjowa.
”Production output, particularly for gold and platinum, will continue declining.”
He expected gold production to fall from the 240 tonnes produced in 2008 to about 229 tonnes in 2009.
Nyanjowa said the gold price, which ended 2008 at $865 per ounce, was expected to continue rising slowly and might again break the $1 000 an ounce level in the course of this year.
He said that gold’s status as a safe-haven had protected it from the significant falls in prices seen in some other resources.
Platinum’s price was, however, closely tied to developments in the global automotive industry, which was the single largest source of demand for the precious metal.
”The prolonged delay by the leading three United States carmakers in accessing bailout funds, the one-month long closure of Chrysler and declining new vehicle sales across Europe and the US will continue to depress sentiment in the platinum industry,” Nyanjowa said.
Some industry players expected an about-turn in demand fundamentals in 18 months’ time and different mines would be taking different approaches to manage the situation in the interim.
”Lonmin has laid off 5 500 employees to trim its cost structures, while Anglo Platinum has halved its capital expenditure and is monitoring production levels in view of the demand for platinum,” Nyanjowa said.
”This is even though more than 60% of Anglo Platinum production could be unprofitable at current levels.”
A study released in August 2008 suggested that it was costing the company $1 200 to produce an ounce of platinum.
The collapse of Impala Platinum’s bid for Mvelaphanda and Northam, coupled with the rejection of Xstrata’s $10-billion bid for Lonmin, indicated a temporary end to mergers in the mining sector.
”The appetite may, however, return once commodity prices and demand for metals start climbing again, as company valuations will be at attractive levels,” Nyanjowa added.
”Issues around electricity, safety, skills and labour activism will deliver further production cuts in the platinum sector this year,” he added.
”Production dropped from 5,2-million ounces in 2007 to 5,1-million ounces in 2008, and we expect it to decline further to about 4,9-million ounces in 2009.” – Sapa