‘Interventions unlikely to revive mining’

Mine workers' clothing. File picture
Mine workers' clothing. File picture
Image: Gallo Images/ iStockphoto

The mining sector will remain under pressure despite positive interventions‚ Fitch Solutions Macro Research‚ a subsidiary of the Fitch Group, said.

Fitch Solutions warned on Monday in a research note that President Cyril Ramaphosa’s economic stimulus and recovery plan was unlikely to revive growth in SA’s mining sector – despite a R400bn infrastructure fund pledge and renewed regulatory clarity.

“Ramaphosa’s drive to spur growth in SA’s mining sector is unlikely to result in a significant revival of an industry in secular decline‚” the report said.

“These proposals will be ineffective in kickstarting investment in the sector as the domestic construction industry is set to contract next year‚ while new mining regulations remain restrictive.”

Among the challenges are low prices forecast for strategic commodities‚ a contracting construction sector‚ restrictive regulations and high operational costs which will stunt investment in the sector.

“SA’s mining sector faces a number of structural challenges which are unlikely to be solved in the short term‚ relating to high operational costs and depleting ore reserves.

“While the latest version of the charter will provide muchneeded regulatory clarity‚ it will largely fail to attract new investment as it remains more restrictive than the regulatory framework currently in place.”

In particular‚ the new charter will increase compliance costs for miners‚ “offsetting the temporary boost to investor sentiment and any subsequent pick-up in investment” from greater policy certainty.

The mining sector took another beating at the start of the third quarter. While the sector contributed positively to GDP in the second quarter‚ mining production fell by 5.2% in July.

Fitch Solutions expects growth of 0.8% in the sector from 2019 to 2022.