6th edition - PwC South Africa

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Highlighting trends in the South African mining industry November 2014

SA Mine 6th edition

www.pwc.co.za/mining

Contents

The information contained in this publication is provided for general information purposes only, and does not constitute the provision of legal or professional advice in any way. Before making any decision or taking any action, a professional adviser should be consulted. No responsibility for loss to any person acting or refraining from action as a result of any material in this publication can be accepted by the author, copyright owner or publisher.

1.

Executive summary

2

2.

The South African mining industry

5

3.

Integrating risk into business strategy

15

4. Safety

29

5.

Improving value to stakeholders

34

6.

Boardroom dynamics

41

7.

Financial performance

44

8 Glossary

60

9.

Companies included in the analysis

62

10.

About PwC

65

1. Executive summary

2

SA Mine: 6th edition – Highlighting trends in the South African mining industry

Highlights Current year R ’billions Revenue from ordinary activities

Difference

% change

R ’billions

327

291

36

12%

Adjusted EBITDA

91

83

8

10%

Impairment charge

49

20

29

145%

6

27

(21)

(78%)

Distribution to shareholders

19

29

(10)

(34%)

Net operating cash flows

70

75

(5)

(7%)

Capital expenditure

57

70

(13)

(19%)

694

687

7

1%

Net profit

Total assets

This is the sixth in our series of annual publications highlighting trends in the South African mining industry. The significant decrease in the industry’s profitability fuelled contraction in market capitalisation of South African mining stocks. This decrease is in line with global mining counterparts who are also struggling with higher costs and lower prices.

The 2014 financial year was again marred by labour unrest In addition, local cost pressures and international demand weakness resulted in shrinking margins and wide ranging impairment provisions.

Prior year R ’billions

A weakening rand over the period somewhat shielded the South African mining industry from the decline, with rand prices remaining relatively flat. Unfortunately, flat prices will not support the industry’s significantly increased cost base. Generally, balance sheets remained strong, with stable liquidity. However, increased gearing was needed for companies to fund sustaining capital expenditure and in some cases operating losses. The R49 billion impairment provisions raised highlights the difficulty in making long-term decisions in volatile markets.

The mining industry still adds significant value to the South African economy with regards to GDP contribution, employment, tax and export revenues. Leadership will be required from all stakeholders to ensure long-term optimisation of the industry as opposed to the threat of instant gratification claims by stakeholders. Mining companies now need to integrate risk and performance management and they need to evolve risk management to be more predictive in order to anticipate and plan for potential negative events. Mining charter requirements