[This related interview with Henk de Hoop was broadcast on SAFM on 9 February 2021]
MEDIA RELEASE
8 FEBRUARY 2021
UPCOMING RESULTS FROM PGM, IRON ORE MINERS EXPECTED TO REVEAL SHAREHOLDER, FISCUS BOOST BUT LIMITED CAPITAL INVESTMENT
Upcoming financial results announcements due later this month for platinum group metals (PGM) and iron ore miners are expected to reveal healthy dividends for shareholders and strong rise in taxes paid to the fiscus - but little in the way of capital investment in South Africa.
PGM is a collective term which includes platinum, palladium, rhodium, ruthenium, osmium, and iridium. South Africa’s major PGM miners are Sibanye-Stillwater, Anglo American Platinum, Northam Platinum, Impala Platinum and Royal Bafokeng Platinum.
Henk de Hoop, Resources Sector Focus Lead at RMB, said after a decade of challenging times for PGM miners, its leading producers are expected to continue to post stellar results.
“South African miners overall managed the COVID-19 threat extremely effectively. Even as we endure the second wave, miners have been able to keep operating while identifying and treating those infected thanks to their efficient health care facilities, and years of learnings from managing the HIV and TB pandemics. They seem to be leading the way with their proactive approach to the tackling of the virus.”
They have also been helped by strongly performing PGM prices, even as global economic activity shrunk during the pandemic. Within the group, palladium and rhodium in particular have benefited from the demand for lower emission cars.
“Despite the already very positive sentiment, we think results could surprise on the upside. We could see not just sharp increases in regular dividends but also special dividends too.”
Kumba Iron Ore, South Africa’s and Africa’s largest iron ore mine producer, recently provided a pre results statement saying it was on track to meet 2021 production. After a difficult first half when the South African mining industry was shut down, it said it was at 95% of 2019’s production levels by December 2020. Demand for iron ore has been exceptionally high, driven in large part by the Chinese government’s economic stimulus program.
As a sense of the scale of the earnings recovery, RMB Morgan Stanley estimates that the combined EBITDA (Earnings before interest, taxes, depreciation and amortisation) for the top 5 PGM players could rise from around R20bn in the first half of 2019 to some R100bn in the second half of 2020.
De Hoop also noted that the strong profits of the PGM and iron ore miners should also be a great tax boon for South Africa, with the mining industry overall paying R27.2bn in taxes in fiscal year 2020.
“They have certainly helped the fiscus at a time when it is really needed by likely having to pay significantly more in corporate taxes and royalties than in previous years.”
However, despite the strength of cash generation in the past year, little is expected to be ploughed back into the industry in the form of capital investment because of a raft of uncertainties.
“Unfortunately there is still diminished faith in South Africa as a long-term investment destination. Factors such as an unstable power supply, outstanding issues around the mining charter and uncertainty around land expropriation without compensation make it difficult for miners to commit investment capital until there is greater clarity on how these challenges will play out. Investments require often well more than a decade to show a return,” de Hoop added.
He noted that with significant economic stimulus efforts required around the world to re-start the global economy, the South African government should also seize the moment.
“South Africa has been very blessed geologically, but this means little if it is not monetised for the greater good. The mining sector can mobilise significant exploration and project capital, but it needs, among others, greater regulatory certainty, removal of red tape, the ability to optimise its power costs and constraints through self-generation. The multiplier effect of this on SA job creation, supply chains, export earnings and tax income is staggering. It requires therefore the full attention, speed and execution efficiency from government,” de Hoop concluded.
ENDS
FOR MORE INFORMATION CONTACT:
Joandra Griesel - +27 82 462 6741 / joandra.griesel@rmb.co.za
Kate Kelly - +27 79 637 4663 / kate.kelly@rmb.co.za
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