There are persistent risks to South Africa’s mining sector profitability from elevated electricity costs and possibly higher transport costs, as coal and chrome exporters switch to longer and more expensive routes due to the unrest in Mozambique that resulted in the closure of the border between the two countries for days.
The Lebombo border post linking South Africa and Mozambique was closed this year due to civil unrest following disputed elections in the neighbouring country.
The Minerals Council said yesterday that the closure of the border could lead to a spike in transport costs for South African miners, especially chrome and coal exporters.
“Persistent electricity price pressures and rising transport costs may continue to strain mining profitability,” said the Minerals Council economist, Andre Lourens.
“The recent closure of border posts in Mozambique, critical for coal and chrome exports to Maputo, could exacerbate transport costs as miners are forced to use longer, more expensive alternative routes.”
However, the direct impact of the Mozambique crisis in terms of how it impacts mining costs for South African exporters could be muted due to challenges in measuring the relationship between distances and payloads per commodity, explained the Minerals Council.
Worse still, the substitution complexities between road and rail transportation also makes it difficult to calculate any immediate impacts.
The Minerals Council said that in November, the gold sector had the highest average increase in input cost inflation, followed by chrome, iron ore, and other metallic minerals sectors that include silver, cobalt, lead and titanium.
Although financing costs eased in November following the South African Reserve Bank’s (SARB) reduction of the prime lending rate to 11.25%, electricity costs remained the key driver of input cost inflation, rising by 12.2% year-on-year.
“Following the end of winter electricity tariffs (June to September), the 12.2% increase reflects Nersa’s approved 12.72% tariff hike for the 2024/25 financial year,” said Lourens.
“The slightly lower-than-approved increase is attributed to delays in implementation by some municipalities, which have yet to conduct cost-of-supply studies.”
For the month of November, the cost of other chemicals and synthetic fibbers continued to climb, recording an 8.2% year-on-year increase. This has been attributed to higher expenses for mining chemicals, prepared explosives, and chemical catalysts.
This resulted in the the Minerals Council’s index for mining input costs continuing to show “muted inflationary pressures,” with the the rate of increase accelerating to 3% year-on-year from the 2.2% recorded in October.
Moreover, South Africa’s mining input costs aligned with Stats SA’s Producer Price Index for November, which registered at -0.1% year-on-year, compared to -0.7% in the prior month, a slight deceleration in the rate of annual deflation.
On a positive note though, the mining sector benefited from a stronger exchange rate, with the nominal effective exchange rate appreciating 5.3% year-on-year.
“This improvement has helped reduce the cost of imported intermediate inputs within the sector. Intermediate mining and quarrying inputs declined by 4.9% year-on-year, further alleviating some of the sector’s input cost pressures,” explained Lourens.
BUSINESS REPORT