Categories: Base Metals / Energy / General Market Commentary / Precious Metals
Topics: General Base Metals / General Energy / General Market Commentary / General Precious Metals

Its official: mining investment is on strike

Its official: mining investment is on strike

Capex estimated to be half of 2008’s levels.

South Africa’s miners are unwilling to risk capital and are on an investment strike.

After adjusting for inflation, using StatsSA data, capital expenditure (CapEx) is estimated to be half of 2008’s levels – an 8% annual decline in real terms. This is in stark contrast to 2005 to 2008 when it more than doubled.

Instead of incentivising investment and growth, the Mineral and Petroleum Resources Development Act (MPRDA) and new Mining Charter has created uncertainty and hostility. Therefore, although prices are picking up, we will continue to see lethargy. Piled on top of negative policies, it appears that our mines are facing a productivity problem with labour output and capital effectiveness on the decline.

The slowdown in spending is reflected in the national capital expenditure to depreciation ratio. When this ratio is above 1, it indicates that organisations are spending over and above replacement needs, suggesting expansion. However, when that number drops below 1, it signals that companies are only looking to maintain (or run down) their assets.

In early 2016, the ratio fell to 0.8. It would have been below one sooner, but the lag of committed capital from old projects held it higher. It is, therefore, probable that the descent will continue.

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