Mining firms’ market cap plunges

THE MARKET capitalisation of South Africa’s mining companies has almost halved this year as the industry struggles to survive amid commodity price declines and cost pressures that have shrunk margins.

According to the annual study by the PwC on trends in South African mining this year, the declining trend in market capitalisation continued with few, if any, companies left unscathed.

Mining contributes only about 6 percent to South Africa’s gross domestic product, but makes up almost 60 percent of the country’s exports.

Michal Kotze, the PwC African mining leader, said: “The message to miners is clear: continue to focus on costs, refocus on your core business and carefully evaluate growth opportunities.”

Kumba Iron Ore was the worst casualty with its market cap declining to R61 billion, or by 56 percent since June last year, with a further R24bn lost up to the end of September.

Kumba – which operates Africa’s largest iron ore mine, Sishen in the Northern Cape – has seen its margins and production heavily affected by the continuing significant decrease in iron ore prices. Prices of iron ore have dropped by about 60 percent in the last two years alone, fuelled by an oversupply in the market.

Northam Platinum and Gold Fields were the only top ten entities not to reflect a decline in market capitalisation at the end of June when compared with June last year.

The annual study, which focused on 35 mining houses with a market capitalisation of more than R200 million at the end of June, found that 2015 had been yet another challenging year for miners, bringing little optimism.

According to the report, there have been changes in the top ten companies analysed since last year. Assore and Lonmin, which were ranked at 6th and 10th respectively in the 2014 publication, dropped off the top ten list as at June 30 to make way for Northam Platinum and newly listed entrant Oakbay Resource and Energy, a Guptarun gold and uranium producer.

“Market capitalisation for the top ten companies continued to decline, with a R243bn, or 41 percent, decrease to R351bn as at the end of June, losing a further R85bn by the end of September,” Kotze said.

Kotze said the market capitalisation for the 35 companies analysed in the report had dropped to R414bn at the end of June, compared with R675bn last year. The decline continued when compared with market capitalisation at the end of September of R304bn, resulting in an aggregate decline of R371bn when compared with the end of June last year.

Last year the report noted that diversified companies had been hardest hit by the significant decrease in iron ore and coal prices. This had resulted in the share of the market capitalisation of the entities analysed at the time weakening from 47 percent to 38 percent.

Although more subdued, 2015 saw further erosion of shares to 36 percent of the market capitalisation, according to the report. Platinum and gold companies were some the casualties of the downturn in commodity prices.

“Platinum has not experienced real prices as low as those experienced in 2015 in ten years, and it is not certain yet if or when prices will start to recover,” Kotze said.