Tough times in the Mining Industry are far from over. However, it is not all doom and gloom, according to Peter Toll, International Liaison Partner at BDO Australia. Toll believes that, “although it will be a tough couple of years post 2016, beyond that there are strong opportunities. I believe there are supply imbalances in certain minerals, mid cap miners with strong positive cash flows will have good opportunities for acquisitions at depressed prices. These companies are more effective at undertaking exploration programmes as a result of the resources at their disposal,” states Toll.
The current downturn in South Africa needs only proper analysis of supply and demand, which would most likely indicate imbalances or future shortage in supplies for most commodities, with the exception of iron ore and potentially Oil. If this is found to be the case, this needs to be promoted to make sure markets are aware, and adequate steps can be taken to alleviate the pressures from the downturn.
“As seen over the last ten years, it is unlikely that new developments will come to the fore. Financing new developments is tough, with equity markets reluctant to fund new deals and banks tightening up their credit requirements,” according to Toll. “Rather, the focus is really on cost control, efficiencies and potential closure of marginal operations.”
Global demand for commodities has decreased significantly from the highs of the boom, and South Africa is facing an overall downturn in mining. Although the role of coal is waning, it will continue to be a significant focus if we are to achieve universal access to energy by 2030. Several countries across Africa are already scaling-up coal-fired power projects in response to power shortages and it is a relief to know that, according to The Africa Progress Panel, two of the world’s largest super-critical coal-fired power stations - Medupi and Kusile - are scheduled to enter commission in South Africa which will increase energy output.
With such strong employment rates - both directly and indirectly - and significant royalties and taxes for Government, mining plays a significant role in the economy, a point that is cemented by the relevance of gatherings such as the Investing in African Mining Indaba. This platform “provides a forum for mining participants to mix and generate activity,” says Toll. “This is especially important in harder times to ensure we continue to promote the mining industry and generate deal flow.” Considering the effect of the current economy on the mining industry, “marginal producers need to evaluate their viability as current low prices might make operations uneconomic. The focus has changed from expansion to cost control, to ensure operations remain viable, and with the shortage in minerals we should be expecting future price increases,” continues Toll.
Toll advises corporates “to focus on costs, focus on improving efficiencies, and look at opportunities to renegotiate contracts with major suppliers. If you are in a strong financial position, look out for under-priced assets.” With the string of compliance services offered by audit firms such as BDO, including local and international tax structuring and transfer pricing, advisory services, due diligence, strategy reviews and development - including cost reviews, the mining industry certainly does have a positive outlook and future.