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Mining operational costs stabilise as 2024 closes, but challenges persist
17 Dec 2024
The South African mining sector saw mining input costs settle to their lowest levels for 2024 in October and November. According to the latest data from the Minerals Council South Africa, mining input costs grew at a muted rate of 3.0% year-on-year in November, compared to the 2.2% recorded in October. This aligns with Stats SA’s Producer Price Index (PPI) for November, which reflected a marginal annual deflation at -0.1% YoY.
Electricity prices remain the most significant upward pressure on mining operational costs.
With a 12.2% YoY increase in November, the National Energy Regulator of South Africa’s (Nersa) approved 12.72% tariff hike for 2024/25 is at the heart of the surge.
Delays in implementation by some municipalities, however, provided minor relief.
Costs for essential mining chemicals, including prepared explosives and chemical catalysts, also rose by 8.2% YoY.
In contrast, imported intermediate inputs saw a notable decline of 4.9% YoY, benefiting from the rand's 5.3% appreciation.
Fuel and transport relief
The global decline in crude oil prices delivered a reprieve for the sector.
November prices dropped by 10.6% YoY to $73.5 per barrel, down from $82.2 in 2023, which eased costs for refined petroleum products.
However, on a month-to-month basis, rising rail costs drove up transport and storage expenses by 1.5%, reflecting pressure on profitability.
Commodity-specific trends
Input costs rose unevenly across commodity subsectors.
The gold sector recorded the highest inflationary increases in November, followed by chrome, iron ore, and other metallic minerals, which include silver and titanium.
This disparity highlights the unique economic structures and cost drivers within each mining subsector.
Cornerstone of the economy
While recent trends provide cautious optimism, significant risks loom.
Escalating transport costs due to border closures in Mozambique coupled with volatile crude oil prices, and global economic uncertainties – including potential shifts in US leadership and geopolitical tensions – could strain mining input costs going into 2025.
South Africa's mining industry, long regarded as a cornerstone of the economy, faces a balancing act as it navigates rising costs, logistical disruptions, and fluctuating global commodity markets.
