The global economic climate and impact on SA Mining during a downward phase in the commodity cycle.

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Edward Crawford
5 years ago
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1 The global economic climate and impact on SA Mining during a downward phase in the commodity cycle.

2 World Economy Real Long term commodity and employment data. Vanity sanity and reality of mining and investment

4 It seems likely that at least in part the trade war will impact trade growth Overall the tariffs implemented so far are only $250 billion worth of goods by US on China. About the same on other trade partners and others are implementing them on US. So about $ billion of trade is impacted Trade in goods was $18,1 trillion in 2017 So very impact not to big thus far.. But the bigger impact of another $200 billion on China alone and then threats to others plus counter tariffs could add another $500 or so So still less than say 5% of trade impacted yet But getting more and tariffs are going from 10% to 25%!!!! And this is the problem that no one knows how this will impact Enough to dent commodity prices

5 5

10 SA business cycle and commodity prices

11 Time Period Growth average Real commodity price average Cycle Phase Length in years ,4-4,1 Down ,1 19,1 Rising * 8,4-0,8 Down ,7 41,1 Rising ,0-1,1 Down ,1 19,5 Rising ** 1,5-6,1 Down 7 * Gold which is excluded from commodity price indices was fixed as was the Rand which allowed for certainty and gold make up more than 75% of commodity exports over this time. ** 2018 is a forecast based on IMF for growth and last six months of 2018 commodity prices are estimated as being June price

12 % Commodity price index [LHS] SA growth [RHS] 7,5 80% 6,0 60% 4,5 40% 3,0 20% 1,5 0% 0,0-20% -1,5-40% -60% Gold major commodity which most commodity indices leave out. Note 5 years smoothed -3,0-4,5

13 -30,0% -20,0% -10,0% 0,0% 10,0% 20,0% 30,0% 40,0% 50,0% -4,00-2,00 0,00 2,00 4,00 6,00 8, SA growth [RHS] Real Gold [LHS]

14 Arrows are upward phases of long term commodity cycle. Commodity cycle peaks

17 GDP is value added and that has been decreasing as profits and employment are down Remember however that mines buys about R400 billion of goods and services as well as about half amount in services (contractors; security etc.) So about R800 billion is brought from elsewhere mainly from other SA firms. This is just below 20% of GDP. So mining does play a much larger role in SA economy than what GDP numbers indicate. Remember also the Role of mining in exports and the current account balance. More exports or higher prices bring stronger Rand lower rates and therefore lower inflation and often cheaper imports. (Larger role than just buying and selling)

24 Invest in something with returns below inflation or below interest rates. Remain open at the moment with these negative returns? Lower costs in the hope to survive? I would suggest the real Long term struggle is going to be the fight to lower the cost base. The cost base is the most important thought going into mining decisions right now and probably will be for some time to come.

26 Power purchases has increased from 4,5% of total expenditure to about 9% of total expenditure. This 4,5% increase made sure that returns are below inflation and money market rates Water prices in SA have risen faster than power in the last seven or so years. Increasing close to double the inflation rate. Labour rates have increased with about 2% above inflation since 1995/6 mainly at the lower end. These increases are unsustainable and means that focus is on employment shedding. The ratio of skilled income to unskilled income has fallen dramatically.

27 Coal Mining Sector - As a % of Skilled 80% 70% 60% Lowest Category over category 8 Lowest Category over category 9/Officials 61,1% 69,3% 59,4% 50% 47,9% 50,8% 47,9% 40% 30% 36,4% 39,3% 20% 10% 0% /4/2018 Economists Dotcoza 27

Cargo outlook Brian Pearce Chief Economist. 13 December 2018

Cargo outlook Brian Pearce Chief Economist. 13 December 2018 Cargo outlook 2019 Brian Pearce Chief Economist 13 December 2018 % total revenues % total revenues Cargo revenue contribution stabilizing 2 82% 80% 78% 76% 74% 72% 70% 68% 66% 64% 62% Share of airlines'