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

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

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

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 $650-750 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

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SA business cycle and commodity prices

Time Period Growth average Real commodity price average Cycle Phase Length in years 1918-1931 -0,4-4,1 Down 14 1931-1951 2,1 19,1 Rising 20 1951-1970* 8,4-0,8 Down 19 1971-1980 3,7 41,1 Rising 10 1981-1999 2,0-1,1 Down 19 2000-2011 4,1 19,5 Rising 12 2012-2018** 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

1916 1920 1924 1928 1932 1936 1940 1944 1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 100% 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

-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 8,00 1916 1919 1922 1925 1928 1931 1934 1937 1940 1943 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 SA growth [RHS] Real Gold [LHS]

1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 900 000 800 000 Arrows are upward phases of long term commodity cycle. Commodity cycle peaks 700 000 600 000 500 000 400 000 300 000 200 000 100 000 0

600000 500000 400000 300000 200000 100000 0 1910 1930 1940 1970 1980 1990 2000 2010 2018

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)

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.

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.

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% 1993 1997 2002 2016 10/4/2018 Economists Dotcoza 27