Precious Optimism For Metals
For the first time in years, there is a mood of cautious optimism in the mining industry, with commodity prices on the rise, shallow growth returning to different end markets, and most mining companies in better cost positions than in the recent past.
However, mining companies nonetheless face key choices about where to invest and how to position themselves in the coming years.
When it comes to the gold industry, the challenge faced by most local organisations is the depth of the mines and the difficulty involved in extracting the gold. In order to be successful at this, while remaining cost-effective, mines are going to need to unlock new forms of productivity through innovation, according to Wickus Botha, African mining and metals leader at Ernst & Young (EY).
“In an increasingly complex world, one where new technologies are becoming ever more critical to the functioning of business, mining companies will need to turn to innovation if they are to fuel success. We have already witnessed the mining sector investing in technological innovations like driverless trucks, sensors and advanced analytics, in order to reduce cost, streamline equipment maintenance and prevent safety incidents,” he says.
“However, the key to success in a world where technology provides the foundation is for mining organisations to take seriously the growing chorus around digitisation. Ensuring the enterprise is ready for the next wave of technological developments, that it is well placed to benefit from the rise of big data, analytics and the cloud, and that it is ready to ride the next wave of productivity gains is entirely reliant on an effective digitisation strategy.”
He explains that true digitisation is going to require a paradigm shift in the way these businesses are run. While it will create an array of new challenges for mining organisations, digital transformation will also open up new markets, new geographies and new ecosystems.
“Furthermore, it will help businesses to create efficiencies and reduce costs, ultimately boosting economic growth as a whole and opening up a multitude of new opportunities,” states Botha.
The biggest challenge with digitisation, he suggests – despite how critical it is going to be for the survival of mining organisations moving forward – is that it demands radical change in an industry not renowned for such. Nonetheless, Botha believes this is the single biggest trend facing South Africa’s precious metals sector.
Andrew Lane, energy and resources leader at Deloitte Africa, agrees – pointing out that to get to the next layer of efficiency gains, companies should not only adopt technology, but must look to create a culture of innovation that leverages insights beyond the mining industry. “By adopting innovations from sectors such as manufacturing, automotive and pharmaceuticals, the mining industry can enjoy the full range of benefits new technology offers,” he says.
Lane further suggests that while gold is becoming more difficult to mine cost-effectively in SA, and that this in turn has seen the country’s capacity as a gold producer significantly reduced from its heyday in the 1960s and ’70s, the same cannot be said for platinum.
“It is clear that the current outlook for platinum remains tough, as mines are closed in a difficult market that has curtailed investment in growth. There has also been a dearth of spending on replacement projects, while some new platinum projects will likely struggle significantly in the prevailing stagnant platinum price environment,” he says.
Nonetheless, Lane believes there are reasons to be quite positive in the longer term. One of these is the continuing drive for greener solutions to the world’s carbon problems, which means that the long-term likelihood of growth in the number of vehicles using catalytic converters remains strong.
He adds that there has also been an “intriguing” growth in platinum jewellery demand in India, which has helped offset a fall in Chinese demand, since Indian demand shot up by some 48% during the second quarter of 2017.
“Furthermore, with the drop in production, significant deficits in platinum supply will start manifesting. This means that platinum producers can expect to draw substantial benefits from a turn in market conditions, which for platinum is anticipated to turn in 2018.
“Unlike the gold sector, where SA has nearly exhausted its easy-to-reach gold deposits, the country still has access to some of the largest platinum reserves in the world, so should the uptick arrive in 2018, at least the platinum sector will more easily be able to take advantage of it,” he concludes.