The Minerals Council warns that escalating electricity tariffs are driving up input costs for South African mining companies as production costs rose by 7.2% in April, with gold, coal and platinum group metals (PGM) experiencing the largest cost increases.
South Africa is a major producer of gold, coal and PGM, in addition to manganese and chrome, among other minerals.
Andre Lourens, an economist with the Minerals Council, yesterday said the rise in mining costs for SA producers was in line “with an acceleration in the pace of increase for the producer price index”.
“High inflation rates for electricity, water, coke, petroleum, transport and storage significantly pressured mining inputs,” he said.
This comes after the National Energy Regulatory of SA (Nersa) approved a 12.74% electricity price increase for direct customers with effect from the beginning of April this year.
Further increases are expected this month, as well as for the start of July, “as winter tariffs and local municipal increases” kick in.
“This means electricity will remain a significant driver of input costs over the coming months,” added Lourens.
According to data from the Minerals Council, the gold sub-sector had the highest cost increases at 8.4% in April.
Operators in SA’s gold sector include Harmony Gold, Pan African Resources, Driefontein, Sibanye-Stillwater and Gold Fields, among others.
Despite the elevation in input costs, gold operators have been cushioned by a sustained firming in bullion prices for the greater part of this year.
Gold prices rose this week to around $2 373 (R45 021) an ounce.
The Minerals Council said coal had the second highest cost increases at 7.6%, followed by PGM at 7.3%.
PGM miners have been worse affected by commodity price weakness over the past few years, and they have been laying off workers, closing some shafts and curtailing investment as a result of costs also rising.
Lourens said the input cost increases for the SA mining sector “highlight the varied impact of input cost inflation across different mining sectors”, with gold being the most electricity intensive.
Costs for iron ore production rose 6.8%, chrome 6.5% and manganese 6%.
According to the latest input costs index by the Minerals Council, the 7.2% increase in mining sector costs for April matches “the highest rate so far in 2024, which was recorded in January”.
Apart from the steep increase in electricity costs, labour-related costs surged 7.2%, while finance costs were 11.8% higher.
Machinery and equipment costs were 7% elevated during the month under review.
“Costs for finance, insurance, real estate and business services remained high at 11.8% year-over-year, reflecting the elevated cost of finance and capital, as seen in the prime lending rate in South Africa,” added Lourens.
The Minerals Council said the 8.9% rise in coke and refined petroleum costs for April had been driven primarily by an increase in Brent crude prices, which averaged $89 per barrel in April 2024 compared to $83.5 per barrel a year earlier.
Transport and storage costs also increased, by 7.8% year-over-year.
Conversely, the relative appreciation of the rand versus the US dollar from March to April made imports relatively less expensive, resulting in a 1.6% reduction in the cost of imported intermediate inputs.
BUSINESS REPORT