Mining
  • Several mining companies with operations in South Africa have posted profits after years of losses, thanks to a surge in some commodity prices, particularly palladium. 
  • That means big new sources of tax revenue – but probably not enough to help ease SA's budget deficit. 
  • South Africa’s has an estimated budget deficit of R150 billion in the medium term, and that will probably mean new or increased taxes in next week's Budget.
  • For more stories, go to Business Insider SA's home page.

After years of consecutive losses, some South African mining companies have again posted profits, fuelled by higher prices for some commodities, like gold and palladium. .

And that will mean an unusual tax windfall for a government struggling to make the numbers work.

But economists believe that the growth in mining profits will do little to address the country’s budget deficit, and won't prevent the announcement of new or increased taxes when finance minister Tito Mboweni presents the national budget next week. 

In the past week, mining conglomerates Impala Platinum, Anglo American Platinum, and Gold Fields all reported major growth in profits.   

Impala Platinum said it expects gross profits to climb by 90% to R6 billion, and Gold Fields said its South Deep gold mine in Gauteng made an R220 million profit after nearly a decade of losses.

Hugo Pienaar, from the University of Stellenbosch’s Bureau for Economic Research, said the change in mining company’s local fortunes will do little to address the country’s budget deficit. 

“It should provide a boost somewhere down the line. But it will not be nearly enough to fill the large gap that has developed between revenue and expenditure,” Pienaar told Business Insider South Africa. 

Also read: The price of palladium is absolutely exploding – here’s why that's good news for South Africa

Anglo American Platinum, for example, paid R4 billion in additional tax over the past year – a fraction of the roughly R150 billion budget shortfall estimated in the medium-term expenditure framework

The National Treasury will still have to find other measures, such as additional taxation or cost-cutting, to decrease the deficit, Pienaar said.

South Africa’s budget deficit grew from 26% of gross domestic product (GDP) in 2006, to 60.8% in 2019.

FNB Senior Economist Geoff Nölting said while it is encouraging that some miners have done well, the reality is that the country’s economic fundamentals remain dire. 

Despite improving mining conditions, Nölting said, the industry still contracted by 1.3% in 2019 on the back of load shedding and growing costs. 

He said the growth in mining profits is predominantly due to higher commodity prices in gold, platinum group metals (PGMs) such as palladium and rhodium, and iron ore. 

Business Insider previously reported that the palladium price nearly doubled in one year. There is a strong demand for the metal, which vehicle manufacturers use for its unique properties to turn toxic gases into water vapour and other less-dangerous gases.

“Overall production volumes, however, remain constrained as the sector has been marred with high input costs, broadly subdued commodity prices, policy uncertainty, electricity supply constraints and slowing growth in China,” Nölting told Business Insider SA. 

“It is also worth noting that these companies appear to be focusing on existing investment projects rather than new developments, while also shutting down unprofitable shafts.”