Companies act to secure long-term growth

The numerous global supplyside constraints fuelling the current commodities super cycle will likely persist for years, creating significant opportunities for South African mining companies to benefit from higher prices.

However, multiple areas require focused investment over the coming decade to support continued sector growth, including access to reliable energy, transport and water infrastructure.

According to Arnold van Graan, Head: Markets Research at Nedbank CIB, miners have multiple avenues to fund these growth-supporting initiatives.

“The commodities boom that has run since 2017 has shored up balance sheets, and miners used this windfall to bring down debt and gearing levels and pay dividends to shareholders.”

However, the sector has recently witnessed a shift in this capital allocation framework, with cash flush mining companies, especially those in the PGM universe, investing to continue generating strong cash flows and sustain growth into the future.

“We have subsequently seen an increase in capital expenditure on initiatives that add growth to portfolios.”

According to Van Graan, these investments primarily focus on two areas. These include developing new projects and mergers and acquisitions (M&A).

“We have already seen a rise in capital expenditure to replace existing reserves and M&A activity as mining companies look to secure longer-term growth opportunities.”

Mining companies are also investing in embedded renewable energy generation capacity to help achieve their net-zero and ESG targets and decouple their reliance on Eskom for power.

“Mine operators will continue spending substantial amounts to diversify their existing energy mix, with many considering green funding mechanisms to realise these ESG-linked outcomes,” concludes Van Graan.