For South Africa’s mining industry Cyril Ramaphosa, the country’s new business-friendly president, is generally seen as a positive.
Not only does he understand the sector — he founded the national union of mineworkers — he’s already indicated his willingness to work with the industry to develop a new mining charter.
But it’s not all good news.
Since he won the contest to head the ruling African National Congress in December, the South African rand has risen 9 per cent per cent against the US dollar.
Now that’s a potential problem for miners who sell in US dollars but have local costs — such as wages for example — denominated in the rand
On Thursday, Anglo American, which has a significant presence in the country, highlighted the issue.
In its annual results presentation, Anglo noted that a 10 per cent move in the dollar/rand exchange rate could add or subtract $520m from its earnings before interest, tax, depreciation and amortisation.
To put that all in perspective, the rand has strengthened by almost 6 per cent against the US dollar since the start of the year, implying a $311m hit.
Now, the South African rand is not the only currency to strengthen against the US dollar. Other producer currencies have also done so and there are also other cost pressures facing the mining industry such as rising fuel prices.
All of which, goes some way to explaining why mining executives are obsessed about improving productivity.
If commodity prices don’t rise and you have already cut costs to the bone, the only to offset currency market fluctuations is by sweating your assets harder or doing more for less.
Take Anglo. After wringing $1.1bn of cost and volume improvements from its business last year, the company set on out plans on Thursday to find a further $3bn to $4bn by 2022, starting with $800m in 2018.
“Continuing to drive cost efficiency, productivity improvements, volume improvements by actually running our mines the best way we know how . . . is an annual drumbeat,” said Anglo’s chairman Stuart Chambers on Thursday. “It’s a very important thing to do.”
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