JOHANNESBURG (miningweekly.com) – The fourth quarter mining financial statistics data released by Statistics South Africa (Stats SA) confirm the tentative improvement in the sector’s financial conditions during 2016, but off a very low 2015 base and with huge swings in performance.

In 2016 rand terms, mining’s profits before taxes improved by R19.6-billion over 2013 to 2014, declined by R68-billion on 2014 to 2015, and then improved again by R72.2-billion in 2015 to 2016, bringing 2016 on virtual par with 2014.

However, a pattern of stagnant profitability has dug in since 2012.

Barring the last quarter of 2016, mining’s quarterly profits before taxes have been below average for the last eight years since mid-2012, but on a trend line that seems to be improving.

“This trend is encouraging but will have to continue for the sector to regain its growth potential,” Chamber of Mines economist Henk Langenhoven says in a release to Creamer Media’s Mining Weekly Online.

The encouraging trend appears to be the result of positive leading indicator trends accompanied by massive adjustments within the mining sector to ensure survival.

The positive leading indicator trends are that world economic growth seems to be recovering slowly and in varied form in different commodity markets and commodity prices in general seem to have gone past the bottom of their cycles and clearly impacted company performances owing to the ‘windfall’ effect of better prices.

The next indicator that should respond, namely mining production, has not improved in any significant way.

Mining production is still 15% below the peak in 2005 and seems to be moving in a band of 10% to 15% below the peak level.

Over the last 12 months, production declined by 4.5%.

“There is some hope though,” Langenhoven says, pointing to January production being nearly 2% better than December’s, and year-on-year production showing a 2%-plus improvement.

“These short-term improvements will have to continue for the trend to turn positive,” he adds.

The next indicator, employment, will be known on Monday.

Although the latest Quarterly Labour Force Survey data indicated continuous decline, comparisons between the two sources indicate wild fluctuations and it is hoped that the company data will be more positive.

Both employment numbers and gross fixed capital formation spending indicate whether companies have more confidence in future prospects.

According to Stats SA and the South African Reserve Bank, mining fixed investment declined in 2016 by 3.7% on 2015, which is not good news.

However, the release by Stats SA shows that the fourth quarter capital expenditure was almost on par with a year ago, and may indicate that a lower turning point has been reached. Net investment after depreciation is still declining.

The chamber reported earlier that despite the uncertainties of the direction and sustainability of world commodity prices improving, as well as the domestic cost and policy pressures and uncertainties, ‘green shoots’ of 2017 improvements are there.