PERTH (miningweekly.com) – Western Australian miners operating in Africa have seen their market capitalisations fall by 44.5% over the last 12 months, owing to a range of production, cost and productivity issues.

Reporting on Monday from the Mining Indaba, held in Cape Town, advisory group Deloitte noted in a special edition of its Western Australian Index that the market capitalisation of all Western Australian listed companies rose by 4.8% over the last 12 months, to close the year at A$155.6-billion.

The companies operating in Africa closed the 12-month period at A$7.60-billion.  These companies represent just 4.8% of the total Deloitte WA Index, compared to 9.2% at December 2012.

The Deloitte WA Index hit a four-year low during the year of A$125.6-billion at the end of June 2013. However, a recovering iron-ore price and the falling Australian dollar kick-started the recovery during the second half of the year, with momentum building following the Australian federal election in September. 

For those operating in Africa, gold explorers and producers were the hardest hit, with companies such as Perseus Mining and Resolute Mining having more than 50% of their value wiped out over the year.

Perseus' lead project is the Edikan gold mine, in Ghana, where commercial production started on January 1, 2012, and the Sissingue gold project, in Côte d'Ivoire. Resolute operates three mines, two of which are in Africa. In Mali, it owns the Syama gold mine and in Tanzania, it operates Golden Pride.

Deloitte’s clients and markets partner for Western Australia, Tim Richards, said that supply issues were impacting production economics in a number of African countries, with the industry facing a rising cost curve and a declining productivity profile as a result.

“South Africa, in particular, is experiencing productivity issues and nowhere more keenly than in the gold sector where labour productivity has been steadily declining at a time when annual wage inflation has been growing at 12%. In addition, electricity and transportation costs have also been increasing,” Richards said.

Between 2005 and 2012, South Africa’s gold production also declined by 47%, driven largely by maturing operations transitioning to deeper mines and marginal lower-grade ore deposits, at the same time as the plummeting price of gold is weighing heavily on gold explorers and producers alike. 

“Mining companies operating throughout Africa will need to focus on new technology and its potential role in unlocking deposits and improving productivity in order to remain competitive,” Richards added.

Only two Western Australian listed companies with operations in Africa experienced increases in market capitalisation for the 12 months - Base Resources and Tiger Resources, with increased market capitalisation of 81.3% and 39.4% respectively.

Richards pointed out that growth over the last year had been sporadic, in what has been a challenging year for Deloitte WA Index companies as a whole.

“Given these factors, and the general malaise experienced by resource-dominated equity markets both domestically as well as internationally, the success of Base Resources, and Tiger Resources, to overcome these factors and record growth in market capitalisation is certainly an achievement to be celebrated, and is a testament to the perceived quality of their projects.”

Base is developing the Kwale mineral sands project, in Kenya, and Tiger Resources owns the Kipoi copper project, in the Democratic Republic of Congo.

With one or two exceptions, the majority of commodity prices fell during the 2013 calendar year.

Gold prices continued to decline in the second half of the year, supporting speculation that the extended bull market for gold is at an end.

Silver prices also continued on a downward trend, closing 34.9% down year-on-year.

Persistent supply-side bottlenecks in South Africa, the world’s biggest producer of platinum, have failed to lift the price of platinum, which fell 11.1% over the 2013 calendar year.

Palladium prices, however, bucked the trend, thanks to a sizable structural deficit and a recovering global automotive sector, up 1.7% from last year.

Nickel and aluminium continue to be weighed down by excess supply inventories, with prices down by 18.6% and 14% respectively. Until global nickel and aluminium markets cut supply and rebalance, there is unlikely to be much improvement in pricing.

Copper and tin have also seen a marked decline in pricing over the past year. 

Deloitte’s Australia-Africa services group leader Jacques van Rhyn said that as far as operations in Africa were concerned, cash-strapped junior and midtier producers and explorers were increasingly becoming takeover targets, where quality resources are potentially available for bargain prices.

“The South African gold sector, as an example of what is currently occurring across Africa in general, is undergoing restructuring and consolidation. With higher cost assets looking to being sold or closed, and low-cost assets being acquired or developed, a shortage of management and technical capability creates an ideal dynamic for consolidation,” he said.