South Africa Will Struggle to Catch Global Mining Sector Boom, Analyst Says

19 January 2010 (Last Updated January 19th, 2010 18:30)

The global mining sector is expected to boom this year but South Africa may not reap as much of the rewards as other parts of the world, according to a report by Frost & Sullivan. Frost & Sullivan said an expected increase in commodity prices, strong physical demand and a rise i

The global mining sector is expected to boom this year but South Africa may not reap as much of the rewards as other parts of the world, according to a report by Frost & Sullivan.

Frost & Sullivan said an expected increase in commodity prices, strong physical demand and a rise in speculative buying in 2010 will push prices up, and motivate mining companies to raise production capacity.

A lack of skills and safety concerns, electricity supply shortages and other problems which affected South African mining production in 2009 are likely to continue in 2010, however, meaning the nation may not be able to make the most of the boom, Frost & Sullivan metals and mining analyst Wonder Nyanjowa said.

"In addition, the prospect of higher commodity prices, particularly in the gold, platinum and coal sectors, is likely to lead to tough wage demands from unions," Nyanjowa said.

The investment demand for gold, especially, is likely to be strengthened by the unstable US dollar, inflation fears in developed economies, dangers of another economic slump from expansionary monetary and fiscal policies and negative real interest rates.

Gold demand and supply fundamentals are likely to push gold prices to $1,300 to $1,500 per ounce in 2010.

South Africa will slip to fourth position in global gold production, however, as output declines to nearly 200t.

Frost & Sullivan said that platinum is expected to perform better in 2010 compared to last year when it was severely impacted by the economic downturn.

South Africa's local coal demand is expected to continue expanding this year based on Sasol and Eskom's expansion programmes, while production will be stagnant at 240 million tons this year.