Friday, January 21

How miners have come to the rescue of the fiscus and shareholders

Publicly traded mining companies paid more than R130 billion in taxes over the past five years and are on track to deliver more than R60 billion in 2021.

Shareholders fared even better, depositing more than R176 billion in dividends since 2016, as miners benefited from rising raw material prices and a firm grip on cost inflation.


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Almost half of the R45 billion paid in company taxes by miners in 2020 came from fewer than a handful of precious metal producers: Anglo Platinum, Impala Platinum and Sibanye-Stillwater, although the largest tax collection came from Kumba Iron Ore, which accounted for nearly a quarter of the total tax paid by listed miners last year.

Trade between China and South Africa increased by 70.4% in US dollar terms in the first half of 2021, and iron played a key role in this growth, according to the Global Times of China.

That improvement in trading has been a boon to the South African Revenue Service (Sars) and shareholders.

Not all reported tax revenue would have gone to Sars, as the mining pools listed on the JSE operate in different tax jurisdictions. Most of the declared tax, however, would have been collected by the Sars.

Strong tax revenue

According to the Council of Minerals SA, the mines paid R27.2 billion in income taxes last year (2019: R24.2 billion) and another R12 billion (R8.6 billion) in royalties.

Interestingly, mine employees paid R26 billion in personal taxes in 2020, about the same as what was paid in corporate taxes.

According to the chief economist of the Council of Minerals, Henk Langenhoven, the product of the mine is almost the same as before Covid, the only real difference is an average increase of 25% in the prices of the most relevant raw materials for South Africa: group of coal, iron ore, gold and platinum. metals (PGM).

Tax collection for 2021 from mining companies is likely to exceed R60 billion based on mining results released so far this year. This is six times the level of tax revenue of miners in 2016 and 2017, and shows the importance of the sector for Sars, as the prices of raw materials have come to the rescue of both the economy and the treasury.

Several mining pools have reported blowout results in recent weeks.

Earlier this month, Anglo Platinum announced a 28% increase in metal production for the first six months of the year through June, with profits soaring 385%.

Last week, diversified resources group Exxaro reported a 106% jump in overall earnings per share for the half-year through June, driven in large part by strong iron ore prices.

Also in August, Royal Bafokeng Platinum (RBPLat) announced a 322% jump in gross profit and a 163% improvement in Ebitda (earnings before interest, taxes, depreciation and amortization) for the semester through June 2021.


Anglo Platinum hits that sweet spot halfway
Royal Bafokeng Platinum rewards shareholders with an interim dividend of 1.5 billion rand

Source: Moneyweb and the company’s annual reports.

Shareholders took home R176 billion in dividends since 2016, and last year alone they accumulated almost R45 billion, an increase of 500% over the R7.55 billion in aggregate dividends paid by listed miners in 2016.

Peter Major, Mining Director at Mergence Corporate Solutions, told Moneyweb last week that the current stage of the commodities ‘supercycle’ differs from the early 2000s in that mine managers have been much more disciplined in their spending and investment decisions. The previous leg of the cycle was characterized by some horrible investment decisions that resulted in nearly $ 2.5 trillion in projects being cut to near zero.

Dow Jones Commodity Index

Source: S&P Global

The graph below shows the impact of precious metal producers (primarily platinum) on tax and dividend contributions.

Mining, dismissed as a dying industry a few years ago, has recovered to the delight of shareholders and tax authorities.

Tax contributions and dividends will certainly end in 2021 at much higher levels than those shown in the graph below, as several miners have yet to report their financial results. Slower growth in China may hamper the current commodity boom, at least for a time, though years of judicious capex and cost control mean shareholders and Sars should still be able to count on some better years from the mining sector. .

Source: Moneyweb and the company’s annual reports.

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