Mining Input Costs increased by 3.8% year-on-year in January 2025

In January, the Minerals Council’s mining input cost index saw a moderate increase, with annual
growth accelerating to 3.8% year-on-year (y-o-y), up from a revised 3.0% in December 2024. This
aligns with the overall trend in Stats SA’s Producer Price Index (PPI) for January, which recorded a
1.1% y-o-y increase, though the levels differ.

Figure 1: Total Mining Input Cost Inflation

Source: Statistics SA & Minerals Council SA

Figure 2: Annual change in key components of Mining Input Cost

Source: Statistics SA & Minerals Council SA

Excluding financing costs – given that the prime lending rate was reduced to 11% at the end of January
(with the full impact expected in February’s data) – electricity prices remained a key driver of mining
input cost inflation, rising by 10.9% year-on-year (y-o-y) in January. The cost of other chemicals and
synthetic fibers also remained elevated, increasing by 10.7% y-o-y. This was driven by higher prices
for mining chemicals such as hydrochloric and sulfuric acid, prepared explosives, and chemical
catalysts.

NERSA’s approved electricity tariff increase of 12.72% for 2025/26 will take effect later this year. For
direct Eskom customers, the increase will apply from April 1, 2025, while mines receiving electricity
through local municipalities will see their rates rise from July 1, 2025. This increase, combined with
the annual winter tariffs set to begin in June, will once again exert pressure on mining input costs.
However, we expect inflation to ease or stabilise this year, allowing for a more favorable prime lending
rate environment and providing some relief from high financing costs. As outlined in our monthly CPI
commentary, assuming the SARB continues adjusting rates in 25-basis-point increments, consensus
expectations point to two additional rate cuts in 2025. That said, this outlook faces two key risks.
Domestically, a potential VAT hike and other tax increases could push inflation higher while weighing
on economic growth. Globally, supply chains and commodity prices remain vulnerable to geopolitical
developments. These include global tariff wars, the ongoing conflict in Ukraine, and tensions in the
Middle East.

On a positive note, the mining sector benefited from a stronger nominal exchange rate compared to
the previous year, with the nominal effective exchange rate appreciating by 4.7% y-o-y. This
improvement helped reduce the cost of imported intermediate inputs. However, as seen in recent
month-on-month movements, the rand’s gains have largely reversed, and its current weak level is
adding short-term pressure to imported input costs. Additionally, the annual cost of coke and refined
petroleum products dropped by 5.8%, providing some relief from inflationary pressures. Intermediate
mining and quarrying inputs also declined, by 5.6% y-o-y, further easing cost pressures in the sector.

Figure 3: Monthly Mining Input Cost Changes

Source: Statistics SA & Minerals Council SA

January was a particularly challenging month, with prices rising across the board and recording
month-on-month increases. The top three components that saw the highest increases were transport
and storage costs, driven in part by higher road transportation expenses; the depreciation of the
nominal effective exchange rate by 2.1% m-o-m, which added to cost pressures; and wholesale and
retail trade subcomponents, which also recorded significant price increases.

Figure 4 below illustrates the y-o-y increase in mining input costs per commodity subsector. The
difference in input cost inflation levels is attributed to the weighting of individual components based
on the economic structure of the commodities.

Figure 4: Commodity-Specific Input Cost Inflation

Source: Statistics SA & Minerals Council SA

At the start of 2025, the other mining and quarrying sector recorded the highest average increase in
input cost inflation. This category includes a range of mining operations, from phosphate to slate
extraction. Following this, the iron ore, gold, and chrome sectors saw the next fastest rise in input
costs.

Conclusion: Global macroeconomic and geopolitical developments are set to significantly impact South Africa’s
mining sector in 2025. The U.S. Energy Information Administration (EIA) forecasts Brent crude oil
prices to average $74 per barrel, down from $81 in 2024, driven by increased global oil production
and slower demand growth. While oil prices may stabilise, geopolitical tensions – such as ongoing
conflicts in Ukraine and trade disputes between major economies like the U.S. and China – pose risks
of disrupting supply chains and impacting commodity prices.

Domestically, the National Energy Regulator of South Africa (NERSA) approved a 12.72% electricity
tariff hike, effective from April and July for different customer categories. This is expected to drive up
operational costs for mining companies. However, there is some potential relief, as the consensus
view is that the South African Reserve Bank (SARB) will reduce the prime interest rate by 50 basis
points this year. In our opinion, while we believe only a 25 basis point cut is likely this year, we still
hope to be proven wrong and see a larger, 50 basis point reduction, as that would provide greater
relief to financing costs.

Overall, while stable oil prices may provide some respite, the mining sector will need to navigate
uncertainties in both global and domestic markets. Escalating geopolitical tensions, domestic policy
changes, and currency fluctuations all remain significant risks.

André Lourens
Economist
Cell: +27 (0)73-614-6161
Tel: +27 11 498 7100
Email: alourens@mineralscouncil.org.za

Image credit: Statistics SA & Minerals Council SA/ Adobe Stock