Investment in South African Mining

by Ina King (Potgieter) April 01, 2019

The theme for this year’s Mining Indaba was “Invest in South African Mining”. President Cyril Ramaphosa and Minister of Mineral Resources Minister Gwede Mantashe, both keynote speakers at Cape Town’s Investing in African Mining Indaba, were positive about the future of investment in SA Mining. “As government we regard the mining industry as a key player in the future growth and development of our economy,” said President Ramaphosa.

“Investors in the SA mining industry now have certainty about what legislation expects them to do,” said Minister of Mineral Resources, Gwede Mantashe at the start of the 2019 Investing in African Mining Indaba.

Mining in SA has for years had to contend with high costs, labour unrest and regulatory uncertainty, with the resultant job losses pushing employment in the industry down to 450 000, from more than 500 000 a decade ago. Minister Mantashe assured local and foreign investors of greater policy certainty under the Ramaphosa administration. He said that the development of new minerals will reverse the decline in the industry and raise its contribution to the South African economy from the present 7% of GDP to 10% in three to five years.

Mantashe’s upbeat address opened the 2019 Indaba, and he reassured the 7 000 delegates that South Africa is open for mining business and ready to work with them in addressing remaining impediments to investment. “We can say with confidence that South Africa provides a conducive environment for investment, and that we have a stable regulatory framework which provides security of tenure for investors.”

President Cyril Ramaphosa made his intentions clear by being the first SA President to address the Mining Indaba. One of Mantashe’s prime objectives when appointed to his role a year ago was to re-establish a relationship with the mining industry, which his predecessor Mosebenzi Zwane had all but destroyed. "In Minister Mantashe and President Ramaphosa, we have a government willing to engage and listen, not only over broad policy issues, but also the detail of what different mining sectors need to develop and grow into the future," said Minerals Council CEO Roger Baxter. Gwede Mantashe has indicated that he’s willing to walk the talk.

Throughout his address, President Ramaphosa echoed the sentiments of Minister Mantashe, assuring stakeholders of government’s commitment to creating an enabling environment for investment in mining. Team South Africa is firmly behind a thriving mining idustry for the benefit of all South Africans.

A Sunset Industry?

South Africa’s mining industry has a long history in our country, spanning over 150 years. We hear talk of mining as a ‘sunset industry’ but recently there has been an attitude and semantic shift.

A ‘sunset industry’ is defined as “an older industry that continues to be important to an economy but is losing favour with investors due to its steadily falling employment generation capacity and profits, and comparatively higher environmental costs.”

While that seems to fit SA mining to a point, Team South Africa sent a very different message to international investors - SA is building an economy that is underpinned by inclusive growth, competitiveness and transformation. South Africa is becoming more investor-friendly for mining companies and has improved its global ranking in terms of attractiveness of its mining policies. “The South African economy has a lot to offer, and that opportunities for growth are in abundance,” said President Ramaphosa. “Our view is that mining in South Africa is a sunrise industry.”

Roger Baxter, CEO of the Minerals Council South Africa agrees that our mining potential is huge. “Even in the absence of a Greenfields exploration boom in South Africa, mining investment could almost double in the next four years if the country was to return to the top 25% of the most attractive mining investment destinations worldwide.” Mining plays a significant role in the economy of South Africa. Baxter pointed out that mining investment would result in another 200 000 jobs being created in the economy with 50 000 direct jobs created in mining alone. “Given the industry’s commitment to real transformation, this would also materially advance the entire country’s transformation agenda.”

The tide appears to be turning... The mining industry and Minister Mantashe have addressed many of the concerns that have held back investment and growth. It appears that now is one of the best buying opportunities in years. The President stated: “It gives us confidence that we can develop an industry that benefits communities as much as it produces returns for shareholders.”

It’s Darkest before the Dawn

South African investment advisor and gold fundi, David Melvill, believes that “it is ‘darkest before dawn’”. He says that there is definitely light for SA’s mining industry future. It certainly looks that way. Under the leadership of President Ramaphosa, Minister Mantashe, Trade and Industry Minister Rob Davies, Minister of Science and Technology Mmamoloko Kubayi-Ngubane, and Minerals Council CEO Roger Baxter, we are set to blaze new trails in the mining sector.

According to the Fraser Institute’s annual global survey of mining jurisdictions released last week, South Africa has improved its ranking by 25 spots, compared to 2017’s 81st spot. “This shows that working together with stakeholders in the sector, it is possible to realise South Africa’s potential of being in the top 20 in terms of its attractiveness to the investment community,” said Mantashe. “Notwithstanding our long heritage of mining, we remain highly attractive for investment in the renewal of the mining sector that will discover world-class mineral deposits,” he said.

The World Platinum Investment Council’s 2019 forecast shows global demand for platinum is set to increase by 5% to 7,740 koz. This increase is due to the expected significant rise in investment demand, which offsets weaker forecast demand in automotive, jewellery and industrial segments. Total investment demand in 2019 is forecast to be 530koz, as strong growth in ETF holdings reverses the net reduction in 2018 and adds another year of strong bar and coin demand. Investors rapidly increased their ETF holdings in the first few weeks of 2019 across western markets and South Africa. Paul Wilson, CEO of WPIC said “It is encouraging to see investment demand for platinum growing rapidly in 2019, and we expect this trend to continue.”

Roger Baxter has said that he believes the economic and transformational potential of mining is vast. Commenting on the Fraser Institute and WPIC’s forecasts, he said “The significant improvement from being close to the bottom decile of the Policy Perception Index (PPI) league table at 81st out of 91 jurisdictions, to about two-thirds of the way down at 56th position out of 83 can, we believe, be attributed to the early impacts of the shift of political leadership of the country and of the industry in 2018 with President Cyril Ramaphosa and Mineral Resources Minister Gwede Mantashe.” Baxter believes the industry’s commitment to real transformation will materially advance the entire country’s transformation agenda. And that can only be good news.

“Mining is not about rocks it’s about people”

So said Minister Mantashe, who declared that the era of exclusive focus on their shareholders had passed and the time for increased focus on the welfare of miners and mining communities had arrived. In addition, the mining industry has responsibilities in terms of occupational safety, regulation adherence and contributing to the country's gross domestic product. For the benefit of everyone and the country as a whole, these must be fulfilled. He said the time of mining companies seeking the interests of mining workers primarily without considering labour and communities was gone. "Our mining communities must be respected as that is where companies extract investment. They deserve to be respected," he said.

Mantashe recognises the importance of bringing together communities, labour and mining houses. Jonathan Veeran from Webber Wentzel said, “The mining minister has worked in the industry as a miner himself, and his familiarity with the issues underpins his realistic view. He understands that SA needs to make structural changes to unlock investment.” Government is also working to stamp out illegal mining both through legal measures against the criminal syndicates behind it and by granting licences to small miners. In the gold sector alone, over R70 billion in revenue is lost through illegal mining annually.

Conclusion: Assessing the State of SA Mining

Mining has been at the heart of the South African economy for over a hundred years and will continue to play a critical role in supporting the goals of the National Development Plan (NDP). Considered by many as a ‘sunset industry’, mining is contributing about 7% to GDP. This 'sunset industry' will remain an important cog in our economy.

Mining has become a complex business. The dynamics of stakeholder engagements and expectations, government regulations, and the technical and operational imperatives required from the business are just some of the challenges the industry must take into consideration.

As well as addressing risks like commodity prices, foreign exchange fluctuations and cost pressures, it is crucial to manage other key industry challenges: energy costs and the certainty of electricity supply; regulatory uncertainty; capacity of government to deliver in the face of state capture and the mess left by the Zuma administration; and safety (despite a downward trend in fatalities over the past 10 years, this is still the number one priority for the industry).

We must find ways to make mining safer, more efficient and sustainable, more integrated with the needs of local communities, while decreasing its environmental footprint. The Anglo American FutureSmart Mining Initiative, which uses drone technology to monitor movements of ore and labour, have remote-controlled drilling machines to access dangerous and previously inaccessible areas, utilise artificial intelligence and machine learning to improve operations and safety, is the perfect example of a focus on extracting more metal with less waste, while minimising cost and the environmental footprint.

There are certainly challenges facing SA's mining industry in 2019. It goes without saying that if we want the industry to grow and develop, changes need to be made to the way the industry is run. It appears the powers-that-be and Team South Africa are fully aware of what needs to be done and are committed to transformation. Continuous meaningful conversation, engagement with all parties, building trust between business, labour and government, and through a people-centred approach, the industry will flourish. We all look forward to mining becoming our sunrise industry.