Registered users can save articles to their personal articles list. Login here or sign up here

Exploration dies in SA while booming elsewhere in Africa

Why investors are steering clear of exploration in SA.

The Mining Indaba in Cape Town is an opportunity to showcase SA’s vast untapped mineral resources, but each year seems to reinforce our fading significance as a mining power.

Burkina Faso, Nigeria, Democratic Republic of Congo, Ghana, Mauritania and Niger are just some of the countries that have come to Cape Town to rub our noses in our imperial decline.

Twenty-five years ago, SA ruled the world in gold production. Today, we just about make it into the world’s top 10 producers. You can blame that on the enormous cost of mining at up to depths of four kilometres, but that does not explain the death of exploration in SA.

Without exploration, mining has no future. Can mines minister Gwede Mantashe steady this listing ship? Can SA mining ever recover?

Yes, it can, because of some amazing technologies that will extend the commercial lives of many mines and open up new resources for exploitation. Many of these technologies were on display at the Indaba.

But the real drag on mining investment is a hostile relationship between those who provide the capital for new projects and the government. Some of Mantashe’s predecessors were dreadful, with no understanding of the business of mining. Mantashe, to his credit, introduced the new Mining Charter and killed off the one clause that would have euthanised mining in SA – the requirement that mining companies had to keep on topping up BEE shareholders whenever the old ones sold out.

Read: Mantashe hopes new Mining Charter will serenade investors

Exploration pariah

But still investors steer clear of SA exploration. Australia, Canada, Mali and Ghana have no such problem. Their mining teams are brimming with confidence. John Welborn, CEO of Australia’s Resolute Mining, says the group is launching a fully automated gold mining operation in Mali. US mining group Barrick has acquired Randgold and is now headed by South African mining stalwart Mark Bristow. Once as South African as biltong, Randgold has long since departed these shores.

Read: Lessons for SA from Brazil

Peter Leon, co-chair of Herbert Smith Freehills’ Africa group, says part of the problem is the clunky South African Mineral Resources Administration (Samrad) system, which takes a year or more to process a mining exploration application. He compared this to Brazil, Mozambique and Ghana, where licence applications are typically approved in weeks. Brazil and Ghana effectively removed licensing from their respective minerals resources departments to improve efficiencies and turnaround times. SA’s department of mineral resources (DMR) has closed two regional offices, citing reasons of maladministration, which has further strained administrative capacity.

In his opening address on Monday, Mantashe referenced the need for more exploration, adding that he has directed the Council for Geoscience to enhance mapping of SA’s orebodies.

Some saw this as an obligation on mining companies to share their exploration data with the council in future. Mining houses typically treat exploration data as secrets, not to be shared with anyone. Improving the country’s geological mapping would not be sufficient to trigger new investment, says Webber Wentzel partner Manus Booysen.

‘Wrong message’

Leon adds that the debate around land expropriation is sending the wrong message to international investors, and this too is likely dissuading them from investing in exploration. “When you interfere with property rights, you are definitely sending the wrong message.” The land expropriation debate may be a red herring, he adds, as government effectively expropriated minerals rights when it passed the Mineral and Petroleum Resources Development Act in 2002.

The new Mining Charter appears to have pleased some miners, if only because the previous iteration was seen as a disaster for the sector. But the new version is far from perfect, says Leon, although it is an improvement. New BEE procurement targets for goods and services (as high as 80% for services) may be unrealistic and difficult to police. The weight of the regulatory burden on miners and doubts over the security of property rights in SA has all but killed off exploration for now.

Another sign of the toxicity of exploration is the lack of take up of tax benefits under Section 12J of the Income Tax Act, which was introduced in 2009 in large part to stimulate mining exploration. That this hasn’t happened should give Mantashe and the DMR some urgency in addressing the backlogs in processing applications.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   17

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

A hostile underground environment, a hostile government, and a hostile work force. What’s not to like?

A further major headache for explorers and potential explorers is the lack of information regarding existing mining and prospecting licenses. When I worked for a major mining house a few years ago it was nigh impossible to determine who held what ground and what was available for application. Finding out required hiring some expert to go and dig through records at the DMP.

What SA should be doing is improving their licensing platform and making this public (based on the Australian, Canadian, Peruvian and other models). Even the DRC, Guinea, Sierra Leone etc have overtaken SA in this regard and it is now possible to view their licenses through an online portal (provided by Cape Town based Spatial Dimension). I am sure Spatial Dimension would have lobbied the DMP to sort this out but have seemingly not been successful to date. A transparent system however would not be welcomed be all as it would prevent opportunistic and dubious applications (such as Crown Imperial Trading’s attempted takeover of Kumba’s 21% interest in the Sishen license).

Spatial licensing information is updated daily in Australia and can be downloaded for free. This makes it possible to get an immediate picture of who holds what and what the licensing terms are. Companies are also compelled to submit quality annual exploration reports (and the underlying data). These reports are then kept private for 5 years (giving companies sufficient time to complete exploration etc) and are then released to the public.

Implementing these sorts of improvements will probably add a lot more value than having the Council for Geoscience enhancing the “mapping of orebodies”.

Wow! Very insightful. It’s a wonder SA hasn’t implemented this, I can fathom the reason(s) why, as you mentioned. But ja, in SA we seem to do everything backwards…

Would you invest in SA if you were a foreigner when there is plenty of competition?

It would be interesting to see a comparison of BEE and AA laws with other African countries.

I think the real madenss is not even empowering exploration companies to be based in SA to explore in Africa. The expertise in services to the mining industry probably ranked in the top five in the world in its heyday; some firms are still strong (SRK). ANC government antipathy destroyed a massive potential foreign currency earner for SA as they could not even comprehend it, let alone support it.

Exploration is needed to open new mining opportunities and keep existing ones going…….just as keeping infrastructure up to date….none existing in Africa.

http://www.gpwonline.co.za/Gazettes/Gazettes/41714_15-6_MineralandEnergy.pdf

Mining charter (or manifesto) preamble (very first paragraph):

“The systematic marginalization of the majority of South Africans, facilitated by exclusionary policies of the apartheid regime, prevented Black Persons, as defined herein, from owning the means of production and from meaningful participation in the mainstream economy. Through its continued support and implementation of discretionary policies and practices, the mining and minerals sector, which dominated the South African political and socioeconomic order, brought about inequalities in the mining industry.”

When you get to the objectives of the charter, growth of the industry is listed below state ownership of resources, imbalances of the past, rights of black persons, social and economic welfare of communities and labour, ect…..

As a potential investor in South Africa, are you still interested?

Once you’ve spend serious capex you will spend serious opex for years before (if?) you start making profit. Meanwhile the workforce will be putting unfair demands to you, the ‘capitalist’. And those profits will be heavily taxed. And it won’t be long before someone wants to ‘nationalise’ your investment – because ‘it belongs to all people and not only a capitalist few’. And expect BBBEE and other regulations to change every year until you spend so much money and time on simply staying ‘compliant’.

This is not rocket science guys; It is simply entrepreneurs and investors that can get much better results by spending their time and money in other countries.

Why explore if the mine you start is subject to all the vagaries of incompetent governments?

The article byline should have simply read “Why investors are steering clear of expropriation in SA”

Amazing the amount of low hanging fruit available in SA, it will take some unpopular decisions but you could have this economy growing rapidly and inclusively in no time…meanwhile the EFF want to nationalize all mines, banks and land (I’m sure others will follow).

If you are interested in Gold – don’t buy shares (you are only buying bad management and Union trouble!), rather buy the physical.

Ramageddon methinks empowered the trade unions since his days as trade union activist. He has been playing the ‘inside game’ for many years, suggesting he is more comfortable as a powerful insider than as a radical reformer”.

The ANC/Cosatu alliance together with the militant red overall like aggression and hostility of lots of workers in the mining industry, has already scared most reputable investors away. It’s just not worth it and I wouldn’t be surprised to see this industry been nationalized first.

We are fast approaching the stage of the ultimate inversion: the stage where the government is free to do anything it pleases, while the citizens may act only by permission; which is the stage of the darkest periods of human history, the stage of rule by brute force.
Ayn Rand.

The Anc has to take a risk-scrap EWC. We need certainty of property rights otherwise people will hear words and not have facts. There is NO half measure.

In any event EWC will fail-imagine the tiff about who gets what, excluding his royalest of highness’s (the Zulu Kings) millions of hectares etc. Any debt on the property and then what? It cannot work-neither can the NHI-neither can most of the continents population.

South Africa is the country that blew it. I look around and see this tragedy unfolding in every sphere of live around me.

Sounds like the ANC Government to me: Handed the world’s no. 1 mining industry 25 years ago and today’s it barely makes the top 10. Their supporters must be proud of a magnificent effort. You really have to be talented to do this badly yet these know-it-alls carry on like they walk on water.

Load All 17 Comments
End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

Podcasts

GO TO SHOP CART

Follow us:

Search Articles:Advanced Search
Click a Company:
server: 172.17.0.2