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.
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.
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.
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.