Exploration on hold as South32 awaits charter
South32 says mining exploration in SA is out of the question for it until the draft mining charter is finalised.
The diversified mining and metals firm, which released annual results on Thursday, said while it was on the lookout for greenfields opportunities and already had exploration projects in countries ranging from Peru to Alaska and even Sweden, SA was not on its radar.
Investors have shunned SA’s mining sector in the face of uncertainty over mining policy.
“Quite honestly, until we see how the mining charter and the free carry lands, it’s very hard to invest in exploration in SA,” said CEO Graham Kerr.
The third draft of the charter, due to be finalised before year-end, proposes all new mining projects must give a “free carry” of 10% of the business to communities and employees, from the get-go. With proposals such as these, SA just does not stack up against other jurisdictions South32 is exploring, Kerr said.
The future of mining in SA is precarious as exploration budgets have reduced over the past decade. In 2008, SA’s exploration budget amounted to $363m, but in 2017 was $87m, according to data from S&P Global Market Intelligence.
THE FUTURE OF MINING IN SA IS PRECARIOUS AS EXPLORATION BUDGETS HAVE REDUCED.
For the year ended June 30, South32 profits increased 8% on higher commodity prices.
Avior Capital analyst Matthew Shields said the performance was partly derived from higher alumina and aluminium prices boosted by increased trade tensions, US-imposed sanctions on Russia and China’s move to improve environmental conditions.
Grant Sporre, at Macquarie, said South32, in contrast to many of their larger peers, also beat expectations on costs, and cost guidance in some divisions actually decreased.
South32’s assets, spun out of BHP Billiton in 2015, generally have a short mine life but in recent years the firm has been seeking life extension options for its operations, said Shields.
Sporre said he thought the company had assembled a good portfolio of growth options.
This portfolio will exclude the SA Energy Coal operations, which were spun off in a stand-alone business in April.
“It’s a great business,” said Kerr, noting there were good opportunities in the local market in light of Eskom’s coal supply shortage. But given the utility’s procurement policy favouring majority black-owned suppliers, “the only way to grow is to have a different ownership structure”, he said.
Kerr said South32 remained committed to its manganese and aluminium operations in SA.