Picture: 123RF / GILLES PAIRE
Picture: 123RF / GILLES PAIRE

Persistent policy uncertainty may cause SA’s mining industry to be left behind. Even as the global mining industry, including that of SA, has risen with a turning tide in commodity prices, decreasing exploration spend locally indicates investor confidence is declining.

While SA still compares favourably with other markets, investor-friendly African countries are increasingly drawing this spend away.

With a new Mining Charter still needing to be signed off, and the country facing the spectre of land expropriation, the mining sector’s appeal is waning.

According to a PwC report, the ninth edition of "SA Mine", recovering commodity prices in 2017 caused SA industry to return to profitability. Revenues were up 13% compared with 2016, and the mining sector swung back into the black, recording net profits of R17bn from losses totalling R46bn the year before.

Another PwC global mining report, "Mine 2018", showed the global industry revenues had grown 23% in 2017 and net profits had risen 126%.

Capital expenditure in SA and the rest of the world was at a 10-year low.

Everyone faced "the same primary challenge of supply-demand and everyone, at the very high level, gets affected", said Warren Beech, partner and global head of mining at law firm Hogan Lovells.

Some African jurisdictions were more attractive than SA, because they had become more investor-friendly, Beech said. In Ghana, gold mining remained big business and in the Democratic Republic of the Congo a new mining code has brought some certainty.

Exploration was a good barometer of investor confidence in a country, Beech said. "Our exploration has decreased year on year. Investor confidence is not great."

The S&P Global Market Intelligence’s "World Exploration Trends" report for 2018, indicates exploration for nonferrous metals rose 13% to an estimated $8.4bn in 2017. The data shows that in 2007 SA ranked first on the continent as recipient of an exploration budget of $403m, accounting for 3.36% of the global nonferrous budget. In 2017, SA was ranked fourth with an $87m budget accounting for 1.1% of the globe’s.

SA tracks Latin America closely, he said. "Latin America faces the same challenges as far as legislation, political risk and socioeconomic aspects are concerned," Beech said.

Some African jurisdictions were more attractive than SA, because they had become more investor-friendly, Beech said. In Ghana, gold mining remained big business and in the Democratic Republic of the Congo a new mining code has brought some certainty.

The development of the battery industry has rapidly rearranged priorities in the mining sector and now many eyes are back on parts of the African continent again, including the cobalt-rich DRC, to satisfy these needs, said Greg McNab, Toronto-based partner and global head of mining at Baker McKenzie.

DRC new code

Under a new mining code, the DRC may declare cobalt a strategic mineral and raise royalties significantly.  The industry will have no choice but to accept it, McNab said, "because of one of the fundamentals of the mining industry — this mine is where it is and you can’t just extract the resource somewhere else". Similarly, SA is where and what it is — a centre for technology development on the continent as well as the location of many valuable resource deposits, McNab said.

"SA is still a good destination for mining investment, because of the availability of extractable minerals, relatively developed infrastructure and mature banking and finance structures as well as relatively flexible exchange control provisions," Beech said.

Other jurisdictions with good opportunities, such as Australia and Canada, were expensive.

In Canada, McNab noted, red-tape made new projects a longer, more complicated and expensive proposition. Markets such as Latin America therefore continued in 2018 to attract more of the attention from companies that need to secure supply with certainty.

On the whole, SA compared favourably to many other countries, but policy and regulatory uncertainty continue to hamper progress, Beech said.

New policy from mineral resources minister Gwede Mantashe and the all-important Mining Charter are yet to be signed off. McNab said possible expropriation of land without compensation went to the heart of mineral deposits and should be resolved before the industry can move forward.

"It simply isn’t viable to have an industry that requires long-term certainty have this hanging as an open issue," McNab said. Beech said SA used to be unique regarding policy and regulatory and political uncertainty, but he warned it was becoming a global trend.

"The US plays a big role and while the election of Donald Trump to president bolstered metals markets, thanks to his pro-business agenda, now, metals such as chrome, iron ore, copper and manganese are severely affected as Trump’s trade war against China threatens to derail economic growth," Beech said.

Correction: August 13 2018

A previous version of this article had stated that the DRC had already declared cobalt a strategic mineral.

steynl@businesslive.co.za