Miners should brace for more turbulence

Market research organisation BMI, a Fitch Solutions company, says SA’s mining industry is set for more headwinds due to “lacklustre reform” in the mining sector, worsened by the backlog in mining rights and permits that hamstring investments.

By December 2023, the department of mineral resources & energy had not processed any of the 2,525 mining licence applications for the financial year 2023-24, signalling a “worsening backlog”, said Olga Savina, senior metals & mining analyst at BMI.

“With a previous backlog of 5,326 applications reported in February 2021, the inefficiency deters mining investments in the country due to the apparent incapacity to handle application volumes, potentially stifling exploration efforts,” Savina said.

“This stagnation, aggravated by the department’s failure to implement an effective online mining cadastre to enhance mining and exploration rights management, weighs on the industry.”

The department in January chose PGM Consortium as the preferred bidder for its “useless” Samrad system for mining applications. The consortium comprises GeoTech Systems, MITS Institute and Gemini GIS & Environmental Services. 

BMI said the introduction of an electronic cadastre system was expected to streamline the processing of mineral rights applications, spur greater investment and promote the sector’s expansion.

“The launch of a government mining exploration fund is likely to offer support, albeit modest, to the mining sector’s outlook.”

Savina said that after a decline in 2023, the SA mining industry was projected to face a further contraction in 2024 due to persistent challenges linked to power supply disruption, rail and port bottlenecks, which had curtailed exports.

BMI expects the coal industry to particularly come under further strain as weak coal prices weigh on the sector.

“Our thermal coal price forecast of $150/tonne for 2024 marks a significant departure from the annual average of $358/tonne reached in 2022. Given that the coal industry represents a large portion of the broader mining market in SA, it will be challenging to offset the losses resulting from the structural decline of the coal sector in the coming years,” Savina said.

Weaker price

The World Bank also expects the price of coal to weaken further in the next two years, adding pressure on domestic coal exporters, which are already battling Transnet inefficiencies.

The Washington-based lender in its latest Commodity Markets Outlook released earlier this month said prices for Australian and SA coal fell about 8% in the first quarter due to substitution away from coal in the power sector.

The price of Australian coal was 47% lower than a year ago, while the price for SA coal fell 30%.

BMI said the upcoming elections in SA would affect infrastructure and the mining industry. Though it had pencilled in a low probability of an ANC-EFF coalition, such a tie-up would have a major adverse impact on the competitive landscape in the road construction sector.

Savina said efforts to tackle a shortfall in investment for mineral exploration in SA were likely to continue under an ANC-led coalition with smaller parties.

“From a mining regulation perspective, given the ideological differences between the two parties and the EFF’s calls for the nationalisation of SA’s mines, we expect this coalition would result in high mining regulation policy uncertainty, acting as a deterrent to mining investment and further weighing on our outlook for the mining sector,” Savina said.

“Overall, energy stability remains a top priority for all leading parties, representing an upside risk for the domestic mining sector. Given a unified political focus on addressing the ongoing load-shedding issues, this commitment provides a promising opportunity for advancements in resolving SA’s electricity challenges after the elections.”

khumalok@businesslive.co.za