Excluding crude oil, SA is the wealthiest mining jurisdiction in the world, with a non-energy mineral reserve value of more than $2.4-trillion. Yet over time a decline in the investment climate has undermined the sector’s growth. Of the $2.2-trillion spent on mergers, acquisitions and capital expenditure on natural resource projects globally between 2002 and 2016, less than 2% landed in SA.

Government support is critical to increase investments in the sector and enable it to be a catalyst for growth and development. On a macro level, a decline in the investment climate led to a 50% decrease in domestic acquisitions as listed companies withdrew between 2017 and 2018. In 2018, SA investors spent quadruple their domestic investments on international acquisitions.

The SA mining sector reflects this dynamic — AngloGold Ashanti has sold its last SA asset, while other firms are reconsidering their Johannesburg listings. The Fraser Institute survey of mining companies showed that SA’s investment attractiveness had declined 20 spots between 2019 and 2020, from 40th (out of 76) to 60th (out of 77).

Most recent investments in the mining sector have been in brownfield projects — expanding existing mines — rather than new investments. Sibanye-Stillwater CEO Neal Foreman has warned that only the best projects are meeting investment hurdle rates, the minimum rate of return required by investors, given the country’s poor investment climate.

While the recent decision to deregulate energy was a good first step, improving the investment climate within the SA mining industry would require a more stable regulatory environment and effective use of industrial policy to create incentives to develop backward and forward linkages.

Strengthening the platinum group metal (PGM) supply chain through investment incentives could build manufacturing capacity. This has proven successful in the past — the department of trade, industry & competition’s Motor Industry Development Programme incentive scheme led to a significant expansion in the manufacture of catalytic converters, for instance.

But since the programme was discontinued in 2013, projections for local PGM beneficiation via catalytic converters in SA continue to reflect a downward trend. Though the global market for catalytic converters is expected to grow at a compound annual rate of about 2.9% over the next five years, SA PGM producers have opted for long-term contractual agreements with major refineries and manufacturers in Europe, Japan, China and North America.

Support to the mining sector could be a catalyst for Limpopo and reduce hurdle rates in SA’s second-poorest province. Mining is the largest contributor to provincial nominal GDP in Limpopo (30%) and the North West (34%). Limpopo has robust mineral reserves, which include the largest copper, diamond, and open-pit platinum mines in SA and the biggest vermiculite mine in the world. The province has 41% of the country’s PGMs and 90% of its red-granite resources. In 2019, the mining sector employed 48,782 workers and paid out R39.7bn in compensation in the province.

Given Limpopo’s large endowments of PGMs, it has an important role to play in the clean energy transition, which can sustain growth in the long term. The US, China and EU have adopted tighter legislation on vehicle emissions and the EU has developed a new hydrogen strategy to achieve carbon neutrality. To meet stringent vehicle emissions standards, vehicles will require higher loadings of PGMs.

Attracting supply chain investments in manufacturing hydrogen fuel cell technology is an excellent opportunity for Limpopo given the sector’s growth. After the 2014 strike, Anglo Platinum opted to sell its unprofitable conventional PGM assets in the North West, including its Rustenburg mine. Meanwhile, the firm expanded its highly mechanised Mogalakwena operation in Limpopo. Likewise, Impala Platinum closed five unprofitable conventional operations near Rustenburg and invested in the construction of the Waterberg Project, a fully mechanised mine in Limpopo.

Mineral composition also plays to the favour of Limpopo. Mines there have higher palladium concentrations than those in other parts of the country, and palladium prices have increased 323% from $614/oz in 2014 to more than $2,600/oz in March. Palladium supply is in its ninth consecutive year of global deficit. In North West, the Bafokeng Rasimone mine has roughly 26.7% palladium, while the Union mine has an average of 29.3%. In Limpopo, Mogalakwena comprises 49% palladium while Waterberg has 63%.

Despite Limpopo generating a significant amount of revenue through the mining sector, the province remains underdeveloped. This was illustrated in the 2016 Community Survey, which showed just 76% of households have access to clean drinking water, compared to 93% in the Western Cape and Gauteng. Thus, increased revenue could be used to reduce interprovincial inequality.

Increased government support to the mining sector — through both an improved investment climate and industrial policy incentives — can be a catalyst for economic growth and equitable development.

• Dr Baskaran, a development economist, is senior research fellow at the University of Cape Town’s Development Policy Research Unit.


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