It was a single comment at a recent junior mining conference that put into context a major part of the problems besetting SA’s mining sector and it ties into the government’s inability to comprehend regulatory stability as the basis for investment decisions.
Peter Leon, a veteran mining lawyer now with Herbert Smith Freehills, said that when the first Mining Charter was agreed and implemented from 2004 the document was taken on a joint roadshow by officials from the then-Chamber of Mines and from the then-department of minerals and energy.
PODCAST | Business Day Spotlight - Government, Eskom & Sasol are on the hook for "Deadly Air"
During the roadshow the South African delegation made clear to investors and potential investors that the 26% black economic empowerment ownership levels were final and immovable, Leon said at the conference.
‘Show me charter four and charter five and then I’ll make an investment decision’
However, fast forward to 2017 when the third iteration of the charter was released by the controversial mines minister Mosebenzi Zwane, the ownership level was pushed up to 30% among broader changes.
The industry had in the runup to 2017 consulted broadly with organised labour, communities and other organisations to come up with an alternative to the charter. Its hopes of a different approach to transforming the industry were dashed by Zwane, who had, the chamber argued in court papers, largely ignored its inputs.
When Gwede Mantashe, a battle-scarred veteran of the National Union of Mineworkers, the SA Communist Party and the governing ANC, took over from Zwane in early 2018 and scrapped Zwane’s charter and avoiding a damaging court case, the industry hoped for the best.
However, Zwane’s charter formed the basis for talks and, while there were concessions on some key points, the 30% remained intact along with a number of other clauses that the Minerals Council SA has taken to court for review.
It was Zwane’s comment about providing the much-sought-after regulatory certainty that underpinned the broader inability of the government to truly comprehend the fundamental need for certain policies and regulations and the need for those to be good laws.
It was the breaking of the commitment around the 26% that scuppered investors’ views of SA’s mining sector because at that minute all assumptions of long-term stability, particularly around the contentious issue of ownership, fundamentally changed, argued Leon.
With the charter now regarded by the department as a “quasi-legislative” document that the minister can change at any time and put in any clauses the department fancies, it has done exactly the opposite of Mantashe’s stated intention of bringing regulatory stability to the industry.
As Paul Miller, a former banker specialising in mining and now head of an investment fund, points out: “Show me charter four and charter five and then I’ll make an investment decision. It’s been changed once and now the way is clear for it to be changed again and again. Where’s the certainty in that?”
With investments in exploration, mine development and operations running to decades this uncertainty means that nobody involved in mining funding can definitively say what the next five, 10 or 15 years looks like in terms of the mounting obligations placed on the sector’s participants.
Delegates at the junior mining conference had a simple request to the government: reduce the regulatory red tape and demands and grow the sector, which has potential far beyond the gold bedrock on which the South African economy was built over a century.
Mantashe acknowledges the mining industry in SA is far broader than gold, with the world’s largest known deposits of platinum group metals, chrome and manganese and sizeable resources of iron ore, vanadium coal, diamonds and other minerals.
The minister appears unwilling to try catch the falling knife that is the gold industry which has gone into a steep output decline since the electricity shortages of 2008 that forced early closure of marginal mines. Gold mines are by and large old, deep — Mponeng near Carletonville is the deepest in the world at 4km below surface — and they are contending with falling grades and productivity.
Gold mines costs are well above R500,000/kg and there are no new gold mines. There are unlikely to be large new investments as long as electricity prices increase the way they do and some unions try to bring companies to their knees in five-month strikes to force through wage demands.
The Minerals Council has warned that the electricity price hikes of a cumulative 30% over the next three years on top of the 523% hikes since 2006 will leave two or three gold mines operational at best. The warning has gone completely unheeded by the government as panic around Eskom and political ideology is put ahead of saving a dying industry.
However, it’s not all gloomy. There are other minerals and other investments in SA, looking at the world’s most profitable platinum mine, Mogalakwena owned by Anglo American Platinum, the $2bn deepening of De Beers’ Venetia mine, and the soon-to-to-restarted Prieska copper and zinc mine owned by Orion Minerals. Bushveld Minerals has an aggressive vanadium production expansion plan, while Northam Platinum is considering restarting the mothballed Eland mine.
It must be noted, however, not one of these is a new project or a new discovery. The pipeline of known deposits that can be brought to account is now running close on empty. Clearly the way the industry is being regulated, coupled with a shambolic electricity monopoly, political ideology and militant labour, is not working.
There needs to be a deep rethinking of all these factors to allow such a critically important industry to not only survive but to flourish.