Last week Sibanye-Stillwater, the world’s biggest platinum group metals producer, flagged a huge increase in annual profit, putting income-hungry investors in line for bumper dividends.
A few days later Anglo American Platinum gave a similarly upbeat profit guidance that almost certainly means much of the money would flow back to shareholders. Investors, some of whom have seen their income eroded by a host of companies trawling their coffers and hoarding cash to navigate the challenges posed by the pandemic-induced economic downturn, are partying like it’s 1999.
Nothing wrong with that. In fact, some of the cash returned to shareholders in the form of dividends and share buybacks could yet find its way into the economy via increased consumption that could give other businesses a reason to roll out warehouses and open new shopping centres.
But for President Cyril Ramaphosa, who has made attracting private-sector investment the cornerstone of a plan to put the failing economy on robust growth, the trend in the mining sector is another harsh reminder of how regulatory uncertainty and erratic power supply have knocked business confidence.
In most cases, lower interest rates, a supersonic rally in platinum group metals such as rhodium, which is used by car companies under pressure to meet tightening emission regulations, together with record profits would create a perfect environment for companies to plough money into new shafts, exploration and other growth projects.
But SA, the world’s biggest source of platinum group metals, is not a typical investor-friendly market, especially for mining companies, and it is no surprise to see companies choosing to dole out record dividends rather than lifting investment. The reasons have been highlighted, sometimes with blunt comments from the industry executives such as Sibanye’s CEO Neal Froneman, who has publicly denounced a regulatory uncertainty and power blackouts as among the reasons the company will not make further purchases or big investment in SA.
True, Amplats appears to be on course to detail growth plans later in February, including the expansion of the Mogalakwena opencast mine and plans for the Mototolo mine and its expansion into the undeveloped Der Brochen ground next door.
Even so, Ramaphosa and minerals and energy minister Gwede Mantashe cannot be left with the impression things are not looking too bad, or worse, take credit for it.
Roger Baxter, CEO of the mining industry body group Mineral Council SA, said last week that R20bn worth of projects are caught in a snarl of red tape and lack of movement by regulators. Other than broader issues like erratic power supply, uncertainty regarding the third iteration of the mining charter, over which the industry and government have been waging court battles, companies are also finding it difficult to secure exploration permits.
Mining exploration spending dropped to its lowest level in almost two decades with the country’s share of the global budgeted exploration coming in at just over $77.4m (about R1.1bn) in 2020, a 20% slump from the year before.
That spending was just 0.95% of the global total, far from Mantashe’s pledge in 2020 of attracting as much as 5% over the next five years. While a new exploration strategy, devised through negotiations between the Minerals Council, the Council for Geoscience and the department is in the works, there’s no faith in SA as a long term, investor-friendly emerging market.
“Unfortunately there is still diminished faith in SA as a long-term investment destination,” Henk de Hoop, a mining industry financial expert at Rand Merchant Bank, said in a statement this week.
“Factors such as an unstable power supply, outstanding issues around the mining charter and uncertainty around land expropriation without compensation make it difficult for miners to commit investment capital until there is greater clarity on how these challenges will play out.”
With the country’s finances looking so dire, the last thing we should be doing is to give the mining industry, which is riding a boom in commodity prices, reasons not to invest in an economy set for one of its deepest downturns.
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