Mining’s bleak future
Without properly funded exploration, the long-term future of the industry in SA will be nonexistent. The problems lie not with the mineral resources, but with regulatory and legal aspects
The world’s global resource funds, whose interest in mining investments has risen in the past year, have SA in the same category as countries such as South Sudan. It is regarded as pretty much a no-go area, said speakers at last week’s 2017 Junior Indaba.
This is bad news for attracting foreign investment into exploration. According to S&P Global Market Intelligence, Southern Africa attracted only 4% of global exploration budgets last year, against Canada’s 14% share and Australia’s 13%. West Africa attracted 5%. Without investment in exploration, SA’s mining industry has no long-term future.
The annual two-day Junior Indaba, organised by witty and outspoken former Harmony Gold CEO Bernard Swanepoel, attracts about 200 representatives of junior mining companies and advisers from Southern Africa. Canvassed for their opinions, delegates said it was not the quality of a mineral resource that could make or break a project, but the legal and regulatory environment.
No representatives from the department of mineral resources attended the indaba, illustrating the widening gap between SA’s regulators and the companies they regulate.
Hulme Scholes, a director of legal firm Malan Scholes Inc, summed up the problems. He said the original Minerals & Petroleum Resources Development Act (MPRDA), read in conjunction with the first mining charter, was well designed, with the aim of transforming ownership of the mining industry. Around the time the legislation was being developed and enacted, from 2002 to 2007, there were a lot of investments.
"The regulators were accessible and knew what they were doing," Scholes said. "It went well. Then the regulations became more complex and [they] have now got to a point where they are unworkable and counterproductive. That is partly because decisions were originally administrative. Now those decisions have become political.
"Another reason for this regulatory uncertainty is leadership. Under minister Susan Shabangu decisions were taken. Even a bad decision is workable, because it can be challenged. Now no decisions are being made."
Jacinto Rocha, former deputy director-general of the department responsible for mineral regulation in the 2000s and now director of his own company, Mineral Investment Advisory Services, said there were inevitably weaknesses in the original legislation but it would have been expected that future generations would fix them.
This has not happened. A lot of the bureaucrats in the department who understood the legislation and its vision have left. Those who are implementing it have only three to four years’ experience.
Several of the speakers emphasised the need for what is being called an "MPRDA Lite" for junior miners, referring to a regulatory framework that would be less expensive and onerous than that applying to the biggest mining companies.
DA mineral resources spokesman James Lorimer said his party would support this idea. "The junior sector is the entry point and we have to look specifically at their issues — slow and uncertain regulation, corruption."
But a member of the audience said Lorimer was contradicted by the DA’s frequent opposition to new coal projects, where it seems to take the side of farmers against miners.
Lorimer said even though the DA wants to make it easier for junior miners to start up, this does not mean environmentally unacceptable projects should be allowed to proceed. Several recent coal projects that applied for licences fell into that category.
Speakers said certain commodities were attracting investment into junior mining — particularly lithium and cobalt projects, because of their applications in new battery technologies.
While SA has little known lithium and cobalt resources, it does have the world’s biggest resources of manganese.
Alan Clegg, chairman of Shumba Energy, which has coal to power projects in Botswana, said there is more copper, cobalt and manganese in the new batteries than lithium. Shumba is looking at potential manganese projects in SA and at uranium.
Globally, most exploration spending is in the gold sector. DRDGold CEO Niël Pretorius said demand for gold from the world’s rapidly urbanising population is outstripping supply from mines. This suggests that when the gold price starts to respond it will do so in a big way and could surge from US$1,200/oz to $3,000/oz.
"Now is a good time to explore for gold but the regulatory environment, especially security of tenure, and the accessibility of orebodies, will be determining factors," Pretorius says.