How SA can help lure more mining exploration

Reduce the risks companies face, put tax incentives in place and privatise infrastructure

SA’s mining sector has remained a stable, important contributor to the economy in terms of employment, exports and productivity. But a storm is brewing due to the low level of exploration and ageing assets, and it may undermine SA’s status as a mining power for decades.

In 2019 mineral resources & energy minister Gwede Mantashe announced the goal of SA achieving 5% of the global mining exploration budget within the next three to five years. It’s a sensible target; SA is one of the world’s wealthiest non-petroleum mining jurisdictions with more than $2.5-trillion in minerals. It also has more than 70% of the world’s manganese and platinum, two highly sought-after critical minerals.

But SA is now facing the dual challenge of ageing assets and dismal levels of exploration to facilitate development of new mines. The country hasn’t received 5% or more of the global exploration budget since 2004. It is now sitting at 0.8%. In absolute dollar terms, exploration is at its lowest since 2002. With the exception of manganese, no major new assets have been identified.

It is estimated in a report released by PwC earlier in October that SA’s iron ore industry may survive for only 13 more years without additional efforts to explore, identify and extract new deposits. It’s a jarring realisation considering SA is among the world’s top 10 producers of iron ore, a key input for steel.  

From a resource endowment perspective, SA should be a commercially lucrative consideration for exploration. But our data shows this is not enough. Even eye-watering demand forecasts haven’t been able to tilt the scales on exploration expenditure in SA. It is thus time for policymakers to assess what interventions are required to create a more enabling environment for mineral exploration. Here are some suggestions: 

·        Leverage more tax incentives to encourage exploration. In Canada the government of British Columbia made two temporary tax incentives permanent to boost stability. One is the mining flow-through share tax credit, which provides a nonrefundable income tax credit to individuals who have purchased flow-through shares from a British Columbian mining company. The other is the mining exploration tax credit, which provides a refundable income tax credit for eligible individuals and corporations doing grassroots mineral exploration in the region.  

·        Privatise infrastructure. State-owned transport utility Transnet has failed to improve rail infrastructure to transport bulk commodities. At this year’s Mining Indaba in Cape Town, Mantashe said the failure of the rail system has cost firms $8.5bn of bulk mineral sales. Thus, privatisation is key to improve the cost and reliability of transporting commodities, and any sort of investment cost benefit analysis or feasibility analysis would take infrastructure quality and cost into account. 

·        Strengthen the stability of mining-related policies. Mine exploration is expensive and has an estimated success rate of less than 1%. Policy instability is only seen as a further risk to an already risky process. Data from the Fraser Index shows that investor scepticism rose significantly after the Mining Charter III situation. By the time it went into effect in 2019 the charter had left companies in limbo for three years and still landed up in the high court. This ushered in uncertainty, costs and project stoppages. If you want firms to explore you need to reduce the risks they face — not increase it. 

Mining companies don’t play on political lines; they’re in the game for commercial returns. SA has rich reserves of critical minerals with strong demand and price forecasts for the next 30 years. But the hesitancy to explore is a result of companies seeing more risk than possible reward — and that’s rather damning.

Active intervention is key for economic stability. In the first half of 2023 mining contributed to more than half of all exports and employed more than 470,000 in a country with more than 30% unemployment. A slow demise for SA’s mining sector will have significant, far-reaching economic implications.

The Mining Indaba is coming up in a few months. Before it, it would be great to see SA bring policy reforms to show it’s serious about attracting mining exploration investments. 

SA has received low levels of exploration for a long time. Weak exploration for another few years will translate to a strangled mining sector for the next 30 years, as assets continue to age and then close across various commodities. It can take a decade to bring a deposit to full production — it’s no overnight exercise.