Without stents, mining industry is headed for a heart attack

Key blockages should be removed to repair its fading power of attraction

Perhaps it will make you chuckle as it did me: at the African Mining Indaba this week mineral resources & energy minister Gwede Mantashe urged mining investors to come to SA as load-shedding would be over within 12 months.

Recall that load-shedding started 16 years ago. No investor in his or her right mind would invest a lot of capital in the mining sector based on Mantashe’s word that this will suddenly change. He said himself that rolling power outages are costing SA a whopping $1bn a day. In 2022, there were 200 days of load-shedding, and this year is set to be even worse.

But the larger question extends beyond energy: why are investors avoiding a country with an estimated $2.5-trillion of mineral reserves? The risk outweighs the scope for profitability, which is impressive considering that SA has more than 75% of the world’s platinum, manganese and chromium.

The country attracts less than 0.8% of global mining exploration expenditures. SA has sustained low levels of investment within the mining sector, even after the licensing threshold for private power generation projects was lifted, suggesting there are systemic challenges.

SA is ranked among the world’s 10 least attractive mining jurisdictions, alongside Mali, Zimbabwe, Nicaragua and Venezuela. Not great company to be keeping.

One of my favourite sessions of this indaba was a fireside chat between two outgoing CEOs — Eskom’s André de Ruyter and Minerals Council SA’s Roger Baxter. An excellent metaphor was used in this conversation: the artery.

An artery is an essential part of the cardiovascular system — it is the highway that distributes oxygen-rich blood to the rest of the body. A clogged artery gives you a heart attack. In its current state, poor policies are clogging SA’s arteries. As Baxter noted, there is a desperate need to put in stents to open up the artery.

The following stents should be put in to bring mining investment back to SA:

·        Honouring fiscal and social agreements made with companies. Mining Charter III was a good example of failure in this area. By the time it went into effect in 2019 the charter had left companies in limbo for three years and landed up in the high court. And there is always a possibility that more changes are around the corner, particularly as the economy struggles and government seeks to transfer more responsibility to companies.

·        Strengthening transport infrastructure. State-owned transport utility Transnet has failed to meet demand for rail infrastructure to transport bulk commodities, due to supply shortages of key components, theft, and poor levels of maintenance. Mantashe said the failure of the rail system has cost firms $8.5bn of bulk mineral sales. Yet he has made no progress in helping to address this bottleneck. Privatisation is likely the only sustainable solution.

·        Alleviating administrative obstacles. There is a backlog of more than 4,000 applications for prospecting and mining rights, mining permits and renewals. Investors are unlikely to come to SA if they are required to wait years to begin exploration and mining, particularly when there are jurisdictions in which these permits can be acquired far quicker.

·        The enforcement of law and order around the mining sector, which is perhaps the hardest to overcome. In an interview at the indaba this week Sibanye-Stillwater CEO Neal Froneman noted that crime is spinning out of control. In the last quarter of 2022 more than 1,900 serious crimes were recorded against the firm’s gold and chrome operations in particular, costing it R41m and resulting in nearly 1,000 arrests. 

The restoration of SA as an attractive jurisdiction for the mining sector will take time. As investors who commit to exploration and mine construction bring in hundreds of millions of dollar, it is not a decision taken lightly. Long-term stability is key to regaining confidence.

Mantashe’s words are empty. His actions — and at times, the lack thereof — have been a deep deterrent to investors. To draw them back in and increase the sector’s contribution to the economy, in terms of exports and revenue, requires the insertion of these stents. Without them, the blockages in the main artery will lead to a continued decline of the industry, despite its rich resource endowments.

The indaba confirmed the global industry’s interest in the SA mining market but has also been a clear indicator of its unwillingness to risk coming across a blockage. Stent insertion is a priority.