Humpty Dumpty that is SA Mining is crying out to be put together again
LHumpty ike the children’s’nursery Dumpty s plight is rhyme, the SA mining industry had its origin more than a century ago — and perhaps also a fitting analogy for its current state.
As the world focuses on climate change and the race to net zero, the global mining industry has found itself in somewhat of an unholy alliance with climate change activists as it has become clear that there can be no “green revolution” without critical minerals.
According to the Minerals Council of Australia, more than 260 new lithium, cobalt, nickel and copper mines will be needed by 2030 if the world is to meet global demand for mineral-intensive battery vehicles and energy storage batteries.
As discussed at length last year at the Critical Minerals Africa Summit in Cape Town, critical minerals present a significant opportunity for SA and Africa more broadly. SA has proven reserves of several battery minerals, including platinum group minerals, cobalt and vanadium, and could position itself as the key jurisdiction for the sourcing and beneficiation of the critical minerals necessary for the global energy transition.
However, SA should urgently begin to deal with a number of serious challenges if it is to attract investment in the mining sector.
Illegal mining is an important issue that needs to be tackled, not only for the sake of the industry and the fiscus, but also in the interests of the environment, safety, health and security of mine employees, communities and the best interests of the illegal miners themselves.
While the state’s intention to regulate artisanal mining is laudable, until crime syndicates involved in illegal mining activities are neutralised, the regulation of artisanal mining may simply result in the legitimisation of these unlawful activities.
According to Enact Africa, illegal mining costs SA R21bn in annual tax revenue and R14bn in annual gold production.
But it is not just the fiscus that is losing out. The Minerals Council SA estimates that it is costing legitimately operating mines R7bn a year to combat illegal mining within their operations. No single stakeholder can tackle the challenge of illegal mining, and collaboration between public institutions and the private sector remains key.
LOGISTICAL
The deterioration of rail and port infrastructure has caused severe bottlenecks in the supply chain, hampering mining companies’ ability to distribute minerals domestically and internationally.
Volumes of coal exports on the coal rail line to the Richards Bay Coal Terminal are at their lowest since 1993, when 48.59-million tonnes were exported, compared with the 2023 throughput of 47.21-million tonnes.
These logistical challenges have not only resulted in mining companies having to resort to costlier alternatives, such as road haulage, but it has also exposed mining companies to potential breaches of supply commitments, placing strain on customer relationships.
Though the state has contemplated dealing with some of these challenges through the National Rail Policy published in May 2022 — a road map for the freight logistics system in SA aimed at gearing up public-private partnerships to establish an independent regulator, open rail access to private companies and grant operating rights for ports and rail routes via nongovernment sources of investment — the proof will be in the proverbial pudding.
An effective and operational cadastral system is significant in promoting transparency and investor confidence in any mining jurisdiction. The existing Samrad system is unreliable and lacks transparency. While the department of mineral resources & energy has acknowledged the system’s shortcomings, the process to appoint a new service provider has been plagued by delays. The recent appointment of the PMG Consortium is a step in the right direction.
In a recent parliamentary exchange the mineral resources & energy minister confirmed that of the 2,525 mining right applications received over 12 months, none has been granted. In addition, applications for consents to amend rights, transfer shares and transfer rights can take six to 12 months to be processed.
Investors wanting to acquire interests in SA mining companies or the mining rights themselves may thus wait up to 12 months before the transaction can close.
CERTAINTY
It is all very well putting in place an effective, operational cadastral system, but the processing times of applications must be truncated if it is to have a beneficial effect on mining.
Regulatory certainty is imperative to ensure security of tenure and investor confidence. While the Mineral & Petroleum Resources Development Bill of 2013 appears to have died a natural death, the 2018 Mining Charter remains a bit of a mystery, with the high court having struck out about half of its provisions in 2021.
The mining and downstream beneficiation industries have been among those hit hardest by the electricity crisis. According to a Nedbank investor research report published in May last year, mining output lost due to load-shedding increased from about 3% in 2019 to more than 6% in 2022. This took the overall GDP decline to about 4% in 2019, a figure increasing sharply to about 7.5% in 2022.
What the sector requires to recover is bespoke power solutions that encourage private investment not only in renewables, but also to boost capacity within the public sector. This has to some extent already begun, with government having lifted the electricity licence threshold for embedded electricity generation projects from 1MW to 100MW, resulting in many mining companies resorting to renewables to ensure a reliable source of electricity, with the added benefit of reducing their carbon footprints.
Without a reliable, uninterrupted power supply and a stable grid, SA is unlikely to attract investment in the downstream beneficiation of critical minerals.
Resource listings on the JSE have declined significantly over the past 20 years, from 130 listed mining companies in 1994 to only 39 basic resource companies now. While certain macroeconomic factors such as the lifting of sanctions, allowing SA mining companies to list anywhere in the world, have contributed to this decline, the question is: does SA (and not just the JSE) do enough to compete with the Australian Securities Exchange and Toronto Stock Exchange to give junior miners and exploration companies access to the capital needed to develop and operate new mines?
If SA is to avoid failing to take advantage of another commodities boom, all stakeholders (and not just the king’s horses and men) will have to act swiftly and decisively to put Humpty back together again.