Financial Mail - Investors Monthly
Showing signs of renewed life
A number of mining projects under-way indicate a postcrisis revival in the industry
Big mining engineering companies are sounding an upbeat note about prospects for work in SA, despite the negative comments from a number of CEOs of mining companies and industry bodies about the domestic investment climate.
“We believe the SA market is showing some positive signs of recovery as we are quite active in the tender market,” says Murray & Roberts spokesman Ed Jardim, pointing out that the company’s R9.2bn African order book is largely exposed to SA and the bulk of that is focused on the yet-to-bebuilt R4.8bn Kgalagadi manganese mine in the Northern Cape.
“We believe the local sector is showing some signs of renewed life in the short to medium term,” he says. Murray & Roberts is also working at Northam Platinum’s new Booysendal mine, which is being expanded. By February, the African order book stood at nearly R13bn for the company’s underground mining division, and it had submitted proposals for tenders worth up to R3bn.
DRA, another large mining engineering company, is also optimistic about the health of the SA mining sector and Africa in general. “Compared to a year ago, the pipeline of projects is looking a lot more promising. We have had a number of major projects kick off in West Africa as well as a couple of smaller projects that are also in the process,” says DRA spokesman Alistair Hodgkinson.
“Generally, here in SA, we are starting to see the light in the market. Though it is still early days, the market is looking more promising. With these particular projects kicking off, DRA’s order book is looking a lot healthier than it looked a year ago,” he says.
“When looking at the flow of new mining projects compared to previous years, it is certainly looking more encouraging. A year or two ago, no-one was dreaming about a new project. However, now, they are all sitting there with the wheels spinning and ready to go.”
In SA, there are mixed signals, judging from what mining executives are doing and saying. On the one hand, Pan African Resources is pushing ahead with a R1.7bn tailings retreatment project at its Evander mine, east of Johannesburg, planning to process 1Mt/month of old dumps to extract 100,000 oz of gold over 13 years.
Yet, Sibanye Gold CEO Neal Froneman has said that as SA’s largest producer of domestic gold it would make no further investments in SA, apart from one more platinum transaction, because ongoing regulatory uncertainty and difficulties in the relationship with government made it impossible to accurately predict the cost of doing business in the country.
Sibanye recently stopped its large yet-to-be-built gold and uranium tailings retreatment project west of Johannesburg. The decision to halt the multibillion rand project was made in part because of the large bill, equivalent to Sibanye’s market capitalisation, to fund the $2.2bn cash purchase of all of America’s palladium and platinum miner Stillwater Mining as part of its efforts to diversify its geographical and political risk away from its gold and platinum mines in SA and Zimbabwe.
But there are still a number of mining projects under way, with precious few new underground mines being triggered in a country that is host to the world’s largest known deposits of platinum group metals, chrome and manganese.
Among the projects in development are the R20bn Venetia underground mine that diamond giant De Beers is constructing at the depleted opencast mine at the asset. It is easily one of the largest mining projects in SA.
In the platinum sector, Royal Bafokeng Platinum and its partner Anglo American Platinum are building the Styldrift mine immediately south of Sun City and the Pilanesberg nature reserve, a mining project right next door to Wesizwe Platinum’s Bakubung mine, which is also under construction. The project was slowed to save money and to align the project with weak demand for platinum globally.
The nearby recently built Maseve mine, owned by Canada’s Platinum Group Metals, has run into financial constraints and below-expected production and the company is looking for a buyer of the asset.
Ivanhoe Platinum has started work on a mine at its Plat-reef project, while Impala Platinum is ramping up two new shafts, 16 and 20 Shafts, to add 310,000 oz of platinum to the market by 2020 and lift group production to 800,000 oz/year, a significant figure considering the SA platinum miner has supplied an average 4.2m oz of platinum in the past six years.
All the CEOs of the major platinum producers have warned that capital investment has been curtailed over a number of years to such an extent that supply from SA, the world’s leading source of the industrial and precious metal, would not return to the peak of more than 5m oz a decade ago and was likely to continue sliding, possibly below 4m oz in the coming years.