A sector stuck like its minerals in the mud
| In survivalist lockdown or the hands of speculators, mining is doing nothing to assure the future
IN 20 years South Africa won’t have a mining industry if it fails to convert its mineral rights into successful discoveries, says one of the savviest mining entrepreneurs in the country, Bernard Swanepoel.
There is no sign of this happening, he says, in spite of the fact that South Africa still has the richest and most diverse mineral deposits in the world.
The 54-year-old straight-talking former boss of Harmony Gold chaired an indaba of junior miners last week. They’re the ones who need to start digging if the local industry is to survive, let alone be ready to exploit the next minerals boom.
“The junior mining sector is the pipeline that feeds the future Anglos and African Rainbow Minerals, the future 100 black industrialists,” he says.
“So you can’t leapfrog this step. The next platinum, gold, iron ore boom — we will have no mines ready to exploit it. The pipelines are going to be empty. It takes 25 years to discover and build a mine.”
The conversation about mining in South Africa is dominated by the majors. The juniors don’t get a look-in. Their interests are very far down on the agenda of the Chamber of Mines.
The chamber says that it has a junior mining desk but, says Swanepoel, “when the interests of an Anglo and a junior miner compete, whose interests is the chamber going to lobby for?”
The junior sector screamed blue murder when the chamber approved the latest changes to the Mineral and Petroleum Resources Development Act without consulting them.
“They said, ‘How the hell can you agree to this, this will kill us even further.’ ”
The junior sector is “all but dead”, says Swanepoel. And without a junior sector there will be no pipeline and no mining industry.
He makes the point that 110 years ago Johannesburg was “a junior mining camp, not a city with corporate head offices”. So what’s the problem? He says the government made a good start when it loosened up the mineral rights held by the majors, even if some of those rights went to people who had no intention to mine.
“They were purely intending to flip those rights and some of them did. Bought their Bentleys and moved on.”
On paper, if you look at the mineral rights that have been awarded, South Africa has 10 000 or more junior miners. Very few are actually mining.
The “use it or lose it” principle incorporated in the legislation has been largely ignored.
“After seven years if you haven’t built your mine, you lose your original right. We are 10 years into that process and have not seen a lot of new mines. So a lot of people must be on extensions which are beyond the legal limits.”
This is a pragmatic response to a reality that the well-intentioned but naïve legislation did not take into account.
“It ignores the fact that you can explore and discover, but the overriding factor is the commodity cycle. In the worst of times, like now, you can discover the best ore body in the world but you’ll struggle to find money to drill the next hole.
“The simplistic idea that if we loosen up the mineral rights everything will be fine ignores the issue of funding,” says Swanepoel.
Tax incentives, which have worked well in Canada, have been ignored in South Africa, notably by the Davis tax review committee.
“There is no tax incentive for mining or for exploration, which is high-risk. At best it’s like gambling, like the Lotto. You buy a ticket and hope to get lucky. But you need to work the ticket, you can’t just buy it and forget about it. You need to spend more money.”
Without government incentives, this is not going to happen.
Loosening up the rights made “philosophical sense”, says Swanepoel, but has been of little practical benefit.
“If the new holders can’t raise money they will run out of time. The government will have a new set of rights, or the same set, to dish out again, but there is no value creation. When a mine gets built the nation’s asset is put to work in the best interests of everybody.”
There is “next to no exploration” happening, says Swanepoel.
The companies that exist are all in cash-preservation mode.
“They’re not spending their cash on holes in the ground, they’re just trying to survive.”
This is sadly ironic considering the vast deposits.
Mining analyst Peter Major estimates there are 6 150 abandoned mines in South Africa that were closed before metal prices took off. They contain extremely valuable reserves of just about every metal.
The ore bodies in many of these mines are better than anywhere in the world, says Swanepoel.
“I haven’t found a geologist who doesn’t get excited about the Bushveld complex. The iron ore deposits are the best in the world. There are very few minerals in which we are not a potential world player.”
The next platinum, gold, iron ore boom — we will have no mines ready to exploit it The simplistic idea that if we loosen up the mineral rights everything will be fine ignores . . . funding
Most of these assets are going to stay in the ground because there is no funding. Local and foreign investors have been kept away by government policies, regulatory uncertainty and a hostile labour regime.
“There is clearly no new money coming in,” says Swanepoel. “That is not even a matter for debate. There is not a major company that is considering increasing its exposure to South African mining. They’re all contemplating lowering their exposure, spinning out their South African assets, selling their mines.”
As for junior mining, anyone who expects a pension fund manager to spend R20-million without security of tenure, not to mention electricity, is dreaming.
“It ain’t going to happen,” says Swanepoel.
Investors at the junior mining conference rated Botswana and Namibia as “much better countries” than South Africa to explore for opportunities.
“We’re being out-competed by neighbours who are not in the same league from a geological point of view,” says Swanepoel.