Platinum and gold take a back seat in SA as focus shifts to coal
Closures and rising costs contribute to uncertainty in traditionally strong sectors, writes DAVID JACKSON
THE balance of resources “power” could well be shifting within SA, with a strong and growing interest by mining industry players in the production of commodities such as coal, manganese, iron ore and copper.
But while there has been a robust wave of new mining activity in select mining sectors in SA, the flip side of the coin is the contraction of existing mining production, mainly in gold and platinum, traditionally the two biggest revenue earners and areas of production in SA.
Overall mining production was down 17% in the first quarter of this year — partly a result of the suspension or closure of unprofitable platinum mines, compounded by the strength of the rand, rising labour and electricity costs, and work stoppages related to health and safety issues that have impacted negatively on productivity.
Aquarius Platinum announced last month that it was suspending operations at the Marikana mine near Rustenburg, an operation it shares with Anglo American Platinum, with effect from the end of June, due to high costs and low platinum prices. This is reportedly the first temporary closure of a major platinum mine by a major mining group in SA.
However, Chris Stevens, partner in Werksmans Attorneys specialising in mining law, says that among other minerals, manganese mining is booming in areas such as the Northern Cape, while coal mining is on the upsurge, characterised by a number of new coal projects and a major focus on the largely untapped potential of the Waterberg coal deposits in Limpopo. Eskom’s hunger for coal supplies is a major driver in this coal sector boom.
Lephalale (formerly Ellisras), at the heart of the Waterberg coalfields, is fast emerging as a boom town reminiscent of Rustenburg at the height of the platinum industry growth a decade or so ago, with the prices of houses and property reportedly soaring in the Lephalale area as the coal mining surge gathers momentum.
“Although platinum is still a huge industry in SA and is likely to remain so for the foreseeable future, I have noticed from approaches by clients that the major focus appears to be shifting away from platinum and gold — in which virtually every significant deposit has been taken up by the major mining companies — with the interest now strongly focusing on manganese, coal, iron ore and copper,” says Stevens.
Werksmans acts for a number of Canadian and Australian companies that have become involved in coal projects in SA in the past few years. Over and above that, Canadian companies are also taking an active part in copper projects in southern Africa, while certain Chinese investors are heavily involved in acquiring rights in SA, particularly in new manganese, iron ore and copper projects. There has also been interest by at least one French company in acquiring interests in manganese projects in the Northern Cape.
A major stumbling block in harnessing these resources and getting them to market is SA’s chronic lack of adequate “pit-to-port” transport infrastructure, with one major South African iron ore producer claiming that it has enough orders to export four times the amount of iron ore that it is currently moving — the only constraint being the lack of suitable transport, notably an efficient and reliable rail service.
On mining-related political issues, Stevens says that when talk of nationalisation became a political bone of contention about two years ago, there was a degree of apprehension and a “wait and see” attitude by overseas companies.
“But there is now a general realisation that the official government stance is not to nationalise the mines. They may be considering other alternatives such as superprofit taxes, which are not uncommon in the rest of the world. Given that countries such as Australia, Canada, Chile and Peru also face the possibility of similar taxes, SA is not unique in that respect.
“My perception is that investors are probably more receptive to SA again and this tendency is being borne out in the deals that are flowing in.”
Digby Glover, CEO of TWP Holdings, says a real concern about the ongoing nationalisation controversy in SA is the uncertainty surrounding the debate. This, however, is not only a South African phenomenon, he says.
“There is an increasing global pressure to try to obtain immediate wealth from minerals to address pressing needs. In some countries, this is becoming fairly militant. Unfortunately, creating wealth from mining is not a shortterm game and typically requires large investment.
“Obviously, mining investment will be directed to areas where there is not only mineral wealth, but also the long-term stability required to gain a return on the investment.”
Henry Jonker, GM for TWP’s Africa portfolio, says: “Investors want certainty. They can work in a difficult environment as long as there is certainty. If things are not clear and the future is not seen to be stable, it’s difficult to invest.”
Glover says: “We need to focus on making this country an attractive investment destination. Nationalisation uncertainties may be secondary compared to other and more immediate operational issues that we are experiencing.
“Strikes are hugely detrimental, power costs are becoming as, if not more, expensive than in many other areas in the world, and there are issues around taxation policies — our empowerment policies can be seen as an additional tax by international investors. Even if SA offers a stable environment, from an economic perspective it is becoming increasingly difficult to make a sound business case for investing in our commodities.”
But it’s not all doom and gloom, Glover says.
“We are still doing significant work in SA and we believe there are great opportunities to be taken. There is definitely huge potential in this country, if the various concerns are dealt with and resolved.”