Industry’s resilience beginning to pay off
Claude Baissac, MD of consultancy Eunomix, was quoted in September last year as describing the South African mining industry as uninvestable.
In the four months since he expressed that view, many of the factors that supported his assessment have been swept aside in action taken by deputy president Cyril Ramaphosa to combat the rot.
Speaking in mid January before the full extent of Ramaphosa’s actions were known, Baissac qualified his statement. “Obviously investment has taken place, but they’ve been mostly replacement investments through assets changing hands, localising and large companies disinvesting from SA,” he said. “There have been issues of policy, the impact of appalling macroeconomic policies and the downgrades and lack of growth. That has led to a historic decline of mining and this has led to fundamental changes in the position of mining in the economy, and changes in strategy of the mining companies and investors interested in SA.
“Despite all of that, a lot of mining companies have stuck around and done the painful job of restructuring. But we are seeing acquisitions and a return to performance of a large number of mines. So, I think in this difficult political and policy environment, the South African mining industry has fought hard and has managed to improve its efficiency, reduce its debt and improve its performance.”
He said this illustrated that the mining industry was extremely resilient even in the face of such obstacles, and that should government follow through on promises of reform, the industry was well placed to attract new investment.
This assessment is supported by a study conducted late last year by the Chamber of Mines, which sought to determine the industry’s appetite for investment if the environment did improve. The outcome of the study showed that as much as R122bn could be unlocked.
Delving deeper into the findings, the report showed that five companies were not considering any new investments, with one contemplating divesting entirely from SA. Their decisions were driven by the lack of worthwhile investment opportunities or that other territories were more attractive due to the adverse local environment.
Among the sector-specific findings, the chamber reported that there also appeared to be an indirect correlation between investment and employment.
The coal sector, for instance, has the highest investment potential, representing 42% of total potential investment, but only 31% of the employment potential. The gold sector, however, had the highest employment potential at 62% of total possible jobs, but only 31% of the capital spend.
These figures support Baissac’s view that the best way to promote transformation in the industry is to help it grow.
“Meaningful transformation can only occur in growth. And to share the pie we need to increase the pie so gains are absolute and relative for new entrants into the economy.”
These are issues the sector has to confront this year. With a more accommodating attitude by government and the Department of Mineral Resources, the ground appears fertile for a new beginning to take hold.