Sector needs certainty to be able to flourish
“Licence to operate” (LTO) remains the top risk facing the global mining industry, according to the 12th edition of EY’s mining risks survey.
LTO topped the list for a second consecutive year, with 44% of survey respondents considering it the biggest risk to their business.
This was largely attributed to rising uncertainty in the global political environment following an extended period of key elections and global trade tensions. The resultant government changes and tighter regulations have made loss of licence a major threat.
And few global markets have suffered from the consequences that uncertainty creates more than SA’s mining sector.
“The underlying issue in the local industry is a lack of certainty regarding land expropriation, proposed new regulations and electricity supply amid load-shedding, the combination of which is deterring foreign investment,” explains Lili Nupen, a director at boutique law firm Nupen Staude de Vries Incorporated.
The sector is also working to bridge the trust deficit that was created under former mineral resources minister Mosebenzi Zwane.
“Thankfully, the relationship between government and the private sector improved considerably after minister Gwede Mantashe was appointed to office. He has facilitated a more open department of mineral resources & energy (DMRE), which is willing to engage and communicates more clearly with all stakeholders,” she adds.
However, regulatory and bureaucratic red tape continues to hamstring the sector, which is creating difficulties, particularly within a struggling junior mining sector that is desperate for funding.
“There has been significant interest expressed by international investors who see the opportunities in SA’s junior mining sector. Many have also identified opportunities to pick up assets as the incumbent miners divest to consolidate their portfolios,” says Nupen.
However, the regulatory compliance hurdles, especially around empowerment and environmental requirements, and administrative inefficiencies create delays and uncertainty.
Water scarcity has also been a major hindrance in this regard, according to Nupen, not only in terms of accessibility to the resource but also the regulatory complexity of aligning the department of environment, forestry & fisheries and the department of human settlements, water & sanitation with the DMRE to streamline the approvals process.
“Water-use licences, for example, are not being processed at the department level, which causes delays. In our experience, some international investors have waited for years to receive these and other approvals.”
This has been most devastating to junior miners, which government has earmarked as a major economic growth driver and job creator.