A dented investor confidence inSAmining
SOUTH Africa ranks as one of the richest countries in natural resources, from gold to iron ore. The problem: few companies want to deal with the headache of getting it. Strikes, unreliable power supply, a mining code that’s been under review for six years, and disputes over compulsory holdings by local black shareholders have dented investor confidence in the country. Many nations on the continent have similar problems. Companies are voting with their feet: BHP Billiton, the world’s biggest miner, exited the nation last year, leaving only five of the 40 largest commodity producers with operations in South Africa.
Investors “want certainty, they want a clear regulatory environment, and they want an environment where companies are not held hostage by unreasonable demands and unreasonable cost escalations”, said Neal Froneman, the chief executive of Sibanye Gold, the biggest producer of bullion from South African mines. “They can’t operate or invest in the current environment.” Sibanye was spun out of Gold Fields three years ago this week, when the latter wanted to reduce its presence in South Africa.
The country has the world’s biggest reserves of platinum, the third-largest of gold, it is the biggest manganese producer and is Africa’s largest source of iron ore and coal. Yet its influence is declining.
South Africa’s mining industry makes up just 4.4 percent of global mining stocks, down from 18 percent in 2000 and 47 percent in 1980, according to a presentation by Jim Rutherford, a non-executive director of Anglo American, in October. The FTSE/JSE Africa Mining index’s price to book value is 0.75 points, compared with the Bloomberg World Mining gauge’s 1.03 points, according to data compiled by Bloomberg.
While part of that deterioration is a result of the global slump in metal prices that is threatening 32 000 jobs in the country, some of South Africa’s problems are self-inflicted.
One is differing views over a requirement that black investors need to own at least 26 percent of every company’s assets or equity, a regulation that was adopted to help redress economic imbalances created under apartheid rule that ended in 1994.
Empowerment credits
The Chamber of Mines, which represents more than 90 percent of producers, and the Department of Mineral Resources have been in dispute over the extent to which companies can claim so-called empowerment credits for past deals, where the beneficiaries have since sold their stakes. At first, the parties asked a court to make a ruling on the matter. While Minister of Mineral Resources, Mosebenzi Zwane, said on February 5 that the legal process had been ditched for talks, the chamber said it was pursuing both processes to obtain clarity on the matter, chief executive Roger Baxter said.
While the government wants to advance its policy of economic transformation, mining companies say multiple transactions that have to be vendorfinanced or given away make a mine unviable. “When you do that you’re just not going to get the overseas investors,” Andrew Mitchell, a partner at Fasken Martineau in Johannesburg said. “You need a rich resource to sustain that, and there are not many rich resources in the country at the moment.”
“I assure you that the democratic government, as led by the ANC, has prioritised the processing and finalisation of the MPRD Amendment Bill as a matter of urgency in order to entrench the necessary certainty,” Zwane said at the Investing in African Mining Indaba on Monday, referring to the ANC and the mineral and petroleum resources development legislation.
The lack of availability of electricity has undermined production. As large energy users, miners have had to reduce their power usage by as much as 20 percent regularly over the past eight years and currently use less than they did in 2007.
Prolonged labour strikes are another problem, with one stoppage in platinum in 2014 lasting five months. Impala Platinum and Lonmin, the No 2 and No 3 producers, subsequently raised capital from investors. – Bloomberg