Rising tide lifts global mining but SA is stuck underwater
Policy uncertainty means more and more exploration money is going to other African countries
Investor-friendly African countries are increasingly drawing spending away from SA mines – mainly because of persistent policy uncertainty.
Even as the global mining industry has risen with a turning tide in commodity prices, less spending on exploration in SA indicates falling investor confidence. With a new mining charter still needing to be signed off, and SA facing land expropriation, the local mining sector’s appeal is waning.
According to a PWC report, the ninth edition of SA Mine, recovering commodity prices in 2017 saw the SA industry return to profitability. Revenues were up 13% compared with 2016 and the mining sector swung back into the black, recording net profits of R17bn from losses totalling R46bn the year before.
Another PWC global mining report, Mine 2018, showed the collective global industry grew revenues 23% in 2017, and net profits rose 126%. Capital expenditure in SA and the rest of the world was at a 10-year low.“Generally speaking we all face the same primary challenge of supply-demand and everyone, at the very high level, gets affected,” said Warren Beech, partner and global head of mining at law firm Hogan Lovells.
However exploration is a good barometer of investor confidence in a country, said Beech. “Our exploration has decreased year-on-year. Investor confidence is not great at the moment.”
According to the S&P Global Market Intelligence's World Exploration Trends 2018 report, exploration for nonferrous metals rose 13% to an estimated $8.4bn in 2017.
The data shows that in 2007 SA ranked first on the continent as recipient of an exploration budget of $403m – accounting for 3.36% of the global, non-ferrous, total budget. Come 2017, however, SA was ranked fourth in Africa with an $87m budget, accounting for just 1.1% of the global budget.
In Africa other jurisdictions are more attractive than SA because they have become more investor friendly, said Beech. In Ghana, gold mining remains a big business and in the Democratic Republic of Congo, for example, a new mining code brought some certainty for investors.The development of the battery industry has rapidly rearranged priorities in the mining sector and now many eyes are back on parts of the African continent again, including the cobalt-rich DRC, said Greg McNab, Toronto-based partner and global head of mining at Baker McKenzie.
“SA is still a good destination for mining investment because of the availability of extractable minerals, relatively developed infrastructure, mature banking and finance structures, as well as relatively flexible exchange control provisions,” said Beech. Other jurisdictions with good opportunities, such as Australia and Canada, are expensive.
In Canada, said McNab, red tape means new projects have become a longer, more complicated and expensive proposition. Hence markets such as Latin America continue in 2018 to attract more attention from companies that need to secure supply with certainty.
On the whole SA compares favourably to many other countries, but policy and regulatory uncertainty continues to hamper progress, said Beech. New policy from Mineral Resources Minister Gwede Mantashe, and the all-important mining charter, is yet to be signed off.
McNab said possible expropriation of land without compensation goes to the heart of mineral deposits and needs to be resolved before the industry can move forward.
“It simply isn’t viable to have an industry that requires long-term certainty to have this hanging as an open issue.”