Attracting mining investment is a highly competitive sport among countries, with definite winners and losers. And if the information presented at the Junior Mining Indaba last week is anything to go by, SA may have entered a serious losing streak.
With few new projects to speak of and majors continuing to plot their exit from SA, the country’s mining future — if it has one — depends on a vibrant junior mining industry.
But Paul Miller, the plainspoken director at management consultancy AmaranthCX, says SA mining will mostly be gone in two decades on the current trajectory.
The numbers speak volumes. S&P Global Market Intelligence data on global mining exploration spend from 2000 to 2019 shows that Africa as a whole lags considerably, with both Australia and Canada attracting more exploration money than all 54 African countries combined.
Among its African peers, SA has performed dismally. Having previously attracted 35% of all African exploration spend, its share has dropped to 8%. SA attracted $97m — less than 1% — of global exploration spend in 2019.
"For most of those 19 years, we [SA] were number one," Miller says. "We hit our peak in 2002 — which is the same year the MPRDA [Mineral & Petroleum Resources Development Act] and the [mining] charter came out. It’s been downhill from there."
Andries Rossouw, PwC resources leader for Africa, says: "Exploration is important for the future sustainability of the mining industry, but it also has a direct immediate socioeconomic development impact on SA."
For every R1bn spent on exploration, R1.2bn is added to GDP, 3,200 new jobs are created and R300m is generated for government, he says.
Miller believes three critical things need to be in place for any junior mining industry to thrive: investment in the country’s geological endowment; a functioning regulatory regime; and the ability to attract investment capital.
Without these, he says, "you will have no new projects".
Countries that invest heavily in primary geological research and make information publicly available to all have a significant competitive advantage, he notes.
SA has not done well in this regard and is, instead, playing catch-up.
Speaking at the indaba, mineral resources minister Gwede Mantashe said the quality of SA’s geoscience information is being improved. A comprehensive exploration implementation plan is being developed, with R268.3m allocated for a geoscience research library and geological mapping.
Miller, however, warns against the gatekeeping of data. In SA, two large geophysical surveys were conducted in KwaZulu-Natal and the Northern Cape, but the information has never been made public.
Exploration is important for the future sustainability of the mining industry, but it also has a direct immediate socioeconomic development impact
— Andries Rossouw
"It appears this data is either deliberately — or through neglect — difficult or expensive to access," he says.
There is also no substitute for an efficient, corruption-free regulatory regime with clear and predictable rules. Such services are increasingly seen in the rest of Africa — but SA is one obvious exception, Miller says.
Errol Smart, CEO of junior miner Orion Minerals, says there have been some positive developments during Mantashe’s tenure.
For one, the minerals charter certainly works for minerals exploration — "the actual law is in place".
"Now, if we can teach the [department] to actually use it and not make up its own rules as it goes [along]," he quips.
There is much work to be done on transparency, too. For example, Miller says, SA is the only major mining country in Africa that doesn’t have a cadastre system, which allows interested parties to see who holds what mining rights.
When it comes to attracting investment, it’s useful to understand the "pay limit" concept. In mining, this is a calculation that considers how much of a resource needs to be present in unmined ore to cover the actual cost of mining it.
If the cost exceeds the pay limit, it’s not economically viable to mine.
Miller says this can also apply to resources that are yet to be developed. Only, in this calculation, the capital has not yet been sunk, and the risk premium of the country is added to the pay-limit formula to determine if an investment should be made.
"This idea that there are projects in countries that could be built but will not be — because the government is the direct cause of both the high-risk premium and loading a project with costs like additional taxes and social obligations — does not seem to have taken root at all in countries like, sadly, SA," he says.
Smart says the industry, through the Minerals Council, is working together to stimulate junior mining. But the most important question is how to attract foreign investors.
After all, early-stage mining investment in Africa is most likely to come from foreign investors weighing up opportunities across the globe.
If a vibrant junior mining sector is ever to be more than just a twinkle in Mantashe’s eye, more must be done — and urgently — to change SA’s losing trajectory.
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