SA mining’s black hole

Million of tons in valuable minerals, from thermal coal and manganese to platinum group metals, can be found in SA. Yet, despite this serendipity, the government has had only partial success in unlocking the benefits.

In theory, it should be like flicking a switch. In reality, the country captures less than 1% of global mineral exploration spend. It’s a neglect by the government that beggars belief. Prolonged inaction regarding the mining sector is arguably the single most discrete dysfunction demonstrating SA’s inability to help itself.

The R200bn tax windfall from mining company taxes and royalties last year hints at the economic heft of the sector. But it’s worth remembering that the income was a consequence of record commodity prices.

At ground level, SA’s mining production is shrinking — a result of the failure to encourage the exploration for new resources. A 20-year index of mining production shows that sector output hasn’t recovered since its 2000/2006 peak and is struggling to maintain 2015 levels, according to the Minerals Council SA.

Mines are wasting assets. From day one — as soon as a company stops capitalising its costs — the race is on to replace what’s mined. Expansion of known mines, or brownfields development, is a relatively lower-risk game than exploration. But when the known mines are exhausted, there should be new ones lined up — a process that can take 20 years and heaps of venture capital.

Look, though, at the JSE. There are only 12 publicly listed junior or exploration mining firms trading there, compared with 1,200 on the Toronto Stock Exchange. Australia has 600 listed exploration firms. And, of the exploration spend that does exist in SA, 90% is committed by existing companies that expand known mines, says Minerals Council CEO Roger Baxter.

The government is fond of trumpeting SA’s famous mineral wealth, frequently citing a Citi report — more than 10 years old — that said SA had about $2.5-trillion in undeveloped mineral resources.

Says Baxter: “Don’t think for a moment that because we’ve got all the minerals they [investors] are going to come. They don’t give a damn about SA. They will come if they can viably find deposits on a cost-competitive basis.”

[Investors] don’t give a damn about SA. They will come if they can viably find deposits on a cost-competitive basis

—  Roger Baxter

So what’s stopping SA’s minerals sector from thriving? In a nutshell, it’s a combination of policy failure and poor implementation that is, in turn, exploited by endemic corruption.

Mining policy has been picked over by the government since 2004’s Minerals & Petroleum Resources Development Act and the mining charter. To these have been added policy that has directed mining firms to a tick-box of deliverables, including that of attracting viable empowerment partners.

In 2018 mineral resources & energy minister Gwede Mantashe sought to put years of squabbling to rest by releasing exploration firms from empowerment obligations. This made total sense, as lenders and venture capitalists don’t want to part with equity, given the high-stakes nature of exploration; they seek maximum reward for long-dated capital on exploration campaigns with uncertain outcomes.

Despite this promising development, mining executives say that little has changed in the government’s policy. “We don’t know how to apply the existing rules,” Baxter said at the Junior Indaba conference in early June. “We’ve got the mining charter that doesn’t ask for empowerment at exploration level, but then we have regional managers applying exactly that.”

Another mining executive says: “It’s written in big, bold capital letters on every licence application.”

More recently, Mantashe declared a new, ambitious target aimed at capturing 5% of the world’s global exploration spend, worth about $900m — a share of the market to which SA last laid claim in 2003. To this end, Mantashe’s department of mineral resources & energy (DMRE) agreed to an exploration plan with the industry. It has some good intentions at its heart: replacing red tape with “smart tape”, for example.

However, unbeknown to the industry, the DMRE at the same time compiled an exploration strategy of its own, which it published in tandem with the negotiated plan. Heaping confusion upon dismay, the DMRE’s release of its strategy document in April contained an outdated version. On the night of April 12, the industry was hard at work sifting through the implications of one plan and two strategies.

“We have very little resonance with it,” says Baxter of the exploration strategy, which returns empowerment to the forefront of exploration ambitions. “We think it was badly written.”

The exploration strategy also makes the DMRE’s Council for Geoscience (CGS) the fulcrum of a little-discussed public-private partnership model. Thankfully, the document stops short of demanding the equity participation that CGS CEO Mosa Mabuza hinted at last year (to much opprobrium).

Still, in order to attract capital to SA’s shores, the CGS is going to need a significant boost to its budget. To attract 5% of exploration spend, there would have to be a hike in annual mineral and evaluation spend from R1.2bn to R6bn-R8bn, says Paul Miller, owner of industry consultancy AmaranthCX.  

“The CGS’s total annual budget is about R550m, of which only about half is spent on projects,” Miller says. “The [Industrial Development Corp’s] proposed exploration fund is R100m. Our incumbent miners, except for De Beers, do no off-mine expansion. So is the DMRE going to be able to substantially fill the gap?”

To truly recognise the scale of the difficulties facing exploration, one only has to listen to what mining executives say happens at grassroots level — how, for instance, one company employs people whose job is solely to doorstop regional DMRE officials (often fruitlessly) in an effort to get a valid licence application heard.

All applications are made through the creaking SA Mineral Resources Administration System (Samrad). The online system cost the government R3.5m. It’s a paltry spend for a national system of such strategic importance, and was so even in 2011, when it was launched.

SA’s mining production is shrinking at ground level. That’s unlikely to change if the government doesn’t facilitate the discovery of new resources 

—  What it means:

A glaring weakness in Samrad is the lack of transparency. Orion Minerals CEO Errol Smart says applicants are unable to determine from the system whether a property thought to contain minerals has already been claimed. But lodging a prior inquiry is, in his view, like inviting yourself to a dodgy meeting: invariably, it seems, a third party will miraculously be found to have registered the property — oftentimes the day before your inquiry, he says.

Alternatively, mineral prospectors can apply directly for the land on payment of a R50,000 registration fee. This, though, seems to invite opportunism of a different sort, as rival “exploration firms” emerge on properties surrounding the land package like seagulls circling a fishing net.

Another hazard is rival applications by third parties on the same property for different minerals. “In this case, the third party will have applied to explore obscure minerals you’re not seeking,” says Smart. The implication, he believes, is that “you can go to a dark room and have a Johnnie Walker and do a deal”.

Once an applicant’s technical and financial fitness is proved to the DMRE, the applicant is set upon a bureaucratic odyssey that spans government departments of various competencies. It can take three to five years.

In the happy event a prospecting licence is finally granted, it may contain misspellings of the applicant company’s name, which raises risks around legality of tenure, or the licence may omit the full description of the minerals sought.

“Who knows if these clerking errors are corrupt?” says one mining executive. “They probably are.”

The difficulties in licensing extend to all manner of applications, from prospecting to mining rights. As of end-2021, 5,326 applications awaited approval for properties in places such as the Northern Cape — a province so rich in mineral potential that Smart described it as “a dripping roast”.

Only a few clicks north, in Botswana — which turns around its mining applications in 90 days — $800m in new copper mines have been announced since 2018.

Mabuza says enormous strides have been made in overcoming the backlog. But estimates by Smart suggest as many as 80% of the 1,000 mining and prospecting applications fast-tracked for approval recently by the DMRE still contain administrative errors.

There were signs that the DMRE had finally recognised the dire future facing mining in 2020, when it announced plans for new cadastre to replace Samrad. After promising to identify a system, the DMRE admitted in May it hadn’t made progress. Mantashe couldn’t say when a solution would be found.

The DMRE opted to procure bespoke software, apparently contracting the developer behind Samrad. The State Information & Technology Agency (Sita), established to procure things like cadastres, blamed the DMRE after auditors declined to approve the newly developed cadastre. The DMRE blamed Sita.

Privately, Minerals Council executives say they are exasperated. The council  has offered to identify off-the-shelf licensing software that could be coded with SA mining regulations and populated with minerals data that mining companies had captured. In fact, Smart reckons that, collectively, the mining industry has a handle on 80% of mineral availability in the country. The council even offered to pay for the software and have it independently audited.

For all this, minerals development continues in SA. At the time of writing, Orion is expected to unveil terms of a R2.5bn capital raising for new copper production in the Northern Cape, while Jan Nelson, the former CEO of Pan African Resources, is to list his Copper360, also developing production in the Northern Cape, on the JSE’s AltX in October.

Orion and Copper360 are not mining new resources, but simply reopening mothballed mines and thus capitalising on the high price of copper and SA’s grand, century-old legacy in mining — a legacy that’s in danger of becoming history.