Creating a positive vibe for the local resource sector seems an impossible task these days. Large tracts of the sector are well past their respective heydays. However, mining still remains a key economic engine. It can be violently cyclical. So, when commodity prices boom, mining groups have to be allowed to execute efficiently to build enough capital to reward shareholders, reinvest in new projects and create a buffer for the inevitable downswing.
Let’s not forget the heaps of tax revenue that can be generated in good times — though this fact may be lost in the ideological layers that sometimes smother sensible economic policy.
Nonetheless, it’s depressing to be constantly reminded of just how brittle the framework supporting the local sector has become — to have that sinking feeling that any efforts at reinforcement seem to lack the necessary urgency.
This is probably why observers, including some sections of the media, will cynically (and possibly justifiably) interpret an event like BHP’s attempted raid on rival Anglo American as a vote of no confidence in South Africa.
That said, it was not exactly happy weekend reading when our sister publication the Sunday Times reported that the Fraser Institute’s authoritative survey of mining companies ranked this country a lowly 64th among 86 international mining jurisdictions.
In 2019 South Africa ranked 40th out of 76 countries surveyed. Botswana, by the way, has managed 15th spot; it is the top African ranking. While South Africa is still well clear of the lowest 10 rungs, it is dismaying to see which countries on the continent are now placed above it. These include the Democratic Republic of Congo, South Sudan, Ghana, Angola, Kenya, Zambia and our potentially oil-rich neighbour Namibia.
It is dismaying to see which countries on the continent are now placed above South Africa
The big worries about South Africa for the slew of mining executives surveyed are familiar to local investors — uncertainty over environmental regulations, protected areas and labour legislation. That’s over and above immediate issues such as load-shedding, logistical snarl-ups, red tape and empowerment arrangements. Bleak enough.
Yet the JSE’s resource 10 index is up about 12% in the year to date. This does, of course, reflect the shifts in the big international mining groups like BHP, Anglo American and Glencore, as well as the large gold miners (which have benefited from a robust bullion price).
But then, some of the JSE’s more feisty junior miners have also enjoyed confident spurts this year. Jubilee, which extracts platinum group metals and copper, is up about 28%, gold miner Pan African Resources has surged about 50%, Tharisa rose 20% and fledgling copper plays Orion and Copper 360 increased 35% and 15% respectively.
One also tends to forget that smart capital allocators such as Afrimat, which was initially a humble aggregates supplier, have moved enthusiastically to snatch mining assets either too small or too peripheral for larger mining enterprises. And to great effect: Afrimat’s bulk commodities segment, which comprises iron ore mines and an anthracite mine, contributed 83.1% to the group’s operating profit. Afrimat is tough — renowned for coping with and adapting to local challenges. Some might even entertain hopes of a new local mining house emerging at Afrimat. In a conducive environment it’s not so far-fetched.
The Fraser Institute’s report is hardly going to send ripples through the government. Wider-ranging research into the state of the economy, with more dire predictions, has previously been discounted.
Hopefully we’re being pessimistic. There has to be a realisation that more than a few sparks in the local resources sector remain. It would not take a lot to fan these into a blaze of new investment.
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