Country in focus: Quō vādis, South Africa?

The South African mining industry is showing palpable signs of renewed optimism, but many unanswered questions linger, writes Leon Louw.

Roger Baxter
Roger Baxter, CEO of the Chamber of Mines, said
at Mining Indaba that the Chamber has not been in
discussion with Minister Zwane about Mining
Charter III. Image credit: flwonline.co.za

Cyril-Ramaphosa-owen
There is new hope with Cyril Ramaphosa in the
driving seat of South Africa, but a lot still needs to
be done before the country returns to being a top
global mining investment.
Image credit: Bloemfonteincourant.co.za

Bridgette Radebe
Bridgette Radebe, president of the South African
Mining Development Association, asked why the
2014 Mining Charter deadlines have not been met yet.
Image credit: topempowerment.co.za

Jacob-Zuma
Jacob Zuma has not been an inspirational leader.
Image credit: Afripost

Patrice Motsepe
Patrice Motsepe, CEO of African Rainbow Minerals,
is one of the great South African success stories.

Putting a positive spin on South Africa over the past five years has been a challenge. From being the darling of international investors in the late 1990s and early 2000s, the country gradually descended into a downward spiral, with bad economic policies and even worse political manoeuvring defining the rule of embattled President Jacob Zuma. Accused of a number of crimes and with the term ‘state capture’ becoming synonymous with his two terms of leading the country, Zuma’s ludicrous decision-making and loath leadership style cost the country dearly.

As the solid investment-friendly foundations so arduously put in place by Nelson Mandela (and, more so, by Thabo Mbeki after him) were eroded by Zuma and his cronies, so too was the confidence in a once thriving mining industry. Before the ANC’s 54th elective conference held at Nasrec in December last year, the mood was sombre and foreign investors were reluctant, while the mining projects were put on ice.

However, as Cyril Ramaphosa descended the throne as new ANC leader, a sigh of relief was heaved as he immediately started rebuilding those foundations. But it will not be easy. The way forward is not that rosy yet and the question remains: Quō vādis? (Where to from here?)

But, at least, the sentiment is positive. The newfound optimism about South Africa was tangible at this year’s Investing in African Mining Indaba held in Cape Town in February, despite a numbing drought and severe water restrictions in the Mother City. Roger Baxter, CEO of the Chamber of Mines (COM), was upbeat about the outlook for the mining industry on the first day of Indaba, saying that a new, positive wind was blowing throughout southern Africa, with perceptible green shoots and signs of recovery.

Cutting all ties

A change in political leadership was of paramount importance for the South African mining industry. Last year, before the ANC conference, Baxter said that what happens at Nasrec, “Would have a defining impact not only on the mining industry, but on the country as a whole.”

The major concern for investors, though, remains the deadlock between government and the COM about Mining Charter III, introduced by the South African Minister of Mineral Resources, Mosebenzi Zwane, in a bid to speed up transformation in the mining industry. Among other ‘radical’ amendments, Zwane’s revised Charter requires mining companies to be 30% black owned at all times. The COM, which represents over 90% of the country’s mining companies, has taken government to court, and argues that the Charter “constitutes an infringement on company law, international agreements, and the constitution”.

At Indaba, Baxter was adamant that the COM has cut all ties with Zwane and that no communication is taking place between them. In turn, Zwane sends out mixed messages: He maintains in public speeches that his door remains open to negotiate and that he is even willing to settle outside of court, but behind closed doors, he is extremely difficult to track down. Zwane has gone on an extensive world tour recently, signing several memorandums and agreements with countries like Mauritania and Nigeria, and attempted to entice investors from China and Russia. He has been controversial and remains so. At the time of writing, he was still the minister, but Zwane will be one of the first of Zuma’s old guard to receive his marching orders under a new regime that is determined to eradicate corruption and entrench ethical leadership. Zwane is regarded as being close to Zuma and the Gupta brothers, thought to be the brain trust behind the ‘state capture project’. Zwane and the Guptas have been implicated in a number of dubious deals, including a dairy farm project in the Free State and the highly publicised Glencore deal to acquire the Optimum coal mine in Mpumalanga.

Impasse a concern

The impasse, though, between the government and the COM, is a cause of concern, even for Russian and Chinese investors, who have been everything but enthusiastic to invest in South African shafts or new projects, despite Zwane’s attempts at painting a rosy picture. “The lack of regulatory certainty for the South African mining industry is indeed a major concern for investors, and we are hoping that events in the coming months will go a long way towards addressing these issues,” said Baxter.

The current uncertain policy and regulatory environment, caused by the unilateral development and release of the Department of Mineral Resources’ (DMR’s) Reviewed Mining Charter, the lack of finalisation of the Mining and Petroleum Resources Development Act (MPRDA) Amendment Bill, the inappropriate use of section 54s (a government regulation that halts all operations where there has been an accident or fatality), and serious allegations of corruption and state capture, have eroded business and investor confidence. Real net fixed investment has declined in both 2015 and 2016, while South Africa has slipped to 84th position out of 104 jurisdictions in terms of investment attractiveness of policies, according to the Fraser Institute’s policy perception index.

Zwane has not done the industry any good, but his position is not enviable. Although the 30% black-owned requirement is a tall order for mining companies, a certain section of the local South African mining industry believes that 30% is not enough and is pushing for 51% black ownership. They are often not heard in the mainstream media, but Zwane has become their number one target, ironically, because he is willing to negotiate with mining companies. Bridgette Radebe, president of the South African Mining Development Association, or the so-called Junior Mining Chamber, grilled Zwane at a question and answer session on the first day of Indaba. Radebe accused Zwane of being too lenient in implementing the charter. “We spoke about 51% and you spoke about 30%. The 2014 Mining Charter deadlines have not even been met yet. How long are you going to let these mining companies get away with it? Today, we are not seeing any companies that are being taken to task for what they have, or have not, done. How has this helped our democracy? What are we going to tell the people of South Africa in 2019 if our government is so nice to the people who are not complying?” asked Radebe.

Picture 7
The manganese fields of the Northern Cape province have become a major drawcard for junior mining companies in South Africa.
Image credit: Ntsimbintle Mining

Radebe is the older sister of South African businessman Patrice Motsepe, and the wife of Minister in the Presidency, Jeff Radebe. Their younger sister, Tshepo Motsepe, is married to Ramaphosa. The Motsepe thread thus runs deep in the South African mining industry, and the family is bound to play a significant role in its future. Bridgette Radebe started Mmakau Mining, a firm that initiates exploration and produces platinum, gold, uranium, coal, and chrome.

She has criticised the ‘capitalist’ mining model on numerous occasions and has said, “It takes land to exploit the materials; the exports create ghost towns and do not create enough local jobs. When South Africa was re-created, 83% of the natural resources belonged to the racial minority. Today, 91% of the same resources are owned by corporate monopolies.” Bridgette Radebe’s alternative suggestions to solve South Africa’s problems in the mining industry include the complete nationalisation of all mining operations, or a state buy-out of marginal mining operations in the name of black empowerment, or closer co-operation between the public and private sectors in the running of South African mines.

Junior sector needed

There is no doubt that the junior mining sector in South Africa needs to be nurtured and grown. The junior mining sector was born of new legislation in the form of the MPRDA of 2006. The law enforced a ‘use it or lose it’ principle, stipulating that mining rights not used by mining companies to exploit minerals in the ground would revert to the state. Unused mining rights held by mining groups, but not used for years, were supposed to be awarded to newly established junior companies that showed themselves to be true mining entrepreneurs. But, apart from the coal industry, the uptake has been limited. There are very few emerging homegrown South African junior mining companies, and it is a concern. It is especially the lack of exploration and greenfields projects in South Africa that has the mining fraternity scratching their heads. South Africa has some of the best mining engineers, geologists, business people, and entrepreneurs; yet, exploration has almost ground to a halt. “It is a major concern and something we need to seriously look at,” Baxter told African Mining on the sidelines at Indaba. Bridgette Radebe called for a fund, a bank, or even a special bourse on the Johannesburg Stock Exchange (JSE) to finance junior mining projects, especially in exploration.

“Funding and regulatory uncertainty are the major constraints for junior mining companies,” Ndavhe Mareda, owner and chairperson of new junior miner Black Royalty Minerals (BRM), told African Mining at Indaba. BRM recently started production at the Chilwavhusiku Colliery close to Bronkhorstspruit in Gauteng. Mareda says that, apart from the abovementioned difficulties, he found it relatively easy to enter the mining industry. “As long as you are willing to work hard, things will happen very quickly,” says Mareda. Mareda is looking to diversify his assets as soon as possible, and a new mine is on the cards before the end of the year. In addition, the company is looking at manganese projects in the Northern Cape, and Mareda says an announcement of projects in Kenya is imminent.

Mareda predicts significant potential for junior miners. He says while junior mining in South Africa is still in early stages compared with its first-world counterparts and is heavily impacted by several factors such as access to capital and regulatory policy, he believes that the MPRDA Amendment Bill will position the junior sector for growth and development by easing requirements for small mining companies, creating more opportunities, and alleviating the historical bottlenecking of this industry.

“As with most junior miners, BRM has been faced with several regulatory challenges. These have pushed BRM to think laterally by being entrepreneurially creative in combining their aspirations in the mining sector with group capabilities to grow the bottom line and safeguard the business for continued sustainability,” says Mareda.

Success stories

Despite the slow entrance of new junior mining companies, there are a few success stories in South Africa, with Saki Macozoma’s Ntsimbintle Mining and Patrice Motsepe’s African Rainbow Minerals being the first that come to mind. And, of course, Neil Froneman’s Sibanye-Stillwater. But South Africa needs a vibrant junior industry without bureaucratic constraints. Juniors are not restricted in their decision-making by organisational structures so typical of the old behemoths like the Anglos or Goldfields and can move through development much faster. If the environment becomes more business friendly in the future, expect a flurry of junior mining companies making their appearance on the South African mining scene.

However, it does not mean that the behemoths will disappear. Amplats, Goldfields, Harmony, AngloGold Ashanti, Kumba Iron ore, De Beers, and Canadian company Ivanhoe (developing the Ivanplats Platinum Project in the Limpopo province) still have a massive role to play in South Africa. With especially the gold and platinum reefs becoming increasingly deeper and more difficult to mine, only these companies have the resources to develop new technologies to make mining more productive and safer in these environments. Hopefully, the juniors will fulfil the exploration role and even co-operate with these majors to develop the mining industry further.

Wheeling and dealing

The change in political leadership and improved commodity prices have prompted companies like Anglo American to rethink its strategies about asset sales, mergers, and acquisitions in South Africa. Norman Mbazima, Anglo American South Africa’s deputy chairperson, said at Indaba that the company will not sell any more assets in South Africa after closing the deal with Siyanda Resources for its Union platinum mine in the North West Province, and with New Largo Coal (a consortium owned by Seriti Resources and Coalzar) for its New Largo Colliery, Anglo’s last Eskom-linked coal project in Mpumalanga.

What most South African analysts do agree on, is that the platinum sector is ripe for more mergers and acquisitions in 2018. Last year already saw significant development in the platinum space, with Sibanye-Stillwater acquiring Lonmin in a massive deal of about GBP285-million. Lonmin, the world’s third-largest platinum producer, has been plagued by labour issues, weak platinum prices, and soaring operating costs. Other sales in the platinum industry over the past two years include Amplats’ sale of its Rustenburg operations to Sibanye-Stillwater. Sibanye-Stillwater also acquired Aquarius Platinum in 2015.

Amplats sold a 42.5% interest in the loss-making Pandora Joint Venture to Lonmin for a deferred cash payment of R400-million and disposed of mineral resources within the Amandelbult mining right to Northam Platinum for R1-billion. But how much more activity we see in the mining industry depends, to a large extent, on how the new leadership in the country manages the economy, fights corruption, improves the regulatory environment, and makes South Africa the number one investment destination in Africa again.

According to Jackwell Feris, director at Cliffe Dekker Hofmeyr, the first few weeks of 2018 have seen the South African government making some dramatic changes in the fight against corruption and corporate reform at parastatals. “This includes Ramaphosa’s reassuring statements at the World Economic Forum in Davos, Switzerland, in January in respect of the government's approach on a number of policy and proposed regulatory measures that inhibit economic growth in sectors such as mining and energy. To an extent, it appears that the actions by government, pursuant to a shift of political power in the governing party during December 2017, have resulted in various investors relooking at South Africa's investment potential,” says Feris.

MM Crown Mines Ga ZA 2012 07 10 Leon Louw 01 047
Although many ounces of gold are still to be discovered in historical mining dumps, South African gold reefs are becoming more difficult to access.
Image credit: Leon Louw

However, for any new foreign direct investment (FDI) to flow to the country, the South African government will need to commit to ‘conditions’ or ‘requirements’ to ensure policy and regulatory certainty in the medium- to long term.

“More particularly, government needs to clearly deal with, among others, the following policy and regulatory matters: expropriation of property without compensation; the protection of investment measures for foreign investors; radical economic transformation in the broader South African economy; and legislative changes in the information and communication technology sector,” says Feris.

According to Dr Nicolaas Steenkamp, independent mining consultant, the main challenge that the South African mining sector will face in 2018 is continued domestic political uncertainty. “The government’s announcement regarding a change to the constitution to legalise the expropriation of land without compensation could not have come at a worse time. The announcement rattled the already fragile relationship between government on the one hand and the mining industry and investors on the other,” says Steenkamp.

Another factor to consider is the impact of the Fourth Industrial Revolution and the increasing interest in so-called ‘battery minerals’. Steenkamp says that South Africa is not endowed with significant deposits of these minerals, apart from manganese.

“The country will not benefit from investment and production of these minerals. One of the new major changes in mining investment trends will be the level of investment by producing companies, especially in the motor manufacturing and renewable energies. These companies will invest directly and more heavily in mining companies in order to secure future access to raw material supplies. Investment is also likely to increase in traditional energy minerals, such as coal, as electricity-intensive cryptocurrency ‘mining’ and the use of increasing networks of processing computers for blockchain storage and transactions increase,” says Steenkamp.

MM Crown Mines Ga ZA 2012 07 10 Leon Louw 01 018
The Witwatersrand in South Africa once hosted the major producers of gold in the world; today, the mine dumps bear testimony to an almost forgotten era. Image credit: Leon Louw

Early indicators are that there might be additional selective commodity market upticks in the minerals sector — but still far from recovery. Palladium will remain in high demand while the rest of the platinum group minerals will continue to struggle. The diamonds sector is also set to have another hard year ahead. While exploration projects and budgets increased in most other African and developing countries, the same could not be said for South Africa in 2017.

In contrast to Australia where 2018 has seen an increase in mining employment, the South African mining industry continues to lose more jobs than it is creating. The South African mining sector is also looking to increase mechanisation, reducing the prospects of future work creation. “South Africa has a huge mineral wealth that, even with all the current challenges, still continues to contribute significantly to the country’s GDP,” Steenkamp concludes. South Africa is still riding the Cyril optimism wave, and although the outlook for the country’s mining industry looks a lot better than it did this time last year, the question indeed still remains: Quō vādis, South Africa?


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