The annual Mining Idaba in Cape Town attracted more than 7,000 delegates to South Africa’s mother city. Many were positive about the prospect for growth and investment in mining across the African continent, but concerns remain when it comes to investing in South Africa’s troubled sector.
Perceptions were not helped in early February, with a number of strikes across South Africa’s major platinum companies. The labor unrest and above-inflation wage increases seem to be a major turn off for both investors in company stocks and companies, and investors looking to put their money into exploration and mine development.
Mining’s contribution to South Africa’s economy has been falling. The South African Chamber of Mines said that the industry has shrunk by about 1% each year, in the period from 2001 to 2008. This decline came at a time when there was a global commodities boom. In the same period, the top 20 mining economies recorded average growth of 5% a year. Still, mining continues to play an important role in South Africa’s economy.
In addition to labor concerns, worries about the availability of adequate power and an uncertain policy environment persist.
Susan Shabangu, the minister of the department of minerals and energy (DMR), has said that amendments to the 2002 Minerals and Petroleum Resources Development Act (MPRDA) should be finalized in the first half of the year.
Concerns among business remain, in particular, with regard to a plan to identify some minerals mined in the country as strategic. Other proposals that caused much angst last year is one which would have companies seek permission from the minister to change ownership of controlling stakes in companies.
It is also proposed that the downstream processing of some of the minerals mined in South Africa would become obligatory. Government too, if the proposal remains unchanged, would be entitled to appoint two directors to the board of any company engaging in the development of a new energy project in South Africa.
“Uncertainty must be removed in order for us to set a starting foundation for new investment. The free market basis of our founding constitution is of paramount importance. While we understand the need for legislation to evolve and improve over time, certain proposed amendments to the MPRDA create significant challenges for long-term investment in the mining sector,” says the former president of The Chamber of Mines and CEO of Anglo American, Mark Cutifani in the Chamber’s annual report.
He went on to say that companies and government have to work together to find solutions—solutions which support further investment, rather than deter it.
The South African government, like many across a number of resource-rich African countries, wants a greater say in the mining sector. Already the MPRDA obliges mining companies to have transferred 26% of their equity, or output, to black investors by this year.
Asked if he believes mining companies will have been successful in this regard, the deputy director general responsible for mineral policy and promotion, Mosa Mabuza said: “The Department has no reason to believe that any mining company is not working towards this objective. We have commissioned an evaluation of transformation progress broadly and the outcome will indicate the extent of this progress.”
The results of an audit of companies’ BBE status and their fulfilment of the Mining Charter is expected by the end of this year.
Some companies still fall short on the equity and output aspects of the Charter, but many have been successful in sourcing goods and services from empowered companies.
There have been a number of empowerment deals among engineering and project management companies, often involving black-managed private equity funds. This is perhaps a better way of funding deals. In the past, some stakes had been bought through share transfers and in instances where stock prices fell and dividends disappeared, empowerment partners were left with debt rather than equity.
Investors may be wary of putting their money into costly mine developments but there are multinational engineering and project management companies coming into the mining space. They want a foothold in supply services and engineering. In addition to business in South Africa, they have their eyes on the developing mining, and oil and gas sectors in Mozambique, the Democratic Republic of Congo, Zambia and Namibia.