Mining investor concerns listed

FILE PICTURE: Miners. Picture: Michel Bega

FILE PICTURE: Miners. Picture: Michel Bega

Power supply and productivity rather than labour laws and unrest worry foreign investors looking to sink funds into South Africa’s mining sector.

Other concerns include operational challenges, the local skills shortage, rail infrastructure, and, to a lesser extent, continuing “rumblings” about the nationalisation of mines, Chamber of Mines chief executive Bheki Sibiya said on Wednesday.

Speaking to Sapa at the Mining Indaba in Cape Town, he rejected reports that the South African mining environment appeared gloomy to would-be investors.

“I would say cautious rather than gloomy. Cautious in that they are saying: ‘There are issues that present themselves as impediments. We hear you saying you are determined, able and willing to fix these things. Please convert your will into practical programmes’.”

Once this happened, investments would start flowing into the sector.

“Therefore there is a lot of cautious optimism, but more caution than optimism.”

Asked to list such impediments to investment, he said the first concern was the cost of electricity and the continuity of supply.

“About 10 years ago, electricity was plentiful and available, and it was cheap, or affordable. Currently, electricity is expensive, and it’s availability is not continuous.

“The mining industry lends itself to continuous operations and therefore electricity is critical, and therefore it’s holding us back.”

Another concern involved operational problems associated with deep-level mining, and the cost of such operations.

“Quite a lot of our mineral deposits, especially gold and platinum, are available in large quantities, but at a much greater depth than in, for example, Australia. To extract them and to bring them to surface, it is that much more expensive. This reduces our relative profitability.”

A further investor concern was the lack of skills in the local mining sector compared to other southern hemisphere mining countries, which have been beating South Africa in terms of productivity.

“Our mining operations… are not as skilled as in other mining jurisdictions, particularly Australia and Brazil as well. It is a given that the more skilled the operators, the more productive they are.”

A related concern was what Sibiya called “an ideological hang-up” among local trade unions on productivity.

“The skills issue leads to the very difficult [matter] of the ‘productivity issue’ here in South Africa. There seems to be an ideological hang-up against productivity.

“The labour movements, or trade unions, struggle to engage openly, fully and in a partnership… on the issue of productivity. They perceive productivity as that which talks about the abuse of the labour for the benefit of the shareholders and management.”

On infrastructure, Sibiya said South Africa’s rail network restricted coal exports.

“Infrastructure… is a challenge in that when one looks at the coal deposits… we struggle to transport it to the market as we should because there is limited rail capacity, and the port [Richard’s Bay] is not fully utilised.”

Sibiya said Richard’s Bay had an official capacity of 91 million tons [a year], but last year handled 70.6m tons.

“There’s a gap of 21m tons that can be processed in Richard’s Bay coal terminal. And they are prepared to increase that capacity to about 100m tons of coal. Therefore, it’s the rail infrastructure that is not able to handle what we need to do.”

Investors were also concerned about nationalisation.

“There are there still some remnants, and the rumblings, [from] the nationalisation debate that was started by the then ANC Youth League president, Julius Malema, about two or three years ago. They [investors] look at it and say: ‘Is it really over?’.”

Sibiya said investors were not particularly worried about South Africa’s political stability.

“It is my understanding that the investors are looking at the stability of [South Africa’s] government, and saying it is stable. The ANC has an absolute majority, and it is going to have this for a foreseeable while. They are not worried about [political] stability.

“[They] are happy generally with the country’s Chapter nine institutions, which are strong and independent. They are also happy that the executive arm of government is counter-balanced, particularly by the judiciary, but… also by Parliament.”

On the Minerals and Petroleum Resources Development Act, Sibiya said investors were mainly happy with it, but uncertain about some proposed changes.

The act is currently under the spotlight as government examines making amendments that may affect mineral exports. Sibiya said the uncertainty was mainly focused on whether minerals, particularly precious metals, would be made available to manufacturers involved in downstream beneficiation at a below-the-market price.

On this, he said the crucial question was how government planned to promote beneficiation without being prejudicial to, or jeopardising the commercial interests of mining companies.

He suggested that Mineral Resources Minister Susan Shabangu needed to “apply her mind” to this matter.

On labour unrest in the mining sector, he said the key to reducing this was productivity. Higher productivity would result in an improved flow of money, in the form of bonuses, to workers.

Asked if the current labour unrest was negatively affecting investor sentiment, he responded: “I think it does. But are there many [concerned] investors? I’m not so sure.”

On what government could do to bolster investment in the country’s mining sector, he said it needed to acknowledge problems where they existed honestly, openly and pro-actively.

“But also a dogged determination to deal with those issues [I have listed], in partnership with the mining houses, the chamber and, where appropriate, with labour. That golden triangle can and should be fortified.”

He said government was the “key player” in solving these problems, and needed to acknowledge that mining was by far the country’s biggest earner of foreign currency.

“And therefore… if [South Africa] wants to earn foreign currency, if we want to improve the standing of the rand [currency], if there is one magic bullet, it is dealing with the issues.”

The Mining Indaba ends on Thursday. Billed as the world’s biggest mining investment event, it has attracted close to 8000 delegates from 2100 international companies.





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