The mining industry is a huge contributor to SA’s tax total, but the government should do more to assist.
The R100bn surplus in South Africa’s tax-take this year is thought to be largely due to improved royalty payments and corporate taxes from the country’s mining sector — the first of the segments to recover from SA’s hard six-week lockdown last year in response to Covid-19 and a beneficiary of increased commodity prices.
While that’s great news for SA, the concern is that the government isn’t doing nearly enough to ensure numbers like that improve. According to Roger Baxter, CEO of the Minerals Council South Africa, R20bn worth of new projects are waiting in the wings.
These include a string of platinum group metal (PGM) and gold-sector investments flagged by Sibanye-Stillwater at its year-end results presentation in February, at which it also announced R6.8bn of projects it could undertake, creating some 7 000 jobs.
“Only the very best of what we’ve got has been announced,” said Neal Froneman, CEO of Sibanye- Stillwater, perhaps the most outspoken of critics regarding the government’s minerals policy.
“The only reason these projects were announced is because previous owners had already sunk capital [into them],” he said. For instance, Sibanye-Stillwater’s K4 project valued at R3.9bn at its Marikana operations near Rustenburg, that will deliver 250 000 annual-ounces PGM, had already seen some R4.4bn expended by Lonmin.
And hundreds of millions of rands were spent by Great Basin Gold, a Canadian company, on the Burnstone gold project, which Sibanye-Stillwater has said it would complete at a capital cost of R2.3bn. The project is near Balfour in Mpumalanga, an area Froneman said was racked by poverty.
Without clarity on the charter, he claimed,
there can be no new investment in exploration.
At the time of writing, February has a week left to run, by which time the Department of Mineral Resources and Energy (DMRE) will have missed its self-imposed deadline to launch a new mining cadastre, a fancy word for a framework through which mineral exploration projects are administered.
The existing one, launched on a tiny budget of only a few million rand and more than a decade old, doesn’t work. A lack of transparency in its conceptualisation also opens the door to corruption.
Sadly, no one truly expects the DMRE to meet its February deadline to launch a new one.
Errol Smart, CEO of one of SA’s few development companies, Orion Minerals, and head of junior mining at the Minerals Council SA, told finweek there had been meetings with the DMRE on the cadastre, but that nothing appeared imminent. Said Baxter when asked about the cadastre: “February was the DMRE’s target, not ours.”
The expectation is that the decline in SA mineral exploration, exactly at the start of a new super-cycle, driven by global decarbonisation, will continue.
Recent history regarding the rate of mineral exploration decline in SA doesn’t make pleasant reading.
“However, taking inflation into account,
less money is being invested in 2019 than in
2010, which was the first year after exploration
investment fell off the cliff.”
For investors, this trend converts into fewer options locally. They will find rich pickings in overseas commodity markets – with new listings of mining exploration firms on the up in London, for instance – but locally there’s not a lot of greenfield investment. And that’s bad for the future economy.
There are grounds for hope, though. According to RMB Morgan Stanley in a recent report, minerals exploration spend may be poor, but capital expenditure is relatively healthy.
The bank’s resources analyst, Christopher Nicholson, said that in 2019, gross fixed capital formation (GFCF) in the PGM sector – investment in capital items, such as equipment – totalled R20.3bn (in 2010 constant terms). This is not far below levels seen between 2009 and 2013, and nearly twice the trough in 2016. The same is true for the coal and manganese sectors.
The decline of exploration as a percentage of gross fixed capital formation suggests known reserves and resources are being developed, but that not much is being done to replace them.
“There are numerous reasons for this, but nevertheless we do see scope for a further recovery in exploration in PGMs and Northern Cape commodities, such as iron ore, manganese and base metals,” said Nicholson.