To enjoy the full Mail & Guardian online experience: please upgrade your browser
17 Nov 2006 00:00
The full benefit of the commodities boom now under way is being squandered partly by bureaucratic ineptitude and infrastructural bottlenecks, according to mine experts.
The minerals and energy department promises to process mining and prospecting licences in a matter of weeks, but in practice it takes 18 to 24 months. Though reports this week suggested that the pace was finally picking up.
Some companies are put off by South Africa’s black empowerment and other regulatory codes, which raise the cost of doing business.
“A lot of foreign mining companies we spoke to decided they couldn’t wait that long, so they took their investment to other countries such as the Democratic Republic of Congo [DRC],” says Iraj Abedian, independent economist and CEO of Pan African Advisory Services. “We’re involved in a prospecting venture and so far it has taken two and a half years to get an answer from the department.”
Louis Stassen, chief investment officer at Coronation Fund Managers, believes other factors are behind the decline in mine investment. “You must remember that South Africa as a mining country has been prospected a long time ago. The deposits are well known and the rights are sewn up. There isn’t that much in terms of new mining opportunities, which would explain to some extent the decline in investment.”
Presenting the latest Chamber of Mines annual report, president Lazarus Zim said the lack of mining and prospecting rights was holding up investment of R5-billion to R10-billion a year, and depressing economic growth by 0,5% a year.
Abedian says the impact of this lost investment on economic growth could be much higher. “You could argue that those companies that decided to take their investment elsewhere could have encouraged other foreign companies to invest here, creating even more opportunities for local companies to supply them.
Mine output fell 6% in the first half of 2006, and nearly 10% in the case of gold. Zim described as “alarming” the 33% decline in mining sector investment between the first quarter of 2004 and the first quarter of 2006, at a time of soaring commodity prices. This would have serious implications for export growth and the balance of payments going forward, he added.
Evidence that the full benefits of the commodities boom are passing South Africa by are reflected in mine profits. In 2005, Australian mining companies reported a near doubling in pre-tax profits, versus just 12% in South Africa. While the strong rand hurt mine profitability, the same is true of the Australian dollar, which appreciated 60% against the US dollar since 2001. This points towards a deterioration in foreign investor perceptions of South Africa’s mining environment as a major culprit in the investor flight. South African mining companies, too, are moving out of the country to more congenial mining countries.
Abedian says the decline in gold output is largely a function of the tax formula applicable to gold mines, which forces them to switch to lower grade ore in times of high prices so as to prolong the life of the mine. In the case of coal and iron ore, TransÂnet’s lack of transport capacity is largely to blame for the decline in output. The one bright star in this otherwise dark firmament is platinum, which continues to attract foreign investment.
But as one mining analyst points out, there are few options outside South Africa if you want to get into platinum mining.
Mining investment is pouring into the DRC, described by Resource Investor as having “the potential to be one of the top destinations for mining investment in the world”, despite being one of the most unstable countries in the world. Investors are willing to look past this because the conflicts in DRC tend to be localised rather than countrywide, and the government implemented an investor-friendly mining code in 2003 to attract foreign investment.
Nick Goodwin, mining analyst with stockbroking firm T-Sec, says the DRC’s mining code imposes few restrictions on foreign mining companies, other than an obligation to sell 20% of any venture to state-owned mining company, Gecamines.
Market analyst David Shapiro of Sasfin says there is a tendency in South Africa to underestimate the cost of red tape. “Our major competitive advantage as a country is our position as a minerals supplier, and we cannot take this for granted. Foreign comÂpanies look at our BEE codes, our Royalties Bill, and all the other regulatory issues and they decide to rather go off elsewhere.”
This represents a huge opportunity cost to the economy, says Abedian. Lost mining investment depresses economic growth years into the future.
Figures from Statistics SA show gold output has declined by more than half over the past 20 years, diamonds about 10%, silver output is down 65% and copper output has halved. Platinum and chrome production figures are up about 300% over the same period.
According to Miningmx.com, the minerals and energy Director General Sandile Nogxina labelled the chamber’s claims over lost mining investment as “reductionist and simplistic” and called for a more unified leadership in the sector. The department asked the chamber to explain its criticism, though acknowledges that there is a backlog and has promised to clear this within the next six to 12 months.
The chamber later mollified its criticism by saying it was working with government to find ways to expedite the licence approval process.
The department says it has issued 1 926 new prospecting and 174 new mining licences, and converted 299 old-order prospecting and 148 old-old mining rights since 2004, as required by law. Several established mining houses have had prospecting licence applications turned down by the minister of minerals and energy affairs on the grounds that this would lead to over-concentration of mineral wealth in few hands. The Mail & Guardian was unable to reach the department for comment before going to press.
Create Account | Lost Your Password?