Some mining companies dispute that billions have been lost in mining investment in South Africa, as reported this week. They argue that while there may have been delays because of the new Mineral Petroleum and Resources Development Act, there has not been a loss in investment and the Act has brought about an increase in exploration in South Africa.
The Chamber of Mines says, however, that there has been a quanti-fiable decrease in mining investment, but that the future is looking very positive.
According to Alan Fine, spokesperson for AngloGold, mining is a complicated industry and it takes time to respond to price increases and to bring on new mining projects. “With the gold price and other prices having improved, we have committed R2-billion in deepening projects at our Mponeng and Tau Tona mines. It takes planning and feasibility tests to start mining 4km underground.”
Fine argues that it is the nature of mining rather than bureaucratic stumbling that creates delays. “We have issues to deal with all over the world; mining is not an easy thing to do.”
Commentators say that if there is an ore body to mine at these commodity prices, investors will follow regardless. Some foreign investors might have hesitated at the headlines coming out of South Africa, but at the end of the day they do not walk away from the opportunity to make a lot of money.
However, Roger Baxter, chief economist for the Chamber of Mines, says that one must not overlook the fact that even if investors wanted to mine, there are real regulatory delays, such as the issuing of environmental permits, and that this led to a 20% decrease in mining investment in 2004 and a further 13% in 2005, although 2006 saw a marginal increase of 7%.
He says issues like the granting of exploration rights and environmental permits had a major effect on investment as well as economic factors, such as the exchange rate and infrastructure. In light of one of the biggest commodity booms ever, it seems outrageous that South Africa actually saw a decrease in mining investment.
But not all agree. Hethen Hira, investment relations manager at Wits Gold, says that while the Mineral Act did create delays, without it the company would not exist. Before the Act, the large mining houses could sit on potential ore bodies and all exploration was done internally. The Act introduced a “use it or lose it” policy, resulting in the larger companies outsourcing exploration to junior mining companies such as Wits Gold.
If the juniors hit the jackpot the companies enter into a joint venture to mine the ore body further. “The Act has brought new investment and ground for people to come in and explore. There has been a delay, but where there are minerals there is interest. It is a delay rather than a loss.” Hira says there was initially a backlog in applying for rights. It took between six months and a year for Wits Gold to get all its applications approved.
Hira says the process is streamlined now and recent applications have been processed quickly. Hira says one of the constraints facing mining is a lack of supplies, which is a global issue.
With Africa becoming more access-ible, countries such as the Democratic Republic of Congo, Ghana and Mozambique are seeing an explosion in mining activity, and a lot of equipment and rigs are going across the border.
Globally, there are shortages related to mining, such as the recent rubber shortage, which had an impact on the supply of tyres for open pit mines.
Whether bureaucratic or economic, the issues facing South African mines have meant a delay in the country benefiting from the commodity boom. But whether these are translated into actual losses will depend on how much more of the commodity boom is still to come and whether the mines are in a position to take advantage of the boom.
The good news is that government has made the mining industry a priority. According to Baxter, directly and indirectly, mining contributes about 18% towards GDP and spends about R40-billion on labour. He says government is aware of the importance of resolving the problems, as evidenced by the formation of a task team in November last year, which includes the deputy president, to tackle the issues.
Baxter says there has been a great deal of progress and although challenges remain – such as water infrastructure, which is holding up the issuing of environmental permits – headway is being made in many areas.
“The fact that stakeholders are working to deal with the issues at a very high level is encouraging, it is very positive.”