Waiting for a train
Rodney Nelson, KPMG’s global mining leader for projects, says globally, mining is profiting from the increasing urbanisation of Asia.
“I’m bullish on where I think it’s going. Over a billion people who want to improve their lives will drive a need for iron ore, copper and coal to fuel urbanisation. And Africa is subject to those same drivers. So South Africa could put itself in a position to increase its exports to support this urbanisation and growth, and infrastructure is the key to enabling this.”
“I recently spent time talking to the chief executives of several global mining houses in South Africa, and while all of them were positive about future demand, they were all constrained by infrastructure,” says Nelson.
“They need resolution on whether the necessary infrastructure will be in place to support investment in growth.”
“South Africa has good quality reserves, a low cost base and a good proximity to market, but this is not useful unless they can get their product to market by rail. They are looking for signals from government that the plan is going to be executed, and they will consequently add their investment. Right now, it’s a bit of a chicken and egg situation.”
He says that when an infrastructure provider and a mining house make a long term arrangement, “the infrastructure provider seeks certainty of revenue to invest in development, and the mining house seeks an assurance that the infrastructure will be put in place to support growth”.
“Most mines would sign up right now, but the rail infrastructure hasn’t been ready,” Nelson says.
“It doesn’t take that much to expand a mine. But if the railway lines are completely full, there is no point in expanding — so the mines are waiting for the expansion of transport and power capacity to support mining.”
South Africa has several advantages over many other regions, as it strives to grow its mining sector and expand beneficiation projects, says Nelson.
The country is rich in resources, there is existing infrastructure, the cost base is generally low and the national infrastructure development plan has the advantage of falling under a central power, he says. However, achieving the hoped-for growth will not be without its challenges.
Nelson says overall South Africa’s national infrastructure development plan is an ambitious one but with several positive attributes.
“It addresses infrastructure that will reinforce and broaden the South African economy, and will act as a catalyst for development and investment in regions,” he says.
“Equally, the plan does recognise the challenges confronting execution. These include the need for high-level engineering, construction and management skills, and a need for discipline in execution. It’s extremely ambitious if you consider the scale of planned growth in power supply, roads and corridor development.”
National infrastructure aspirations and challenges are fairly similar across the world.
“But South Africa is reasonably unique in that a lot of the infrastructure is controlled by central government. In Australia, parts of Europe and the United States, much of the infrastructure is controlled by provincial or state governments and privately owned stakeholders, which can hamper the development of a co-ordinated strategy for development. In South Africa, the entire portfolio has one vision and one set of stakeholders, so the advantage is that the government is able to divert resources as needed.”
“On the downside, the government could find itself tied down by processes that may not be economically efficient.”
There are benefits for any economy to putting in infrastructure and creating low cost trade corridors, transport corridors and beneficiation projects. He believes that South Africa has an advantage over many regions in that it requires incremental infrastructure investment, as opposed to greenfields development that other regions may need.
“There is, for instance, a region in Western Australia with three to four billion tons of iron ore deposits, but it is situated several hundred kilometres from the coast, with no port to support it. No mine can support the level of investment that would be needed to build the necessary railway line and port.”
On beneficiation, Nelson says: “Economies and communities can benefit from raw materials in and finished products out. Beneficiation in iron and coal for example, is the generation of steel — a market seeing a lot of changes and set for growth. However, a beneficiation plan would require a large and reliable supply of power and water and an efficient transport infrastructure.”
The cost and supply of these support structures are currently challenging existing beneficiation projects such as smelters, raising questions about the potential for success of an ambitious beneficiation plan.
Globally, infrastructure development plans tend to attract foreign investment in the form of both new business and the construction companies working to implement the plan, says Nelson.
“In Australia, the $11-billion Roy Hill iron ore mining project in Western Australia attracted Samsung C&T as the contractor, with Korea bringing in nearly $5-billion in funding and expertise to support that job.
“The result of that engagement is that Samsung C&T is now looking at where they can help build hospitals and other infrastructure in the country.”
This article forms part of a supplement paid for by KPMG. Contents and photographs were sourced through and signed off by KPMG