Anglo American executive director Khanyisile Kweyama
The Investing in Africa Indaba was held in Cape Town on February 3 to 6, where more than 7 800 delegates, industry heads and decision makers from South Africa and around the world met at the largest mining investment conference to discuss and debate current issues dominating mining horizons on the African continent.
As predicted at last year’s Mining Indaba, the past 12 months have been difficult for South Africa’s mining industry.
Labour unrest and continued wage demands, growing local cost pressures, declining production, dropping international demand and falling commodity prices have all played a role in deepening the woes of an already pressured local mining sector.
Increasing costs of oil, fuel, power and machinery, as well as rising taxes and royalties have also had a heavy impact on South Africa’s industry.
Regulatory uncertainty, an unfavourable investment climate and a volatile labour force have contributed to a myriad of factors wobbling the well-oiled machine that is local mining.
Add to this the likelihood of an easing off in demand from China as that country’s growth cycle slows, and the weather ahead for the sector looks rough.
Positive outlook
However, the general consensus is that the rough road is a mere hiccup in the greater picture for South Africa and the continent. David Hale, founding chairman of David Hale Economics, said there is a great deal of optimism about Africa.
“The trend for Africa has been quite positive for the past 10 years. The International Monetary Fund predicts that sub-Saharan Africa’s GDP growth will be about 6%, in stark contrast with the 2% growth recorded between 1980 and 2000."
Hale identified several factors responsible for Africa’s improved performance.
“Firstly, there has been the great commodity super-cycle of the last decade as a result of the Chinese economic take off.
"Africa is well placed for this, as it is a major producer of a wide range of raw materials and commodities.
"The continent produces 74% of the world’s platinum, 62% of cobalt, 54% of diamonds, 43% of chromite, 30% of manganese, 26% of phosphates, 19% of gold, 19% of uranium, 11% of oil, and 8% of copper.
“As a result of the commodity super-cycle, there has been a great increase in Africa’s trade, rising from $200-billion per annum in the 1990s to now just under $1-trillion.
"We have also seen a large increase in foreign direct investment (FDI), with $10-billion per annum 10 years ago to $37-billion in 2012,” said Hale.
In her keynote address, Anglo American executive director Khanyisile Kweyama said mining is at the heart of all development.
“For centuries mining has been indispensable to our world, and never more so than in the current era where rapid economic growth in China, India and Africa, which together account for more than half the world’s population, is increasing demand for infrastructure, energy, more and better quality consumer goods, food and housing.
“It is estimated that mining directly represents 11% of the world’s economic activity, while payments to its service and support industry account for another 10.5%.
"Add to this the contribution of mined products to the productive capacity of other industries, including fertilizers for agriculture, fuel for transportation and energy, carbon and iron for steel for construction, and we find that mining is at the root of more than 40% of the world’s economy,” said Kweyama.
Environmental impact
Mining, however, has a poor reputation. For many it means environmental degradation.
The industry is often accused of extracting resources, sending the minerals elsewhere for processing and further profit, and leaving little behind apart from polluted water, dust, worn out infrastructure, enormous holes in the ground, and an unemployed – and often unemployable – community of former employees.
“There is hardly a more critical time than now to be making progress to fix this picture. We live in an era when many challenges affecting mining are making success more difficult to achieve.
"We’re seeing more mining related deaths, declining ore grades and waning ore deposits, dropping productivity and skills gaps, operating models that are years behind other industries, rapidly rising costs of energy, water, fuel and machinery, more rigorous permitting and licensing requirements for new projects, and rising taxes and royalties as governments everywhere seek a bigger share of the mining pie.
"Our ability to meet long-term demand still needs to be balanced against returns to shareholders. "They, in turn, are demanding more from us, asking how we are addressing climate change, what ways mining should be contributing to countries’ economies, and how we should be interacting with host communities to improve their livelihoods,” said Kweyama.
Capital investment
ENS Africa director for mining, Otsile Matlou, considers access to capital as one of the critical concerns for the global mining industry at the moment.
“New mining projects require intense capital to get to bankability stage. Banks are risk averse and are reluctant to put up venture capital, they find it far easier to invest billions of rand into an operating mine than to throw a couple of million at a prospective project.
"Lack of capital will have a great impact on the extension of life of mines and the sustainability of the industry as a whole," said Matlou.
But despite the current challenges, the general feeling among industry players at this year's Mining Indaba was positive for South Africa and the continent.
Futurist and principal consultant at Odgers Berndtson, Guy Lundy, described Africa’s rapid economic growth over the past decade as the leap from hopeless continent to the concept of Africa rising.
Jim Lennon, senior consultant and previous chairman of commodities at Macquarie Securities, said the growth, specifically in African mining, was driven mainly by huge expansion in China, together with a lot of inward investment by China in African mining infrastructure, as well as the exports of raw materials from the continent to China.
"The next stage of growth will be the development of consumption within Africa. Population projections by the UN for the next 20 to 30 years show Africa has the largest urbanising population in the world, exceeding China.
"The challenge for Africa is to facilitate that development, build the infrastructure and encourage investment.
"Mining is clearly a core industry in the development of any country. It is a long term, cyclical industry that requires huge investments and consistent policy stance over decades," said Lennon.
Economic driver
Chamber of Mines chief executive Roger Baxter said that while the sector was in a challenging time, mining remained a key pillar of the South African economy.
"The industry has been under some duress, particularly the gold and platinum industries with the illegal strike action of 2012 and the unfortunate Marikana tragedy.
"But there has been much progress this past year to ensure peace and stability on the labour front with the signing of the minister’s peace accord in February 2013, and the Mining Framework "Agreement entered into by organised labour, business and government.
"The current strike activity is legal and all parties are working through the law," said Baxter.
On the policy and regulatory front, Baxter said good progress had been made promoting regulatory certainty in the sector.
Wholesale nationalisation is no longer on the table, and the Mineral and Petroleum Resources Development Act Amendment Bill will focus on streamlining many aspects on the regulatory front.
"The critical key to success for the mining sector is partnership and collaboration between business, government and labour.
"Mining and minerals matter for the growth, development and transformation of South Africa and the African continent,” said Baxter.
Evy Hambro, fund manager of BlackRock’s BGF World Mining Fund saw much promise for the sector.
"In our view there are three sources of potential upside for the mining sector in 2014: higher than expected commodity demand, lower than expected commodity supply and better than expected company performance."
This article forms part of a supplement. Content was sourced independently by the Mail & Guardian supplements team.