South African mining’s big prospecting problem
South African mining enjoyed a magnificent 2021. Driven by soaring international commodity prices, the value of minerals production exceeded ZAR1 trillion, that year, the highest value ever achieved. Mining’s contribution to GDP climbed 1.6 percentage points to 8.7 percent, from 7.1 percent in 2020 and a low of 5.8 percent in 2017. With high prices continuing into 2022, it looked as if South Africa’s mining sector had bounced back after several years in the doldrums.
The windfall from the mining sector is appropriately regarded as having ‘saved’South Africa’s Covid-damaged fiscus in financial year 2021/22. It accounted for a large part of the ZAR180 million higher than projected tax collection for the year, which allowed the state to pay Covid-19 relief and dramatically improved the country’s balance of payments.
However, beneath the surface the industry faces an existential threat. While the value of minerals production has climbed in 2021/22, tonnages mined have continued to fall. Figures from March 2022 show that production is still 8.4 percent below the level that prevailed in January 2020, before the Covid-19 induced slow-down. This is a long-term trend. The Minerals Council of South Africa (MCSA) argued, earlier this year, that ‘sector production has not recovered since the 2000/2006 peak and is struggling to maintain 2015 levels’.
The problem which threatens to undermine the industry is that its assets are ageing and no major new deposits have been identified (with possible exceptions in the manganese sector) for well over a decade. Exploration spending in South Africa is negligible. It represents less than one percent of global spend and, in 2021, was lower in dollar terms (USD77.4 million) than any year since 2002 (when mining companies were holding back over uncertainties about the Mineral and Petroleum Resources Development Act).
South Africa’s exploration spending in 2021 was only three-and-a-half percent of the US$ 2.1 billion racked up by Canadian-registered firms. The country has dropped into sixth place on the African continent for exploration spending, behind the Democratic republic of Congo, Côte d’Ivoire, Burkina Faso, Mali and Ghana.
Looking forward, it seems clear that major mining assets in the South African jurisdiction are going to be dropping off at a faster rate than they are replaced. Only one of the five biggest mines in the country (by output) is expected to last beyond 2040 (Gold Fields’ South Deep gold mine which has an anticipated lifespan running to 2089).
At the Junior Mining Indaba, held in Johannesburg in early June, consultant Paul Miller, a consistent critic of South African minerals policy and administration, entitled his presentation ‘Today’s South African mining graduates will be unemployed by the age of 40’. Miller suggests that anyone attempting to calculate the number of significant mines in South Africa which will still be operational in 2040 ‘will run out of mines before they run out of fingers’. Columnist Peter Attard Montalto asked earlier this year ‘is South Africa still a mining country?’
The problem is not something which can be postponed for resolution at some point in the future; it is current. It takes more than a decade to bring a tier one mineral deposit from discovery to production. But such deposits, if they exist, have yet to be discovered in South Africa and no-one is looking. Almost all exploration in the country is focussed on expanding existing operations (‘brownfields’) rather than prospecting for new resources (‘greenfield’).
There are a paltry 12 junior mining companies listed on the Johannesburg Stock Exchange (the exchange which in 1980 included more than half of all global mining capital by value). Most explorers based in South Africa work in other jurisdictions on the continent. By contrast, there are 1 600 junior miners listed on the Toronto Stock Exchange and 600 in Sydney. It is not a coincidence that when finds are announced in Southern Africa, the companies responsible are invariably Canadian or Australian.
Miller and others place the blame squarely at the door of the Department of Mineral Resources and Energy (DMRE). The department struggles to process exploration and mining licences and the backlog has grown year after year. Earlier this year the Mineral Resources Minister Gwede Mantashe admitted it had reached a figure of 5 326. Although the DMRE does not publish current information, this figure is probably higher than the number of active licences in the industry (estimated to be between 4 500 and 5 000).
According the MCSA, it currently takes more than 350 days to process a mining licence in South Africa. This compares with 40 days in Botswana.
At the centre of the licencing fiasco is the DMRE’s attempt to introduce a self-built electronic cadastre and licence management system, called Samrad, in 2011. The system has never functioned properly and the department has thus been forced back on a manual, paper-based system. This is opaque, inefficient and, it has been alleged, possibly opens the door to corruption.
A year ago, the DMRE put out a tender for a new cadastre. No winner has been announced and the contract appears to be in limbo. It was the subject of an unedifying finger-pointing exchange between the department and State Information Technology Agency Sita at the May Mining Indaba held in Cape Town.
South Africa could look to its neighbours for the obvious solution. Botswana, Mozambique and Namibia all use off-the-shelf systems sold by US based mining infomatics company Trillion. These offer clear, transparent cadastres, accessible through the internet. The problem is that the DMRE insists on a local solution in line with government’s economic empowerment policies.
The DMRE published a pdf mining exploration strategy (661 KB) in April. Aside from the opportunity for the minister to reiterate the ambition to see South Africa’s exploration spend recover to five percent of the global total, it contains no substantive proposals and has been ignored by the industry. But critics are correct: South Africa’s negligible minerals prospecting spend has created a cliff over which mining production will plummet if the situation is not reversed. Government needs to focus even more sharply on this problem than the more high-profile energy and logistics problems which confront existing minerals producers.
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