• INSIGHT
URGENT POLICY REFORMS REQUIRED TO SAVE MINING SECTOR
Edited by Sharyn Macnamara
Urgent policy reforms are the only way to save the mining sector , says Old Mutual Investment Group .
South Africa ' s mining sector , once a cornerstone of the country ’ s economic prosperity , currently faces a pressing need for structural reform to regain competitiveness and relive its investment glory days . The critical issue at hand is not about the sector ’ s investability status , but rather the pervasive policy uncertainty that is deterring investors from investing in the sector , according to Ian Woodley , Resources Analyst at Old Mutual Investment Group .
Woodley warns that South Africa lacks a secure investment environment along with an attractive fiscal regime to attract investment into the sector .
For more than a century , the mining sector has been an essential component of South Africa ' s economy . Currently , the sector contributes approximately 7.5 % to the gross domestic product ( GDP ) and represents roughly 60 % of the nation ' s exports by value , and although still strong , the contribution of mining to the GDP has been steadily declining year-on-year for a while now .
Over the past year , the mining sector saw profits decline by nearly R100-billion due to the challenging operating environment , as well as lower commodity prices .
Following a spotlight on the sector generated by the Annual Mining Indaba held in the country from 5 – 8 February 2024 , large mining companies including Impala Platinum , Northam Platinum , Anglo Platinum and Sibanye Gold all reported substantial declines , with losses ranging from 3.57 %, to as much as 7.72 %.
During the Mining Indaba , mining minister Gwede Mantashe announced a R400-million fund to support new mining explorations . Woodley says that while this is a positive step , it alone cannot resolve the underlying issues .
“ The fund starts to address the fiscal aspect but , without the comprehensive and welcoming legislation that investors demand for long-term commitment , this is unlikely to yield many positive results ,” says Woodley .
According to the Fraser Institute ' s Investment Attractiveness Index , South Africa ranks among the least attractive jurisdictions in the world , placing it in the bottom 10 , and the country has been in consistent decline in the index . Although very Canadaspecific , this trend cannot be ignored , and it highlights the need for immediate attention to the country ’ s regulatory framework to restore investor confidence in the mining sector .
While the drive towards decarbonisation is considered to be minerals intensive , the South African domestic equities have limited to no exposure to some of the battery metals that are considered to be the main beneficiaries of this trend ( with the exception of Sibanye ), says Woodley . This leaves South African investors having to focus primarily on the large mining players , such as Anglo American , BHP and Glencore for exposure to the energy transition .
“ However , the overreliance on these established mining giants poses challenges for sectoral expansion and may stifle growth of the smaller players , and this cannot be a good outcome for the sector or the country ,” warns Woodley .
" For the sector to regain its vigour and to remain an important part of the South African economy for years to come , there is a need for swift fundamental sectoral transformation , and we can only hope that there are productive discussions between the government and the sector to formulate a plan that will enhance the attractiveness of the country ' s mining sector . Without this , South Africa risks degrading a historically significant employer ," warns Woodley . •
Source : Supplied Old Mutual Investment Group
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38 • African Mining • April 2024 www . africanmining . co . za