Industry intelligence
Ten ways to re-energise SA’s mining
While it is important to be cognisant of the
challenges that face the mining sector in
South Africa, it is equally critical to be aware
of the opportunities and to find ways to
revitalise what remains one of South Africa’s
most important industries.
This is a key takeaway of Working Together
to Reenergize the South African Mining
Industry, a report of the Boston Consulting
Group (BCG) that was released recently
“We believe that the current positive
sentiment in the country has opened a
window of opportunity for more constructive
engagement among key stakeholders, but the
right mindset for collaboration and decisive
action is necessary to improve the sector’s
competitiveness and achieve higher growth,”
says Hans Kuipers, a BCG partner in the
Johannesburg office and a co-author of the
report.
The report has identified the following
10 imperatives that government, business,
and organised labour must prioritise if they
are to overcome such ongoing challenges
as subdued demand, diminishing cost
competitiveness, high fatality rates, and
continuing policy uncertainty:
and improved implementation of social
and labour plans (SLPs);
• Improve technological competitiveness;
and
• Stimulate domestic and international
demand.
“Mining remains an industry of opportunity
and challenge. And if government, industry,
and organised labour work together, it will be
entirely possible to reverse the sector’s fortune
and drive the growth it is capable of,” Kuipers
concludes.
Mining remains an
industry of opportunity
and challenge.
• Provide policy certainty;
• Strengthen security of tenure;
• Improve the mineral rights application
process;
• Update geological mapping;
• Improve financing vehicles;
• Focus on infrastructure and logistical
bottlenecks;
• Reduce utility costs;
• Negotiate sustainable wage agreements
The rise of metals streaming
Morne van der Merwe, managing partner at
Baker McKenzie, and Wildu du Plessis, head
of banking and finance at Baker McKenzie
in Johannesburg, say that metals streaming
transactions, as a way of raising capital for
development or acquisition financing, is
gaining popularity among African mining
companies.
“This method of financing is already
popular in Asia Pacific, the US, Canada,
and elsewhere, and mining companies in
Africa are now turning to streaming to raise
funds for their mining operations, because
the risks associated with economic and
political uncertainty on the continent have
made it increasingly difficult to raise funds
in traditional ways,” says Van der Merwe.
Du Plessis adds that in the past year, one or
two South African mining companies have
successfully used this type of transaction
to raise funds and a number of other
African mining companies are exploring
opportunities to do this.
Increasingly, volatility in the commodity
sector has made it more challenging for
mining companies to access traditional forms
of debt and equity and, as a result, by 2016,
streaming had grown to represent roughly
USD19 out of every USD20 raised in the
royalty/streaming sector globally. This is
because it is considered to be a good way
to raise funds when market conditions are
unstable and debt financing is difficult to
secure.
In a streaming transaction, the streaming
company pays an upfront payment, usually
in cash, to the mining company to secure
the delivery of a fixed percentage of future
production of a specific metal and then
makes regular payments for each unit of
metal or metal credits delivered, as stipulated
in the contract. The upfront payment is seen
as an advance payment for future delivery of
specific metals and is structured as a deposit,
which is reduced as the metal is delivered.
If structured correctly, the deposit may be
considered to be deferred revenue rather
than debt.
National platinum strategy for South Africa
The Minerals Council, led by CEO Roger
Baxter, and Anglo American Platinum CEO,
Chris Griffith, hosted a media briefing on the
National Platinum Strategy for South Africa
at Mining Indaba 2019 in February earlier
this year.
The South African economy has benefited
significantly from platinum group metals
(PGM) mining. Between 1980 and 2015,
the industry produced 221 million ounces
of PGMs valued at R1.2-trillion. The
profits generated from the sale of PGMs
were distributed to multiple stakeholders,
principally across the South African economy,
over that period.
The PGM sector developed into one of the
largest components of the mining industry. It
is the largest mining employer and remains
a significant export revenue earner. Its
development, investment, and transformation
footprint on the economy is significant.
However, the sector is in crisis. Over
the past five years, it has struggled with
an oversupplied market — a function of
structural changes in global supply and
demand fundamentals, including increased
growth in recycling, flat new-mine supply
and weaker demand, domestic labour strife,
declining productivity, and rapidly escalating
costs. At current prices, more than 60% of the
At current prices, more than 60% of the
platinum mining industry is loss-making or
marginal.
[6] MINING MIRROR APRIL 2019
platinum mining industry is loss-making or
marginal.
The National Platinum Strategy for South
Africa, developed by the Platinum Leadership
Forum, which comprises platinum producing
members of the Minerals Council, is aimed
at addressing the current crisis, preventing
further erosion of the economic capacity of the
industry, and ensuring that the world’s largest
PGM resource realises its full value through
the addition of more than one million jobs
and a contribution of R8.2-trillion to South
Africa’s economy by 2050.
Achieving the aims of the Nation Platinum
Strategy will require collaboration between all
stakeholders, involving urgent and bold action
by the South African government in the form
of support that will allow the PGM sector to
tackle short-term challenges while at the same
time investing in the long-term future. At the
same time, a concerted and coordinated effort
by the public and private sector, supported by
the framework of a national strategy, is essential
to enhance the short term and prevent the long-
term opportunity from being squandered.
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