Seismic Global Shifts Outlined
Richard Sellschop, Senior Partner at McKinsey provided a clear outline of how the markets are shifting. A leading shift has been the rapid growth in the gold price with a more than 50% growth in the last year. The last time this happened was back in 1979 when major geopolitical tensions as well as high inflation rates and oil price volatility drove a massive increase of around 129% in the gold price in a year.
Similarly today, geopolitics and supply-chain disruptions and a race to secure critical mineral supplies for mushrooming tech and green related industries are driving various critical mineral prices.
Sellschop outlines four major trends driving demand:
- Population growth
- Middleclass growth globally
- Energy transition explosion
- Digital Infrastructure growth
Of the current 54 major critical mineral list for the US and 34 by the EU, South Africa holds major deposits of 12 of these including the likes of PGM’s where SA holds around 80% of the global total and Chromium with 72% of global reserves in South Africa.
In contrast, Africa currently only attracts 10% of global exploration investments while costs of exploration are expanding, making the risk appetite of investors even less. Ironically exploration investments are being concentrated in severe geographical terrains such as Canada and Australia due to the ease of policy and risk mitigation in these regions despite harsh mining conditions.
Investment Decline in SA Decried
After years of seeing mining investments diminish in South Africa, delegates at this year’s Indaba have highlighted their strong belief in opportunities but have also highlighted how the country needs a better focus and clarity of purpose in order to plug into the massive shifts that are taking place in the minerals markets globally.
South Africa, once the Cinderella of African mining, is now one of the most unexplored mining destinations in the world. A sad indictment of the failure of the administration’s policy.
South Africa’s mining industry currently employs around 465,000 people, a top ten employment industry in the country. However this has declined rapidly due to a lack of new mining activity in the country.
In addition the industry also spends about $7 billion hundred a year in developing schools according to Paul Dunne, President, Minerals Council South Africa and theCEO of Northam Platinum Holdings
Paul Dunne in his address to the Indaba comments that: “ We believe that the growth of the mining industry and the transformation of the economy do not need to be exclusive”. We can’t have one without the other in many respects, but we need a stable regulatory predictable environment that promotes both”.
Mining represents 6% of annual GDP and, representing 45% of total of exports of the current export total. From a corporate tax perspective the total tax paid by the mining industry amounts to R43 bill round year. contributing 14% to the total of corporate tax collection.
Examples of the policy failures hampering investment in mining exploration is the mining Cadastre system has been seven years in the waiting and is part of the central issues preventing the rebuilding of South Africa’s mining industry.
Investment Relies on Reciprocal Support From Government
Companies need to operate in an environment that allows them to attract investors in the form of debt or capital to fund a projects. Investors with available capital will not put their money into risk investments where they returns are threatened on a regulatory uncertainty basis – primarily corruption, and failing to build and maintain supporting infrastructure.
“At the very least, the course of government increases risk significantly, rendering projects unviable, that otherwise would proceed” comments Dunne.
“This is the fundamental starting point to all our discussion with Minister Mantashe and his colleagues” says Dunne. “The mining industry has been severely constraining during the past three decades by regulatory services, where administrative processes and unnecessary delays on licensing, authorisations, as well as the severe regressions that state capture as had to the electricity supplies has unrailed investments and caused disruption” states Dunne.
SellSchop highlighted how South Africa has fallen in the recently released Frazer rankings that rank 82 countries by ease of conducting mining activities. South Africa, once the top ranked African state now sits at a sorry 62nd position out of 82, with the likes of Morrocco now taking top honour in Africa sitting in 18th position and Zambia at 28th out of 82.
What needs to change for South Africa to hitch its mining future to current global shifts?
Key Issues for Mining Investments:
- Clarify Policy Position
- Simplify and accelerate permit processes
- Unlock infrastructure Fundamentals such as rail and energy supply
Global countries are moving rapidly to secure future supplies of strategic minerals and the global markets are ready to invest. The big question is will South African mining be released to meet this market?
