JOHANNESBURG (miningweekly.com) – The extensive challenges faced by South Africa’s mining industry were not unique to the country, a survey by assurance, tax and auditing firm Grant Thornton has found.
The firm, which released the results of its first International Mining Report 2013 survey on Thursday, revealed that the challenges weighing on South Africa’s mining industry reflected those experienced globally, Grant Thornton corporate finance director Steven Kilfoil pointed out.
The report, entitled ‘Turning high risk into high potential’, surveyed over 380 junior mining companies throughout Australia, the UK, Canada and South Africa during the three-month period from November 2012 to January 2013.
South Africa’s mining sector faced significant rising costs and policy constraints, including the Mining Charter and black economic-empowerment (BEE) regulations, as well as remnants of nationalisation threats, labour unrest and the downgrading of the country’s sovereign credit ratings.
Kilfoil pointed out that miners around the world were experiencing governmental and public pressure for tighter permitting and licensing procedures, as well as other regulatory burdens, corruption and critical public perceptions, increased environmental controls and expectations, risk-averse investors, sluggish economies and increasing energy, labour and tax costs.
However, South Africa as an attractive mining investment destination had been hit hard by stronger negative sentiment and skewed perceptions, placing further pressure on mining companies, particularly the juniors, owing to a lack of, or limited, access to funding.
He noted that foreign countries were increasingly hesitant to invest in the country and that the London Stock Exchange was hesitant to list South African mining companies, a fallout from the events at the Marikana platinum mine last year.
However, compared with other global mining destinations, South Africa was, in many ways, better off, Kilfoil added.
Globally, 51.5% of mining companies had cash balances of less than $2-million, compared with 34% of South African companies.
About 11% and 13% of South African firms held cash balances of between $2-million and $5-million and between $5-million and $10-million respectively, compared with 13.8% and 7.5% respectively of the international firms surveyed.
Close to 40% of the international junior firms surveyed would require funding within three months, compared with only 16% of South African juniors.
Grant Thornton’s survey found that the nationalisation debate did not impact on 45% of the surveyed South African companies’ ability to raise finance, while 29% said it had to some extent and another 22% agreed that it had affected finance raising activities.
However, the country was more or less on par with international firms, 44% of which cited limited access to funding as constraining growth.
Further, 48% of the international firms surveyed rated the ability to raise capital as a driver of growth, compared with 37% of South African mining executives.
However, only 10% of the South African mining executives surveyed believed that bribery and corruption was of “no concern”, compared with 42% of international executives.
In South Africa, 40% of the mining executives surveyed said it was a “significant concern”, while internationally only 22% cited this as a "major concern".
However, 69% of the South African firms had antibribery and anticorruption codes of conduct in place, compared with 64.8% of international companies.
Meanwhile, 44% of local respondents said they would increase salaries at a rate above inflation, while 46% would offer pay rises in line with inflation. This compared with 18.5% of international firms offering above-inflation salary increases and 54% offering increases in line with inflation.
Further, 81% of South African companies expected energy costs to rise, as opposed to only 56.4% of the international firms.
MINING CHARTER FAILURE
The survey showed that only 15% of the juniors questioned believed that the South African Mining Charter, with specific reference to BEE participation, had been successful in transforming the local mining industry.
The report found that 41% believed it progressed the industry to “some extent”.
Kilfoil noted that the failure of the Mining Charter was owing to the focus, or tunnel vision, on meeting the specific measurable targets of 26% to the detriment of the essence of the charter.
“The Mining Charter was negotiated to engender a spirit of transformation and inclusion; one that will give local communities access to South Africa’s underground wealth.
“With the introduction of targets which need to be met by mining companies, however, the emphasis has shifted from the real spirit of the Charter, to one of simply meeting the targets and checking the boxes,” he explained.