Many African countries have imple- mented Canadian or Australian mining codes and regulatory systems, consisting of clear regulations and investment incentives, and have attracted capital from investors willing to take on the risk associated with the continent, says mining exploration company Montero Mining and Exploration president and CEO Dr Tony Harwood.
He cites Tanzania and Burkina Faso as exam- ples of countries which hosted little to no mining activity 15 years ago, but which are becoming mining-intensive countries, owing to appealing mining codes and investment incentives.
Junior and major mining groups have invested billions of dollars in these countries, leading to substantial developments in their mining sectors. “We have seen the re-emergence of Zambia, Ghana, the Democratic Republic of Congo (DRC) and Namibia as mining countries, attracting billions of dollars in investments from overseas companies, largely from Europe (London), Canada and Australia,” Harwood notes.
These countries, in turn, have impacted on South Africa’s mining sector, as they require and use the skills supplied and developed by South African companies. This has been a posi- tive development for South Africa’s consulting and contracting industries, but it has also drained the country’s mining industry of vital skills.
Harwood emphasises that there is no reason why South Africa cannot become a mining powerhouse again with a highly developed resource economy like Australia or Canada. “South Africa certainly has the geology, mineral potential and skills base.”
The deployment of risk capital for exploration will regenerate the South African mining industry, starting in the junior mining sector – the entrepreneurial sector of the mining industry – where risk capital and expertise are deployed to create wealth through exploration and by developing mines for the future.
This will lead to job creation and tax revenue from the revitalisation of South Africa’s mining industry, which has steadily declined over the last 30 years, Harwood points out.
The number of applications and licences held by individual or junior explorers and miners in South Africa is comparable to many African countries, such as Ghana, Tanzania, Burkina Faso, Zimbabwe, Mali, the DRC, Botswana and Zambia.
He adds, however, that while licences are held in South Africa, little or no exploration is being undertaken at these tenements, owing to a technical-skills shortage, but particularly, a lack of risk capital.
In South Africa, access to capital for explora- tion and development is a major hurdle, owing to the get-rich-quick attitudes of licence holders and an over exaggerated valuation of explora- tion projects – hence, junior mining groups cannot enter into deals with venture capitalists because of unattractive terms that are based on the unrealistic valuation of exploration projects.
There is also a lack of local venture capitalists that are capable of funding exploration and mining ventures. “South Africa lacks a culture of exploring risk capital, other than a historical one that built the major mining groups over 60 years ago,” says Harwood.
South Africa is also not a major exploration and mining destination for foreign investors, as the bureaucracy and administration pertaining to mining licence applications is lengthy, cumbersome and complicated, he adds.
Harwood points out that the increasing level of corruption in South Africa is a major deterrent to short- and long-term foreign investment. Added to that is the uncertainty created by government’s stance on nationalisation and future mining legislation. Uncertainty deters foreign investment.
Further, the country’s current labour issues are reducing the ability of mining companies to mine and produce profits to pay back capital and provide consistent returns to investors, foreign and local.
Wildcat strikes that started on the country’s platinum belt left more than 50 people dead, before the strikes and violence spread to other sectors, including the gold and logistics sectors, undermining investor confidence in Africa’s biggest economy and tarnishing President Jacob Zuma’s government.
Harwood points out that the black economic- empowerment (BEE) aspect of any mineral investment is problematic, particularly for a foreign investor. The BEE aspect involved in any prospecting or mining investment undertaking effectively means that higher returns are required from that investment as, more often than not, a BEE partner is unable to fund its share of an exploration or development programme. Added to this, the BEE is often not broad based, making a selective few the beneficiaries to any potential investment.
He adds that South Africa’s mining licence application process is not simple, is very lengthy and lacks transparency.
“There are no incentives to encourage invest- ment in this risky business environment and no clear governmental long-term policy to encourage sustainable exploration and mining – a vital aspect needed to ensure the growth of the sector.”
The sector will soon be on its knees and unable to provide the vital tax revenue that South Africa needs for growth, Harwood states. “The mining industry, which 50 years ago made South Africa one of the top 10 global economies, will soon die in despair as South African mining workers and industry emigrate to grow Africa’s economies.”
“South Africa is, therefore, lagging behind many other African countries as it has relatively unattractive investment code and country risk profile,”
concludes Harwood, who was a speaker at the Junior Mining and Exploration Conference held from November 6 to 8 in Johannesburg.
The aim of the Institute for International Research’s inaugural conference and exhibition is to determine ways of attracting investment for the development of the junior mining sector.