Mining has become a “complex business”, largely as a result of the unique dynamics of stakeholder engagements and expectations, government regulations and the technical and operational imperatives, University of the Free State (UFS) Rector and Vice-Chancellor Professor Francis Petersen states in an opinion piece.

Although many consider mining as a “sunset industry”, Peterson believes mining will continue to play a critical role in supporting the goals and aspirations of the National Development Plan (NDP).

He explains that mining has, historically, been at the heart of the South African economy and that, although the economy has diversified over time, the mining industry remains a central part of the economy, with an indirect contribution of over 17% to the country’s gross domestic product (GDP).

Directly, however, mining is contributing about 7% to GDP.

Peterson elaborates that the South African ruling party, the African National Congress (ANC), under the leadership of President Cyril Ramaphosa, has indicated its commitment to the NDP and stated that it foresees an economy that encourages and invites investment, provides policy certainty and addresses barriers that inhibit growth and social inclusion.

However, he questions whether this will indeed be the case, considering the challenges facing the ANC from within, including allegations of corruption and State capture.

Mineral Resources Minister Gwede Mantashe’s appointment last year has, however, restored some optimism about the future of the South African mining industry, Peterson notes.

“Creating an environment with adequate infrastructure, less policy and regulatory uncertainty, and a skilled, but flexible workforce, should go a long way towards attracting investment,” he comments.

CURRENT SITUATION

Peterson further comments on South Africa’s bulk commodities – such as iron-ore, coal, manganese and chrome – which are performing “fairly well”, but he laments that precious metals are not performing that well.

He highlights the struggling platinum sector as being of particular concern.

Despite various cost-saving initiatives, lower production of gold and platinum means higher unit costs.

While mining input costs have increased significantly more than the Consumer Price Index (CPI), Peterson points out that the production output from South Africa’s gold mines has been declining over the past seven years.

“Mining companies are positioning themselves for the future by realigning their portfolio of assets with their long-term strategies. This has resulted in ongoing disposals of noncore assets and significant increase in acquisitions,” he comments.

Mining analysts, meanwhile, are expecting local companies to consolidate as a strategy to mitigate against operational inefficiencies and rising input costs, following the megamergers in the global gold sector.

“With South Africa’s gold production accounting for only 4% of global gold production, new investment in this sector is highly unlikely in South Africa.”

Although the platinum mining industry has proven to be more important than gold, Peterson points out that this sector is battling in the face of a global oversupply, depressed prices and retrenchments.

“It seems as if this sector is split between high-risk, expensive underground mining and openpit extraction, where economies of scale and mechanisation generate better efficiencies and return on investment,” he explains, adding that, recently, there have been signs of an improvement in the basket price of platinum group metals.

Meanwhile, despite Peterson’s warning that leadership in this sector has to be guarded against having a short-term focus versus understanding the fundamentals of the sector, he explains that to assess the state of mining in South Africa, it is crucial to manage challenges in the sector such as energy costs and electricity supply constraints, regulatory uncertainty, as well as government’s capacity to deliver and safety.

Subsequently, Peterson highlights that, to find new ways of making mining safer, the “more efficient and sustainable” use of advanced technology is essential. Additionally, integrating with the needs of local communities, decreasing the sector’s environmental footprint, and increased focus on research and innovation also require attention.

“Although there are key challenges facing the South African mining industry in 2019, I believe it is through continuous conversation, engagement and the building of trust among business, labour and government, and through a people-centred approach, that this industry will continue to provide effective returns for its shareholders and stakeholders,” he concludes.