The top five risks that pose the greatest challenges to the mining and metals sectors include investment fears, margin protection, productivity improvements, resource nationalisation, a social licence to operate, and an education and skills shortage.

Ten years ago South Africa had reliable power, cheap and reasonable productive labour, massive world-leading mineral deposits and sufficient infrastructure to export the quantity that the market could bear. Today, this is not the case and it would seem that these differentiators have all but disappeared. 

So how can South Africa build a world-class, globally competitive, sustainable mining industry?  This is the central theme running through all of the critical conversations being held at the Joburg Indaba, being held on October 8 and 9 at the Inanda Club, Sandton.

AngloGold Ashanti CEO Srinivasan Venkatakrishnan, better known as Venkat, believes that “productivity improvements are central to the long-term contribution of underground mining to South Africa’s economy, and to others around the world”. The means of achieving productivity gains will feature in Venkat’s address at the Joburg Indaba.

At the inaugural Joburg Indaba event in 2013, 91% of delegates cited the need for strong, supportive and visible political leadership in the mining sector, while concerns were voiced on current regulatory issues and a dire need for local government to clearly state its position on mining as South Africa’s economic driver.
 
In order for South Africa to become globally competitive, government‘s role should be an enabler and the ANC needs to make a stand on mining as a key driver of the country’s economy. 

A power house of business, government and labour leaders are set to join this year’s bold debates at the Joburg Indaba including Mineral Resources Minister Advocate Ngoako Ramatlhodi, the African National Congress’ Gwede Mantashe, and National Union of Mineworkers general secretary Frans Baleni.

We need to get to grips on transformation issues and to rebuild trust to enable a sustainable approach to win investor confidence and restore South Africa’s reputation in the eyes of the providers of capital. To avoid a repeated collision course between labour and mines, government, the unions and industry need to make a positive difference to draw back investors.

Labour strikes could fundamentally move us towards increased mechanisation, coupled with regulatory uncertainty, the funding gap, and shrinkage in exploration, which begs the question as to what appetite the market holds for new projects?

Mark Cutifani, CE of Anglo American joins the esteemed group of mining and investor heavyweights, as the keynote speaker and he will give his voice on the labour issues that have crippled the industry and the challenging trade-offs between cost, productivity and unemployment, highlighted by the mechanisation versus labour debate.

Another major question in this sector at the moment is, where has the money gone that was poured into this sector, and why has it gone?  Money is completely mercenary; it goes where it will get the best return, at the lowest risk and in the shortest possible time frame. The South African government believes the mining sector should beneficiate. We could of course raise skills, improve our infrastructure and get more of the revenue. But that is not what the investor cares about. The investment dollar will only come if it can make that return.

KPMG’s Carel Smit states, “In the current economic climate, pots of cash are smaller and rates of investment are lower. Where junior mining companies labour to raise cash and look at opportunities that offer greater security and a good rate of return for their investment, larger mining companies are spinning off their collection of assets to focus on core business. As a result, there is a great need to change perceptions of South Africa, from a ‘seller’s market’ to a ‘buyer’s market’. Nonetheless, to attract valuable investors and achieve a buyer’s market in South Africa, there needs to be a strong understanding of what investors want”. Smit will chair a panel of CEOs to kick off discussions about how to satisfy sector investment.

Following a decade of over-exuberance, the mining industry is now picking up the pieces, and is in full restructuring mode. More than half of the top 40 global mining companies’ chief executives have either left or have been replaced over the past two years, the industry has taken a cumulative $57-billion in impairments in 2013 alone, and the market is in the middle of experiencing the after-effect of the capital splurge on new projects through over-supply risks in several key commodities.

The impact of this on African resource projects has been significant. The junior mining market, be it in Canada, the UK or Australia has been starved of capital for several years now, with little appetite by equity investors to support projects in risky jurisdictions, particularly when requiring multibillion-dollar infrastructure solutions.

However, in downward cycles, it is easy to get too over-pessimistic and, as a result, be unprepared for the next cycle. Rand Merchant Bank, one of the sponsors of the 2014 Joburg Indaba, is actively driving its African strategy, broadening its country footprint, and sourcing new transactions aggressively. “We have become more selective about which commodities to support from a funding perspective,” says Henk De Hoop RMB's business development director: resources. “We consider attractive commodities to support as West African gold, copper, diamonds, manganese, coal (the latter two particularly in South Africa) and oil and gas.” 

Chaired by Keith Scott, MD of the MSA Group, this year’s Joburg Indaba’s Lions Lair segment will once again provide a forum for those companies who dare pitch new projects to a panel of capital providers. Delegates will also have the opportunity to hear from those who overcame the capital crisis.  Included this year will be reveals on just exactly what the funders criteria are for plausible investment, how the Chinese investors view Africa and what the drivers are for exploration in Africa. 

Issues surrounding the State’s participation on the Mineral and Petroleum Resources Development Act and broad-based black economic-empowerment are uncertain. The impact of regulatory issues on the mining and extractive industries is unclear. Prospects and environmental impacts for unconventional gas are being questioned and analysed by communities, investors and producers alike.

Cross fertilisation between mining industry and the oil and gas sectors is apparent, but where are the opportunities? There is potential for driving development in the region through liquefied natural gas, but what will it take to get the dollars flowing? What is it going to take to change the energy mix?

In procuring renewable energy, the Renewable Energy Independent Power Producer Procurement Programme has been quite successful as a programme. However, its procurement target of 3 625 MW over an initial five tender rounds, is set at less than 10% of South Africa’s total power capacity of 43 000 MW. There is also concern that it will take a few years to construct and add this base requirement to the national grid.

Although limited, South Africa has other renewable energy power generation capacity, stemming from hydropower, pumped storage, and nuclear.
South Africa has many options for reducing its reliance on coal. Potentially, the greatest source of future energy supply could come in come in the form of additional renewable energy sourced locally and from the near region, offshore gas deposits coming from gas imports from Namibia and from Mozambique, which holds the world’s fourth-largest gas reserves and coal-bed methane.

Lastly and probably most importantly is shale gas; however, details of a shale gas programme are yet to be finalised.

In terms of solving Eskom’s efficiency problems, one option for South Africa is to partly privatise Eskom, as already suggested by some in South Africa’s Cabinet.

“There needs to be a concerted effort from the South African government to ensure Eskom acts as an efficient company, perhaps more restructuring.  Lastly, Eskom could allow more independent power producers to increase their role in supplying power to areas that are experiencing particular shortages or are energy-intensive users,” says Eunomix MD Claude Baissac.  

So could the government facilitate the high road by allowing cheaper energy though fracking, develop infrastructure, dams and rail which will create jobs and wealth?  The changing energy mix and evaluations of the potential impact of unconventional gas for South Africa and the wider region will be hotly departed by lawyers, utilities, investors and business during next week’s Joburg Indaba.

The conversations that began at the 2013 Joburg Indaba and were so widely reported in the media will be continuing at the Inanda Club on October 8 and 9.

Those operating in these industry sectors should participate in this event and make a valuable contribution, interact, engage and debate in a no holds barred, blunt but constructive dialogue on these and other critical issues such as:
• What is the new look industry going to be post platinum strikes and labour upheavals?
• Where exactly does the ANC stand on mining as a key driver of the SA economy?
• Is the trust deficit between government and industry beginning to close?
• What do we now need to do to increase economic growth and stimulate mining investment and productivity?
• Can we double the output of the industry by 2020?
• How do we leverage the common ground that the NDP creates among all stakeholders?
• What now needs to be done to raise the interest of international investors?
• Are we getting any closer to achieving a stable, consistent regulatory framework? Do we have a coherent action plan?
• Has the mining industry made a convincing transformation effort?
• Will the Mining Charter uphold or drop the “once empowered always empowered” principle?
• Has the industry got to grips with the issues of inequality, fairness, income disparities, remuneration policies, labour volatility and social problems?
• How are we doing in building a competitive, sustainable and legitimate mining industry in SA?
• How do we secure the next generation of miners?

Opportunities and solutions that could outline the route to a competitive and sustainable mining industry will be thrashed out at this year’s event amongst various leaders, game changers, and entrepreneurs in both the mining and investment sectors.  See www.joburgindaba.com to register and attend the live debates, or follow on Twitter #joburgindaba as the conversations unfold.