Junior miners are facing mounting challenges when it comes to surviving, let alone profiting in the current economic climate, says Vantage Gold Fields executive director Dr Willo Stear, advising junior miners to consolidate through mergers and acquisitions to remain profitable.

Speaking at the third annual Junior Mining & Exploration conference, in Johannesburg last month, he highlighted that junior miners were vital for sector growth as large mining companies were cutting back on exploration to save costs in unfavourable economic times.

“To counter shrinking margins owing to costs and capital overruns, all mining companies are exercising greater financial discipline and shedding marginal noncore [assets],” Stear said.

He pointed out that large mining companies were emphasising cutting costs, improving profitability and limiting risk, along with the reduction of uncertainty, highlighting that mineral exploration was a cost-cutting casualty.

Therefore, junior miners played an increasingly important role in increasing assets through exploration and constituted an important component of the mineral production chain, as they were emerging producers.

Further, producers operating in the lower end of the industry cost-curve that had strong cash reserves were most likely to succeed “when the going gets tough”, he commented, adding that technology and mechanisation had revolutionised mining practices and reduced reliance on workforces.

Currently, labour unrest and an uncertain regulatory environment were impeding growth in South Africa’s mining industry, Stear said, adding that cost inflation in South Africa’s mining industry had far outstripped the cost inflation of its peers and had been exacerbated by increasing red tape from government.

“The State appears to be losing site of where capital will come from for change to take place within the country’s mining industry,” he said.

He explained that emerging countries were dictating terms and conditions to mining companies, while the general mining environment needed to be attractive for return-seeking financiers, stressing that South Africa was failing in this regard.

Meanwhile, Technology Innovation Agency GM Matlou Ramokoena Mabokano, who also spoke at the event, said that there was a lack of coordination of technological innovation in the country, which was detrimental to South Africa’s mining sector.

He noted that, in terms of research and development (R&D) within the mining sector, South Africa had seen a massive exodus of mining skills to countries such as Australia and Canada.

“Academic credibility has also declined [as] the country has an ageing research pool. It is also disappointing that institutions that are dedicated to R&D, such as the Centre for Mining and Innovation at the Council for Scientific and Industrial Research are being disbanded,” he stressed.