Lack of updated geological information partly to blame for low levels of exploration in South Africa

27th July 2012 By: Leandi Kolver - Creamer Media Deputy Editor

The availability of updated geological information could significantly increase the amount of exploration taking place in South Africa, says Geological Society of South Africa (GSSA) immediate past president and mining consultancy The Mineral Corporation senior geological adviser Dr Johan Krynauw.

“Currently, South Africa accounts for only 1% of global exploration expenditure. We are no longer one of the top ten countries [in terms of] exploration expenditure, whereas, in 2004, we were in the top four. We have been overtaken by many other emerging markets,” says Council for Geoscience mineral resources development and engineering geology manager Dr Stewart Foya.

The factors to which this lack of exploration is attributable include limited access to locally available risk capital, uncertainty relating to mining legislation and policies, and a lack of detailed geological mapping.

“We can learn from other African countries, such as Mozambique and the Democratic Republic of Congo, which obtained loans to improve the scale, quality and standard of their mapping, resulting in significant interest in exploration,” Krynauw tells Mining Weekly.

Diversified miner Rio Tinto South African country manager for exploration Pamela Naidoo, who was appointed president of the GSSA earlier this month, also believes the amount of exploration taking place in South Africa can be increased if the amount of available information is increased. “Other African countries have extensive geological and geophysical mapping programmes and that information is made available to investors.

“South Africa does have historical data, of a low resolution, but if we really want to encourage investment, the country needs higher levels of information, which has to be made accessible by bodies such as the Council for Geoscience,” she adds.

“The Department of Mineral Resources’ (DMR’s) Samrad online application system has already improved the application process to the DMR, but, if the next step can be taken to allow explorers to see which land is already taken up, one will be able to query if an application has already been made and for which commodities,” Naidoo says.

This is important, as different companies are allowed to explore for different com-modities on the same land, she explains.

Foya agrees, stating that the Council for Geoscience is currently undertaking systematic mapping aimed at achieving this.

A total of R145-million has been allocated to the council to undertake initial mapping for a period of three years by revisiting some of the country’s metallogenic provinces, Foya tells Mining Weekly.

“We hope that, after this three-year period, we will be able to secure more funding, estimated at R2.5-billion, to continue with this process, as this data is critical in reducing financial risks and the cost of exploration,” says Foya.

South Africa is spoilt by massive deposits and thus no systematic exploration has taken place.

“Therefore, our country is ripe for exploration,” he says.

Meanwhile, few mines have been established in South Africa since 1994, which shows that new technologies have not been used to find mineral deposits, says GSSA senior management member and South African consultancy Kai Batla MD Avinash Bisnath.

Technology and research have evolved since the establishment of most of South Africa’s mines, enabling the country to now use techniques which will provide better resolutions at depth and new models that can be used to target exploration, says Naidoo.

“Traditionally, South Africa has always been a leader in developing new technologies relating to mining, but this tradition is not as strong as it used to be and we need to return to where we came from, as this will be a critical factor in determining the country’s future in mining,” Krynauw adds.

Naidoo says that the amount of exploration taking place in South Africa is linked to global financial and commodity cycles.

“Currently, there is lower expenditure in exploration worldwide, following the global financial crisis, as investors are cautious and tend to keep their money close to the main markets, such as the Australian and Canadian stock exchanges,” she tells Mining Weekly.

The amount of exploration taking place also varies according to commodity demands, with coal and iron-ore currently enjoying higher levels of interest.

“The future looks good for our mineral resource endowment; however, it is important to be realistic and acknowledge that the easy deposits have been found. Finding the remaining deposits will require much greater investment of time and money,” says Naidoo.

“Also, South Africa has had a history of exploring for precious metals and base metals, but the market is leaning increasingly towards industrial minerals as the world economies develop, and future opportunities will lie in these minerals,” she adds.

Exploration Juniors
Mining in South Africa was, traditionally, dominated by a few major mining companies, which have taken up much of the land- holding in the country, leaving little room for juniors, says Naidoo.

“Although legislation has since changed to make the land more available, there still are challenges relating to accessing exploration property. It is a long process and there are a lot of legislative requirements to fulfil before exploration can start,” she says.

The major mining companies that conduct exploration in South Africa are mainly focused on brownfield projects.

Meanwhile, in countries such as Australia and Canada, exploration is led by junior companies that conduct greenfield exploration, which plays an important role in ensuring that current resources are replaced once they have been depleted, Foya explains.

O

ther factors contributing to the absence of junior explorers in South Africa are the onerous laws, which prevent smaller companies from becoming directly involved in the mining industry, says Krynauw.

The relationship between mining juniors and majors in the country is also poor, adds Bisnath.

“In Australia and Canada, juniors are supported by majors and are relied upon to make discoveries. This is not the case in South Africa – here, the majors regard the juniors as competition,” he explains.

South African mining juniors are also faced with the challenge of securing funding.

In Australia and Canada, investors are much more willing to invest in exploration, as these countries have a long history of prospecting, while investors in South Africa tend to be more conservative in their outlook and are not as willing to take on risky projects, Naidoo explains.

However, the availability of updated geological information could possibly improve this situation, as the risk relating to exploration will then be reduced, Foya points out.

Krynauw comments that it should be made easier for juniors to list on a financial institution similar to the London Stock Exchange Aim, and the JSE should play a role in making it easier for juniors to obtain funding for their projects.

Some South African juniors are, however, partnering with Australian, Canadian, Indian and Chinese companies to obtain funding for exploration, which is a way to overcome this challenge, Bisnath points out.

South African juniors can also obtain funding by engaging with major companies and creating joint ventures, says Naidoo.

“If a project is technically sound, Rio Tinto would consider investing in the project by means of a joint venture agreement,” she adds.

State-Owned Exploration
Meanwhile, State-owned Mintek CEO Abiel Mngomezulu says exploration in South Africa could be increased if a fully fledged exploration company, focusing on small deposits and extending existing deposits, and selling those projects that were economically viable, was created by the Council for Geoscience, Mining Weekly reported earlier this month.

Krynauw does not agree with this view. “I strongly believe government should not use taxpayers’ money to fund exploration, as it is a high-risk activity,” he says.

Bisnath, however, is of the opinion that, if the State-owned company is managed and governed properly, it could play a positive role.

“A State-owned company can reduce the risk of exploration for mining companies because properties can be auctioned, and various companies will have the opportunity to bid. However, such a company should not be commercial and should serve as a basis for government to increase geological knowledge,” he says.

Foya points out that the mandate of the Council for Geoscience is not to conduct exploration, but, if a State-owned mining company is created to deal with develop-mental issues, it could benefit the country.

“If there isn’t a private company willing to come forward and assist government in ensuring that South Africa has security of supply regarding resources, I believe that government will be justified in creating such a company,” he explains.

Globally, the trend is for companies mining on behalf of governments to sustain the interests of the countries from which they come, says Foya.

Manufacturers are dependent on resources and when a country’s internal resources are depleted, they need to go into other countries to find them, which is when State institutions are usually approached, he explains.

“However, we should protect our interests while we still have our resources to ensure that, in future, South Africa will not have to search abroad for the resources currently being mined within our borders. And should mining companies capable of doing this not exist, the State is justified in creating one,” he concludes.