Despite the Department of Mineral Resources and Energy (DMRE) not publishing any data on mineral exploration, mining supply sales consultancy AmaranthCX director and owner Paul Miller says there is extensive financial data, some containing information about minerals exploration, that is buried deep in the South African Reserve Bank’s (SARB’s) website.
“If you dig down deep enough, you will find a time series of data on 'Gross fixed capital formation: Mineral exploration and evaluation',” he states.
Miller has long taken the DMRE to task over its reluctance to publish mining and prospecting rights information in the form of a cadastre, saying such moves serve to severely impede foreign prospecting interest and investment. This will ultimately accelerate the decline of South Africa’s mining industry as end-of-life mines close with no new ones to take their production space as the new mine discoveries are not taking place, he argues.
He notes that the information on the SARB's website appears to be the “only available official statistics” on mineral exploration in South Africa.
However, Miller suggests that an organisation which has the skills and experience required to develop a credible exploration strategy is the World Bank. “[This institution] has successfully advised on the reform of the mining codes of multiple countries around the world, and in particular is largely responsible for the regulatory reforms that led to the boom in mineral exploration across the rest of Africa over the past 25 years.”
As such, he says, perhaps South Africa’s “only hope of any improvement” is when it “eventually has to approach the World Bank for a financial bailout” – one condition being an internationally competitive overhaul of South Africa’s mining regulatory regime, guided by international experts.
In the absence of a sound guiding authority, Miller says, all current mines are declining assets and a mining country that does not attract enough investment into exploration, and thus constantly replenish its mine investment pipeline, cannot be considered to host a healthy or sustainable industry.
Quoting the SARB quarterly bulletin time series information, he says inflation-adjusted indicators show a decline in exploration investment in South Africa from 1990 to 2004, when the Mineral Resources & Petroleum Development Act (MPRDA) was passed and then promulgated and the first Mining Charter was gazetted.
However, Miller highlights that between 2004 and 2009, South Africa received a double exploration dividend, driving up exploration figures. “The other half of this dividend was that the transition coincided with the commodity supercycle, with surging commodity prices and booming mining equity markets.”
The 2004 to 2009 period also saw multiple foreign junior mining companies set up shop in South Africa looking for opportunities to invest, he says.
“Exchange controls were relaxed to enable inward dual listings on local public markets and that, coupled with local mining and exploration startups, saw a net increase in listed mining companies on the local exchange.”
However, any potential exploration upcycle was abruptly ended with the onset of the global financial crisis of 2008, after which exploration investment never rebounded, states Miller.
As such, and without taking inflation into account, he points out that mineral exploration and evaluation investment declined from a high of R2.94-billion in 2009, to R525-million in 2010 and then remained largely flat, being just R579-million in 2019. This represented a decrease of about 80% from high periods.
However, Miller also notes that taking inflation into account, less exploration money was invested in 2019 than in 2010, the latter year being the one in which exploration investment first “fell off the cliff”.
Meanwhile, he avers that the National Treasury’s policy response to incentivise investment in exploration – Section 12J of the Income Tax Act, “attempted to be all things to all sectors”, but had rules so “byzantine” that there was no take up for the first five years of the incentive.
The National Treasury then started a repeated, uncertainty-inducing cycle of relaxing and then tightening the rules that did eventually lead to some take up for other sectors, but nothing for mineral exploration, states Miller.
“The Section 12J incentive – a clear failure at incentivising mineral exploration investment – ends its 12-year life in 2021.”