Proper management key to unlocking mining growth

KEVIN CRON Norton Rose Fulbright is expecting some activity in the next 12 to 18 months, where companies will look to replace existing BEE structures with “something new”

GEORG KAHLE Coal, oil and gas – as part of the energy sector – hold significant potential for growth

PROPER MANAGEMENT How challenges facing the mining industry are managed going forward will be key to unlocking growth in South Africa

Photo by Duane Daws

30th January 2015

By: Jonathan Rodin


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Despite the projected economic, legal and labour-related challenges that the South African mining industry will face this year, there is significant opportunity for growth and development, with an opportunity for government to try to mitigate these challenges, believes multinational law firm Norton Rose Fulbright director Kevin Cron.

He states that how the challenges are managed going forward will be key to unlocking further growth in South Africa and sub-Saharan Africa.

Norton Rose Fulbright director Georg Kahle says the mining industry is facing “headwinds” in terms of low commodity prices, a lack of access to capital, legislative uncertainty and potential labour issues.

“Several expansion projects have been curtailed and many large mining houses are divesting noncore assets,” he adds, noting that the mining industry might experience consolidation in the short term, “as smaller, midtier players look to acquire assets that major mining houses do not regard as their core business”.

Further, he points out that there is a lack of regulatory certainty, which is essential in attracting foreign investment.

While the Mineral and Petroleum Resources Development Act Amendment Bill was passed by Parliament last year, it still awaits Presidential assent.

“It is unclear whether . . . the legislation will go forward and whether it is constitutional in terms of the correct procedures being followed.”

Cron further points out that there has been a change in Minister since the legislation was passed, giving rise to second thoughts regarding several provisions.

He says there is also uncertainty regarding several fundamental issues, pertaining to oil and gas interests in South Africa.

He adds that there have also been several changes to environmental regulations, which have been promulgated under the National Environmental Management Act (Nema) and that some of the necessary structures needed to execute the changes have not yet been put in place.

There is also uncertainty relating to the treatment of black economic empowerment (BEE). “The debate of ‘once empowered, always empowered’ is still a bit of an open question,” he says.

The original empowerment target date was March/April last year and those companies that put empowerment structures in place to meet the deadline, are now facing a scenario where BEE partners want to start realising their investments. This might leave companies with a lower ownership percentage than they had previously, explains Cron.

The law firm is expecting some activity in the next 12 to 18 months, where companies will look to replace existing BEE structures with “something new”, he adds.

“A sense of urgency within government to resolve the issues seems to be lacking, despite being well aware of the concerns the industry has regarding the new legislation,” notes Cron.

Labour Challenges
Cron says there was severe labour unrest in the mining industry last year, adding that it is unclear if there will be improvements this year, as there is still a fair degree of militancy among some of the unions.

Kahle explains that labour unrest ties in with socioeconomic issues, therefore, making it more difficult to address than legislative issues, which depend solely on government.

Further, he explains that the ability of mines to meet demands for wage increases is tied to the profitability of mines and the productivity of miners.

Cron adds that, although the industry is expecting a difficult year, it will hopefully not be as difficult as the past year, adding that volatile commodity prices make management extremely difficult.

Meanwhile, Kahle highlights that coal, oil and gas – as part of the energy sector – hold significant potential for growth, owing to South Africa’s energy needs, large resource quantity and the impending growth and development in the mining industry.

He emphasises that, looking forward, there are positive aspects and the potential for growth in the industry, with several exciting developments taking place, adding that the mining industry remains a significant contributor to South Africa’s gross domestic product.

Edited by Leandi Kolver
Creamer Media Deputy Editor


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