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Regulatory uncertainty, economic issues limiting SA’s potential to benefit from mining investment

PEOPLE & PLACE IMPERATIVES It has become a global phenomenon from a policy perspective to address sustainability of the industry

Photo by Bloomberg

WESSEL BADENHORST The migrant labour force and uplifting families are part of what we are trying to eradicate in the new dispensation

6th December 2019

By: Marleny Arnoldi

Deputy Editor Online

     

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Mining companies often build schools and healthcare facilities for rural communities where governments fall short, thereby unlocking more than just financial value from mining investment, says law firm Hogan Lovells.

Mining, as a depleting industry, has a high level of social responsibility from the beginning of a project, particularly when one considers South Africa’s history and the need to develop the industry in a responsible way, says Hogan Lovells partner Wessel Badenhorst.

“The crafters of the Mineral and Petroleum Resources Development Act needed to find a ‘happy medium’ towards development and, subsequently, the custodianship of minerals was created, which necessitated a change of the ownership structure and adhering to social responsibility.”

He adds that such social responsibility has become a global phenomenon from a policy perspective and has been extended to addressing the sustainability of the industry when a mine reaches the end of its operating life.

“The environment is one factor that comes into play, owing to the footprint that mines leave behind and the community that is left behind after the microeconomy leaves.”

Badenhorst says existing socioeconomic challenges in Africa are “not a deterrent to investment, but rather part and parcel of investment”, as investors in Africa plan for these challenges in the host nation beforehand. It is, therefore, not necessarily more difficult for African countries to meet these sustainability targets amid various socioeconomic issues, he adds.

One of the key issues for investors is to ensure that they have a reasonable level of certainty concerning the legislative requirements in a particular country, adds Hogan Lovells partner Matthew Johnson.

“There is a real push now towards unlocking potential through technology. In Africa, the issue of sustainability is arguably more advanced than elsewhere, particularly in view of the number of new projects coming on stream with new planning and new futuristic mining agendas.”

For example, many South African miners recently started accommodating mineworkers and their families in houses, instead of providing single-room hostels. This practice is associated with the history of the migrant labour system, where a mineworker would typically travel far to work on a mine, leaving behind his family for months.

Limiting Factors

Several factors impact on South Africa’s ability to unlock the full value of its mining sector and the mining investments that have been made.

Badenhorst says regulatory uncertainty remains an issue. Although Mining Charter III has been gazetted, there is still uncertainty regarding its implementation, such as whether the environmental or mineral resources department is responsible for enforcement of certain laws, and the value of environmental guarantees.

“Miners have also struggled with issues of obtaining water-use licences, often resolving to start operations without licences in place,” he says, explaining that, while licences take longer to issue, mining rights specify that mining has to start within a year.

Badenhorst notes that investors need to take three factors into account – the regulatory framework or the rules of mining in a certain country; economic stability, which entails relatively stable currency movement; and a stable legal environment, ensuring that possible disputes can be resolved fairly in court.

“South Africa had, until recently, a good system for all three aspects. Everyone understood what the mining laws were, everyone benefited from a stable economy and our court systems were strong.

“However, these parts have broken down over the past ten years, or at least with regard to investor perception – confidence in these systems has eroded.”

Badenhorst adds that Mining Charter III is the third version of the country’s mining policy in only 15 years and every new iteration creates renewed uncertainty regarding its implementation.

For example, the ownership structure and stipulations around the procurement spend of projects should be reconsidered.

Further, the rand has been quite volatile in the past decade, which creates investor reticence.

Badenhorst adds that court decisions were also not well received in recent years.

“The courts act independently, but government does not take its losses very well. Government has a terrible record – politicians criticise court findings and [the] courts [when they] point out unethical or erroneous government behaviour.

“We should have less litigation about obvious government mistakes.”

However, those in the industry continue to establish social infrastructure, including diversified miner Anglo American, through its subsidiaries in South Africa, which have established primary healthcare clinics that include the Ulysses Gogi Modise clinic, in the Northern Cape.

The company also provides access to healthcare facilities through its Batho Pele Mobile clinics, which is testament to the value that the mining industry can unlock.

Anglo subsidiary Kumba Iron Ore established a high-technology trauma care unit near its Kolomela mine, in the Northern Cape, which accommodates and stabilises patients before they are transported to medical facilities that can provide comprehensive care.

The company also runs a number of education and development programmes, from schooling to tertiary education level, as well as programmes that are targeted at building skills and leadership capability.

The programmes include the Anglo American South Africa Education Programme, in partnership with the Department of Basic Education, which focuses on 100 early childhood development sites near Anglo’s operations and also has a ‘whole school’ systemic approach for 100 primary and secondary schools in these areas. Attendance at these schools is free.

Meanwhile, gold miner Harmony follows a ‘responsible stewardship’ principle, which entails managing and mitigating the impacts, including social impacts, of its business activities.

The company’s total economic value distributed to employees, host communities, government and suppliers, including local enterprises, amounted to R28-billion in the 2019 financial year, subsequent to R24-billion in economic value distributed in the 2018 financial year.

Harmony tries to spend at least 1% of its net profit after tax on communities that are in the vicinity of its mines. Of the miner’s R8.4-billion procurement spend in the 2019 financial year, R1.9-billion was channelled towards small businesses in its host communities.

Gold miner Sibanye-Stillwater contributed 30 000 ha of land to the Bokamoso Ba Rona agriculture initiative, in South Africa, last year, while the company spent R1.4-billion on local economic development, including R10-million on health initiatives and R14-million on education initiatives. Sibanye’s spend on communities alone totalled R68-million last year.

Gold miner Gold Fields spent $26-million, or almost R385-million, on socioeconomic development initiates and shared-value projects in 2018. These sustainable development projects create positive socioeconomic impacts for host communities by targeting the communities’ priority needs of employment, skills and enterprise development, environmental rehabilitation and access to water.

Further, coal miner Exxaro governs and tracks all education and skills initiatives in areas where the company has a footprint, in addition to its involvement in agriculture and infrastructure projects.

Australian Mining Value

Meanwhile, Johnson tells Mining Weekly that efforts to encourage mining investment in a jurisdiction such as Australia centres on factors such as labour and costs.

“Australia, and Western Australia, in particular, struggle with resourcing – accessing the right talent – owing to the remoteness of mining locations.”

Johnson adds that, although the uptick in commodity prices and favourable exchange rates are in Australian miners’ favour, with gold miners currently receiving well over A$2 000/oz for gold, the cost of developing new projects remains high.

While Australian miners have been increasing expenditure, that spend has been focused more on the consolidation and expansion of existing operations, rather than on new projects, thereby limiting investors’ opportunities to unlock mining value.

Johnson adds that the development and adoption of new technologies are also critical to managing costs, improving the mining process and, ultimately, allowing for greater value to be realised from mining at all levels.

“From a risk-reward perspective, what was a good destination for new capital is now battling to compete with less-developed countries, including many African jurisdictions,” Johnson points out.

Responding to whether there is an ‘easy’ or ‘ideal’ jurisdiction for unlocking the most value out of mining, Hogan Lovells partner Kevin Pietersen highlights that Botswana is the best example. The country managed to get the balance right with its favourable legislation and mining environment, although the country’s smaller population, compared with the populations of other African jurisdictions, has also been a contributory factor.

He adds that investors are increasingly interested in West African gold mining, especially in Ghana and Côte d’Ivoire, where governments have been adapting policies and making the sector more favourable and ‘friendly’ for investors to enter and obtain mining licences.

Seemingly, African countries are increasingly becoming the preferred destination for mining investment, and should take full advantage of the value that can be unlocked for rural communities.

Edited by Martin Zhuwakinyu
Creamer Media Senior Deputy Editor

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