JOHANNESBURG (miningweekly.com) – South Africa’s mining industry is in intensive care and tough decisions will have to be made to help the sector reach its growth potential, Chamber of Mines economics and strategy senior executive Roger Baxter said on Thursday.

If growth constraints could be overcome, the mining industry should be able to sustain growth of between 3% and 5% a year and double in size by 2028, he said at the KPMG Mining Tax seminar held in Johannesburg.

“If mining had grown at the same pace as the rest of economy between 1994 and 2012, it would have increased the country’s growth rate to 3.9% from 3.2%, a significant difference. At a 5% growth rate, the mining industry can increase exports and reduce the savings-investment constraint and add another 100 000 direct jobs,” Baxter stated.

If restraints, such as rail capacity, were resolved, iron-ore could double production within five to ten years to more than 100-million tons a year by 2020. Employment could rise from 18 000 to 30 000 people.

He also said that coal production had to rise from the current 254-million tons a year to more than 320-million tons by 2020 to satisfy State-owned power utility Eskom, replacement and exports. Jobs could also increase from 80 000 to 100 000 by 2020. Again, the biggest constraints were rail, and environmental regulatory issues.

Manganese could double or treble in production from the current 7.2-million tons to 15-million tons or 20-million tons by 2020. Employment could rise from current 5 879 to more than 10 000 in this period. The challenge in this area was the lack of access to efficient, cost-competitive heavy haul rail.

“South African mining is in intensive care and we have not met our potential. Input costs are rapidly increasing and productivity has fallen, while real costs per unit of output have risen quickly. Tough actions are required to ensure the long-term sustainability of the industry,” Baxter stated.

Since late 2011, the South African gold mining sector has been affected by a combination of falling gold prices, rapidly escalating input cost, declining grade and falling productivity, coupled with illegal strike actions.

About 40% of the gold mining sector was either in a marginal or loss-making position on a cash cost basis, in the fourth quarter of 2012. Baxter warns that if the current trends continue South Africa could produce less than 90 t of gold by 2020.

He suggested that all stakeholders worked off an agreed and shared fact base of where the industry was at in terms of productivity and the economics of the sector and to understand that they all had a role to play in moderating cost pressures and improving productivity.

“Goals in the sector are best achieved through collaborative efforts, with all stakeholders agreeing on the challenges to be dealt with and working on the best way forward,” he stated.

Meanwhile, he noted that perceptions of the domestic mining industry showed a widespread tendency to underestimate the link between the role of minerals extraction - whether beneficiated or otherwise - and the existence and functioning of a modern society.

He stated that an insignificant amount of credit is given to the mining industry for playing a key role in South Africa’s economic development over past 130 years, which had transformed South Africa into the most industrialised country in Africa.

He highlighted that R300-billion and 200 000 jobs are created in downstream industries and that the mining industry has seen a 67% reduction in its fatality rate in the last five years. Also, the average wages per employee increased by 12% a year.

About R2-billion had been spent on communities last year, R4-billion spent on skills and R20-billion spent in corporate taxes in 2012.