Mining companies worldwide are seeking to boost their profit-ability this year by improving internal business processes and introducing new production technologies.

While this approach may also seem applicable to South Africa’s mining industry, it could face a rocky ride if innovation is seen as a threat to job creation.

“Globally, more than 65% of international mining executives say they plan to improve profitability through a stronger focus on improved business processes. “Investing in new technology is the second-most popular strategy,” says BDO head of mining advisory services Ursula van Eck.
Quoting new research pub-lished by BDO in the Natural Resources Survey 2013, Van Eck says mining company decision-makers in Australia, Canada, South Africa, the UK and the US share common concerns about the challenges confronting the profitability and long-term sustainability of their operations.

The primary challenges are volatile commodity prices, the high cost of infrastructure, geopolitical unrest and regulatory issues.
“Our survey found that, across the board, senior mining executives regard greater efficiencies and technology investments as the key to addressing these challenges.

“The South African participants were no exception, but their prospects of successfully improving internal operations and being innovative are not as cut and dried as those of their peers,” adds Van Eck.

South African Dilemma
Van Eck says South African companies, which have the added complication of a highly volatile labour environment, may find that they have little room to manoeuvre because of extreme pressure from government to create and retain jobs.
“Mining houses in South Africa are caught between a rock and a hard place. “They have little control over the two biggest input costs – electricity and wages – and, simultaneousy, they will find it very difficult to make the internal adjustments that could improve their prospects. “They will almost certainly come under intense pressure from government and organised labour to avoid anything that could jeopardise jobs,” she explains.

Van Eck sees only one way out of this dilemma. “The answer lies in labour, government and employers working together towards a common vision for the mining sector. At the moment, we have three opposing camps, each with its own agenda. “Until they have a sense of common purpose, the mining sector will probably continue to flounder from crisis to crisis.”

Joint Ventures Favoured
South African mine executives showed a high level of interest in expanding the presence of their mines into other African countries, predominantly through joint ventures with in-country partners.

“While 29% of South Africa-based companies would con-sider an acquisition or establish an independent operation, joint ventures are the preferred option for 36%,” says Van Eck.
She notes this preference could be a reflection of the awareness of South Africa-based companies of how difficult it can be to do business in Africa. “South Africans may have learnt hard lessons in the past and now have a healthy appreciation for local partner-ships and knowledge.

“The difficulties that mining companies are experiencing when operating in South Africa are evident in the survey.

“Although they have not altogether lost interest in domestic expansion, only 25% of executives with South African operations who res-ponded to the survey will focus on such expansion to achieve future growth,” says Van Eck.
International expansion is the preferred choice for 44% of the respondents and all this expansion will target other African countries.

“This yet again confirms the emergence of Africa as a significant investment destination for mining,” she concludes.