To make Canadian investors aware of its expertise and skills, advisory firm KPMG will cosponsor events along with the Canadian High Commission at Mining Indaba 2013.

The cosponsored events at the indaba, which runs from February 4 to 7 in Cape Town, will comprise panel discussions on key mining challenges in Africa. These include merger and acquisition (M&A) transactions, labour unrest, cost optimisation and operational excellence, says KPMG partner and African mining head Jacques Erasmus.

“Canada is allocating significant funds for investment into African mining and, therefore, many Canadian investors are expected to attend Mining Indaba 2013,” notes Erasmus.

The panel discussions will also focus on investment into Africa and how the International Trade Administration Commission of South Africa assists in attracting investment to the continent.

Merger and Acquisition Transactions

Debates around M&A transactions, reflecting on the mining industry challenges experienced in 2012, are also expected to take place at the indaba, states Erasmus, who is responsible for coordinating KPMG’s marketing effort, which includes thought leadership, key messages and event sponsorship.

“The social implications of labour unrest on the South African mining industry, caused by wildcat strikes in the second half of 2012, also need to be discussed,” he says.

Wildcat strikes broke out at platinum miner Lonmin’s Marikana mine, in Rustenburg, claiming the lives of 46 people, before the strikes and violence spread from the platinum belt to other sectors, such as the gold sector, undermining investor confidence in Africa’s biggest economy.

“This significantly increased labour costs and weakened the rand,” Erasmus notes.

The mining industry needs to assess how stakeholders can work together to ensure everyone benefits from mining profits. “Mining companies, unions and government have to effectively communicate, and the indaba is a great platform for them to start,” he points out, adding that there is a willingness from all parties to improve the situation.

Meanwhile, he notes that the cost of mining in South Africa remains high, negatively affecting all mining industry stakeholders, with junior miners and small mining companies bearing the brunt of operational costs.

“South African exploration companies and junior mining companies have difficulty accessing funds. Established mining houses can generate their own funding, but junior miners need access to capital from financial institutions to fund operations.”

Owing to labour and economic risk factors in South Africa, Erasmus expects the cost of debt to rise, further complicating access to funding. Therefore, small mining and exploration companies should assess which projects they should develop with available cash funds, he suggests.

Alternatively, big mining houses could use this opportunity to allocate available funds to secure smaller companies.

Erasmus points out that, during the 2008/9 economic crisis, there were many unlisted companies swopping assets to increase their mine profiles, making them more attractive, to encourage big mining companies to buy them out.

“The same effect is expected following the recent economic downturn in South Africa.”

Further, KPMG states that the significant rise in parastatal Eskom’s electricity tariffs also contributes to the increase in mining costs.

Rising electricity tariffs, which had already seen double-digit increases over the last few years and which were expected to continue increasing, had resulted in the self-provisioning of power through cogeneration or privately owned coal-fired power plants, which were becoming more attractive to the mining industry, mining energy law specialist and director Dave Walker told Mining Weekly in May last year.

“Electricity constitutes a significant portion of mining costs, particularly at mining operations that use furnaces. Mining costs have, as a result of Eskom’s tariff increases, escalated by more than 20% during the last two years,” he stated.

Business Unity South Africa reported in December that the average yearly tariff increase of 16% being sought by power- utility Eskom under the third multiyear price-determination period, which would run from April 1, 2013, to March 31, 2018, could be reduced to 10.8% and remain cost reflective.

In addition, the high cost of international oil prices and compliance with health and safety and environmental regulations add to the financial burden of mine operations, Erasmus notes.

“Expectations surrounding government’s actions to fight the effects of high operating costs need to be addressed at Mining Indaba 2013.”

Government needs to consider new regulations to ensure all mining industry stakeholders are able to negotiate mining costs and tackle social issues pertaining to mining operations from a common starting point.