JOHANNESBURG (miningweekly.com) – Promising business opportunities for the South African mining industry in 2013 were likely to be found in other African countries where more investor-friendly conditions prevailed, business advisory firm BDO mining
head Ursula van Eck has indicated.

“For foreign investors and South African companies willing to take the risk and try something new, going up into Africa could provide the growth opportunities that are currently lacking locally,” she said, adding that companies with South African mining experience had a wealth of expertise that could prove invaluable beyond the country’s borders.

Van Eck added that the challenges besetting the mining industry stemmed from a combination of global and local factors. She believed that conditions in the sector would continue to be difficult, especially in terms of input costs, commodity prices and the fallout from last year’s wage strikes.

“Internationally, commodity prices are still under pressure as a result of the eurozone crisis and are not likely to recover in the short term. The one potential bright spot is China, which is reportedly planning to boost its economic growth by pushing infrastructure investment.  If that materialises, it could have a positive impact on the prices of metals such as copper and iron in 2013,” Van Eck remarked.

However, she warned that mining companies should not bank on an early price recovery, nor should they rule out the prospect of further downgrades of South Africa by international ratings agencies.

NATIONALISATION

Van Eck further highlighted that concerns about the risks of investing in South Africa have not necessarily diminished since the African National Congress’ (ANC’s) Mangaung conference, in December.

“As everyone predicted, the focus of the conference was on leadership politics and not policy decisions. Yet again, investors were left without clarity on the issues that have been fuelling anxiety about the future of the mining industry, and that includes nationalisation.”

Although outright nationalisation was rejected as ANC policy at Mangaung, Van Eck said there were some indications that another form of nationalisation might be considered, especially amid talk of increasing government interest in strategic minerals, such as uranium.

“Now there is talk of classifying coal as a strategic mineral as well, with the aim of securing Eskom’s coal supply after 2018. Depending on how it is done, declaring coal a national asset could amount to nationalising it. There is a very fine line between nationalisation and managing the supply of a strategic mineral,” Van Eck stated.

She pointed out that adding to ongoing uncertainty for investors was the Mangaung conference’s failure to thoroughly debate the introduction of a super-tax on mining companies, first mentioned in June 2012.

IMPACT OF STRIKES

Van Eck said for much of 2013, South Africa would be subjected to the impact of the tragedy at London-based Lonmin’s Marikana mine, near Rustenburg, were 34 miners were shot and killed in a confrontation with police, in August.

The industry was awaiting the outcome of the Farnham Commission’s inquiry into the shootings.

“Similarly, I do not believe that we have yet felt the full impact of last year’s labour strikes and subsequent wage increases. The effect of lost production and higher wages will likely be felt in the first half of 2013 at best. Unless higher wages are coupled with higher productivity, I anticipate closures at marginal mines,” Van Eck warned.

Meanwhile, burdened by credit downgrades, mining companies were anticipated to struggle to raise capital for new projects or for operational improvements.

Van Eck said the situation could be amplified, as further downgrades were a strong likelihood.

However, despite a challenging outlook for mining companies in 2013, it was by no means hopeless.

Van Eck suggested that companies could improve their positions by recapitalising their businesses and strengthening their risk management.