South Africa needs ‘urgent' R100bn bulk water investment – Xstrata

7th April 2010 By: Martin Creamer - Creamer Media Editor

JOHANNESBURG (miningweekly.com) – South Africa needs "urgent" investment of some R100-billion in bulk water infrastructure and reticulation, and it will be up the State alone to do this, says Xstrata CEO Mick Davis.

Davis, who addressed the Wits Business School, says that, "in the not too distant future, under-investment in water infrastructure risks pitting the mining industry against its own communities, as water scarcity grows.

"It doesn't have to be this way and value can be captured from the ongoing super-cycle," Davis adds.

While mining companies can operate much of their own infrastructure, including power and rail transport, it will be far more difficult for them to operate water infrastructure, he says.

In Australia, Xstrata has its own train system, the State providing the tracks and Xstrata operating its own locomotives and its own train sets.

Xstrata says that it is also prepared to generate its own electricity for its own use in South Africa.

"But, in relation to water, that's much more difficult," Davis says, and adds that South Africa needs "urgent investment in bulk water and in water reticulation, some R100-billion worth of investment".

Although some companies can participate as major buyers of water, it is ultimately the State that is going to have to control and manage that investment, Davis says.

"I was pleased to see at the recent Mining Summit, convened by the South African government, together with the mining industry stakeholders, that they are really discussing all of these issues in the South African context. That's absolutely critical to position the industry for future growth," he says.

Governments, such as Chile, have for long recognised the central role they can play in promoting a flourishing mining industry.

Between 2001 and 2008 - "the first phase of the super-cycle" - the Chilean mining industry's contribution to gross domestic product (GDP) grew by a compound rate of 12% a year in real terms.

By contrast, the South African mining sector's gross domestic product (GDP), over the same boom period, shrunk by 1%, in spite of the demand for coal, ferrochrome and platinum, all in abundance in South Africa.

"If, instead of shrinking, South Africa's mining industry had achieved an average growth rate of 5% a year during the period, 45 000 additional jobs would have been created in the mining sector and R60-billion would have been added to GDP by the mining sector," Davis says.