Mining in the new dawn

By | 2019-06-27T13:45:39+00:00 June 27th, 2019|Mining in Focus|

The mining industry in South Africa has been in limbo for the past couple of years. Since the African National Congress (ANC) held its national elective conference towards the end of 2017, there have been a lot of changes in South Africa, which have impacted the mining industry, writes Dineo Phoshoko. During former president Jacob Zuma’s administration, the country’s political setting was inconsistent, which resulted in an unsatisfactory performance of the economy. This had negative consequences for many businesses in various industries, including mining. Inevitably investors became pessimistic about investing in South Africa’s mining industry, creating a bleak outlook for the future. Downgrades by various ratings agencies exacerbated the situation. There was also a lot of uncertainty with regards to policy regulation, particularly around the mining charter. Investors were holding back, waiting for the outcome of the ANC’s national elective conference and the national election.

The elective conference had the potential to be the light at the end of the tunnel for anxious investors, the mining industry and many South Africans. There was hope that there would be new leaders for South Africa, who would bring positive change to the country. After a nerve-racking election process, Cyril Ramaphosa ‒ deputy president of the country at the time ‒ was victorious and became president of the ANC. Shortly after that he became president of the country when Zuma resigned in February 2018. When Ramaphosa took to office, words like ‘new dawn’ and ‘Ramaphoria’ became synonymous with the recent developments in the country.

The investment attractiveness chart for the African continent. Image credit: Fraser Institute’s Annual Survey of Mining Companies

The investment attractiveness chart for the African continent. Image credit: Fraser Institute’s Annual Survey of Mining Companie

 

One of the changes he made in the early stages of his tenure was to appoint Gwede Mantashe as the Department of Mineral Resources (DMR) minister, taking over from Mosebenzi Zwane. Mantashe’s appointment was one of Ramaphosa’s ways of bringing back investor confidence to the industry. Upon his appointment, Mantashe tackled the biggest problem in the industry at the time, the unresolved mining charter, and vowed to have it finalised before the end of 2018.

In addition, the new minister also worked to rebuild trust and mend the broken relationship between government and the mining industry. True to his word, the new minerals resources minister was appointed in February 2018 and by the end of that year, after much deliberation from the industry, Mining Charter III was finalised and implemented.

Although, it looked like the mining industry was experiencing much-needed positive winds of change, this was not enough to convince investors, who preferred to be cautiously optimistic. For them, the outcome of the May 2019 elections would be the ultimate decider on determining their investment future in South Africa’s mining industry.

Addressing industry concerns

The Investing in African Mining Indaba 2019 was a historical event. Not only did the mining conference turn 25, but Ramaphosa became the first South African head of state to attend the conference.

During his address at the conference, Ramaphosa assured investors and world that South Africa was ready and open for investment. Apart from sharing what he called the “10 value creating principles for a more modern, successful and productive mining industry”, he also addressed some of the industry’s concerns.

Among them was the mining charter and whether it was satisfactory for all parties to share in the benefits of mining in the country. Ramaphosa recognised that the industry had come a long way in resolving issues related to the mining charter. “I’ve been very encouraged by the energy that the minister has put into the mining charter; by the enthusiasm and commitment by mining companies who’ve been willing to engage with the minister,” Ramaphosa said. He also commended labour and communities for their contribution to the charter.

“So, we’ve got a wonderful combination of all the key role players who are enriching the mining charter. The ideas and the thoughts that have come forward have enabled us to move a greater step forward,” he said. Giving assurance that everyone would benefit from the mining charter, he also highlighted that all stakeholders had different roles and responsibilities. “We bring in the regulatory aspect, companies bring in the investment and operating the mines, communities obviously bring in the workers, but they also have a number of expectations [and] responsibilities to make sure that the facility is sustainable going forward,” he said. He added that meaningful engagement with labour could potentially result in all stakeholders sharing in the value created.

Another concern was the industry’s ability to innovate in the face of global challenges: the president encouraged international investors to partner with South Africa to add value. “Adding value means that you bring your money, but we also see you as people who bring technology, who bring in a new level of benchmarking and best practice that you will bring from the various areas that you operate in,” Ramaphosa explained.

He urged investors to be law-abiding investors of integrity. “We want you to observe the way we function as we are reforming and transforming ourselves. In the past we’ve had investors who came and sought to divert either people in key positions [or] institutions. We are putting that behind us.” Reiterating that investors were welcome, Ramaphosa stressed that it was important that they also added to the country’s offshore investments.

Various commissions of inquiries have been underway in the country and have had an impact on mining investments in the industry. They include the inquiry into state capture, the South African Revenue Services (SARS) commission and the National Prosecuting Authority (NPA) commission. Although bothersome, Ramaphosa said that commissions of enquiry were established to address a specific problem and to identify the root cause of the problem. “We’ve been through a very difficult set of years. Following these commissions as they yield all these horrible truths about what happened in the past, there will be a time when the commissions come up with findings,” the president said.

The investment attractiveness chart showing the world rankings. Image credit: Fraser Institute’s Annual Survey of Mining Companies

The investment attractiveness chart showing the world rankings. Image credit: Fraser Institute’s Annual Survey of Mining Companies

Following the findings, the commissions will come up with recommendations on steps to take going forward. Ramaphosa used the SARS commission as an example. The findings made recommendations that then commissioner Tom Moyane was unfit to hold office. Another recommendation was that the revenue service needed to be repositioned. “We will act on those recommendations. The criminal justice system will get into action and act against wrongdoing,” he said. Moyane has been replaced by Edward Kieswetter.

He was frank about the current state of the country’s key institutions saying that they had been weakened and strengthening them would be a lengthy process that required patience. He confidently assured everyone that there would be prosecutions and “some people will end up going to jail and wear orange overalls”.

During his tenure as president, Ramaphosa had come under fire for not taking swift action against supposed wrongdoers in government. “Everything has to take place within the parameters of the rule of law and we want our institutions to act without fear or favour or prejudice, and they must do their work. This time around, they will do their work. It will not be like in the past where they were diverted from doing their work.” He pleaded with everyone to allow the processes to take place accordingly to reach redemption in the end. “We will be redeemed, we will be cleansed, and we will become a much better country, I promise you that.”

Where to from here?

With elections over and a new cabinet in place, it remains to be seen what results recent political changes will have on the country and how it will impact the mining industry.

The industry and investors alike had been waiting for elections with bated breath to decide on what the future would be for mining in South Africa. Unsurprisingly, the ANC won the elections, making Ramaphosa president of the country. After a short delay, he announced a new and reduced cabinet.

The cabinet was reduced from 36 to 28 ministers, with some departments being dissolved while others were combined. The DMR was combined with the Department of Energy and is now the Department of Mineral Resources and Energy. Mantashe was appointed to head up the new department with Bavelile Hlongwa as the deputy. His appointment was embraced by the industry. “The appointment of Minister Mantashe to an enhanced portfolio of minerals and energy is a key signal of the seriousness with which the president is taking the restoration of investor and business confidence in mining and energy,” commented Rodger Baxter, CEO of the Minerals Council South Africa (MCSA).

Undoubtedly, the mining industry in South Africa is not where it should be. This despite Mining Charter III being finalised. Investors still feel that the regulatory framework in the industry is unattractive, seeking alternative investment opportunities elsewhere on the continent. Some mining companies, such as AngloGold Ashanti, no longer see the value of operating in South Africa. The gold producer decided to disinvest by selling its remaining gold mining assets in the country.

Some companies still see the potential of mining in South Africa despite all the political and economic uncertainties. During the investment conference in October 2018, many companies from different industries (including mining) made pledges to invest in the country. Vendanta, Ivanplats and Anglo American were among the mining companies that pledged R21.4-billion, R4.5-billion and R2.5-billion respectively. In April 2019, Rio Tinto decided to also come to the party with a R6.5-billion investment into Richards Bay Minerals.

It seems as if the new dawn is yielding positive results for the industry. According to the Fraser Institute’s Annual Survey of Mining Companies, South Africa’s attractiveness with regards to mining policies has moved up 27 spots in the world rankings, coming in at 56 out of 83 countries surveyed. This is a significant improvement compared to 81 out of 91 in 2017. The country has also seen improvements in terms of investment attractiveness, which is now 43 out of 83 compared to 48 out of 91. “This shows that working together with stakeholders in the sector, it is possible to realise South Africa’s potential of being in the top 20 in terms of its attractiveness to the investment community,” commented Mantashe.

The outcome of the investor conference and feedback from the annual survey shows that the country and industry are moving in the right direction and investor confidence in the mining industry is gradually picking up. This does not mean that the industry can sit back and relax, as there is still a lot of work to do, especially with regarding regulatory frameworks in the mining industry. One of the participants from the survey said, “South Africa’s revised Mining Charter continues to be an absolute deterrent for exploration companies.” Another participant expressed their dissatisfaction at the rules around mining ownership, saying that they discouraged investment.

Going forward, the industry can use the feedback it receives and use it to make the necessary changes that will return South Africa’s mining glory days. To achieve this, continued collaboration from stakeholders across all areas of mining will be required.