Is mining still the goose that lays the golden egg?

Mining Sector prevented the South African economy from going into recession.


Employment and production figures released for the second quarter of 2018 suggested that the Mining Sector prevented the South African economy from going into recession. This seems to have reconfirmed just how critical the contribution is that the Mining Sector makes to the South African economy, and supports the long-held view that the Mining Sector is, and remains a powerful contributor to growth and development in South Africa.

The contribution that the Mining Sector makes has been acknowledged in various forms, by President Cyril Ramaphosa and Minister of Mineral Resources, Gwede Mantashe. This has not always been the case historically – at times it seemed that every attempt was being made to kill off, or at the very least, strangle the proverbial “goose that lays the golden egg”. Policy and regulatory uncertainty has stalked the Mining Sector for several years and this, together with uncertain commodity cycles and prices, has impacted, severely on the Mining Sector’s potential as a significant contributor to socio-economic transformation in South Africa.

Frustration with what many stakeholders regard as a lack of progress, has been reflected across the spectrum from communities that disrupt mining operations, demand jobs and access to procurement opportunities and infrastructure, through to the board rooms, where no doubt extremely difficult decisions have been taken to legally challenge previous attempts to introduce another version of the Mining Charter, and other actions of functionaries within the Department of Mineral Resources. This has led to an extremely uncertain Mining Sector.

Recent announcements by Minister Mantashe that amendments that were proposed to the Mineral and Petroleum Resources Development Act, No. 28 of 2002 (“MPRDA”) by his predecessor will be withdrawn and reviewed in its entirety, and the commitment to proper consultation on the next version of the Mining Charter, has gone some way to reassuring many stakeholders in the

Mining Sector

At the recent Africa DownUnder Conference in Perth, Minister Mantashe, supported by a strong South African delegation, presented a united front for Team South Africa. Team South Africa was of course competing with government representatives from many African countries who were also there to sell their countries’ mineral resources, and entice investors. As the saying goes, investment money is like water – it finds its way around obstacles. The crucial question is whether the historical challenges to mining investment in South Africa are perceived to be insurmountable or whether, like any obstacle, they can be worked around and overcame.

To say that investment in South Africa is challenging and complicated, would be regarded by many investors, as an understatement. In addition to the regulatory and policy uncertainty, there have been significant other challenges, such as aging infrastructure (roads, ports, electricity and water), increased stakeholder activism, uncertain commodity cycles, significantly increased employment costs, and the increase of compliance costs, particularly in relation to Environmental Laws. Politics, corruption, and security remain key concerns for stakeholders, including investors.

To complicate matters further, certain of the regional offices of the Department of Mineral Resources have, in the past few months, been closed temporarily, or placed “under administration”, which has an impact on engagements by the Mining Sector with the Department of Mineral Resources.

So how does South Africa compare to other African countries? If the various presentations at Africa DownUnder are accepted, then there are good stories to be told about the Mining Sector in countries such as Namibia, Ghana, Angola, Uganda, and possibly, Zimbabwe, depending on how critical investment aspects such as security of tenure, indigenisation, and the ability to repatriate funds, are dealt with. There was certainly some excitement at the promise of the Mining Sector, in these countries.

At the same time, South Africa was recognised for some of its positive attributes such as a strong banking infrastructure, rule of law, and the Mining Sector’s ingenuity, innovation, and agility, in the face of significant adversity. A comment was made that South Africa’s long history of successful mining was just “practice” for the real mining to come, which would unlock South Africa’s vast mineral wealth, for all South Africans.

South Africa remains highly regarded for providing innovative solutions to complex challenges. This is critical to the ongoing sustainability of the Mining Sector and starts with the acknowledgement that the Fourth Industrial Revolution, the Internet of Things and Artificial Intelligence will continue to have a significant impact on a resilient Mining Sector.

To remain resilient and sustainable will also take an exceptional level of maturity from all stakeholders and will require leadership teams to be inclusive, consultative, and flexible enough to identify changes quickly and respond to them, appropriately.

It is just as important however to acknowledge just how crucial the “social licence to operate” has become – without it, mining operators can expect significant disruption.

A commitment from the affected stakeholders and communities is justifiable on moral grounds and as part of the overall commitment to sustainable development, but also has a very real potential financial impact. The “social licence to operate” should form an integral part of any mining operators’ compliance matrix.

This commentary would be incomplete without mentioning the extremely unfortunate number of fatal accidents that have occurred this year.

There have been numerous explanations including the inevitable consequences of some of South Africa’s mines going deeper each year, and the geological consequences of this. Excluding the various accidents that have resulted from geological consequences, the most notable causes seem to be a disregard for the codes of practice, standards, procedures and instructions that are in place, in relation to safe operation of machinery, and this aspect will require extensive consideration, going forward.

Like most jurisdictions with vast mineral resources, the Mining Sector in South Africa remains an important barometer of the health of the South African economy generally, and related specific sectors such as construction and engineering. The Mining Sector will need constant and careful nurturing for it to continue playing the important role that it has in South Africa’s socio-economic development, growth and transformation.

Warren Beech Partner and Head of Mining at Hogan Lovells and Nicholas Veltman Partner

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Issue 42