Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
The South African mining industry, the backbone of the country’s US$357 billion economy, is at a crossroads, says Johannesburg-based international legal powerhouse Webber Wentzel in the article “Whither the South African mining industry?” published late March.
The author, Peter Leon, Africa mining and energy projects head of Webber Wentzel and also the past chairman of the International Bar Association’s mining law committee, writes that the local mining industry is at a point where “decisive action is necessary.”
Despite having the world’s largest mineral reserves, estimated at $2.5 trillion, mineral production in the third quarter last year contracted by 12%, says the document.
South Africa’s policy potential, according to the 2011 Fraser Institute survey of the world’s major mining jurisdictions, ranked 67 out of 79 countries reviewed. By contrast, other mining jurisdictions, such as Chile, showed a 12% increase in the value added by mining to gross domestic product (GDP).
According to Leon those facts evidence that changes are needed and points to “regulatory uncertainty” as the cause for the industry’s decline.
The guiding vagueness, said Leon, was caused by the implementation of the Mineral and Petroleum Resources Development Act 2002 (MPRDA), which came into force in 2004.
The act, which substituted private mineral rights titles with one of “state custodianship” and conditional state licences, combined with other legal provisions such as black economic empowerment (BEE), “has led to critical licensing delays, well in excess of South Africa’s peers,” he said.
South Africa is the biggest economy in Africa, attracting 66% of institutional investors, according to the latest survey by The Economist Intelligence Unit (EIU).
Despite the robust growth and rosy outlook institutional investment on the continent is in its infancy, with one in three organizations with more than $10 billion under management having no exposure to the continent.
That will change rapidly, says the EIU, and within four years all expect to have funds flowing into Africa.
Leon’s report implies South Africa could miss investors’ fondness for the African continent, despite having the longest commodities boom in history. However, it says there is hope in the form of growing State willingness to invest in mine-supporting infrastructure.
