Mining regulations in South Africa are hindering any meaningful exploration activity, with explorers reducing prospecting budgets, and exploration capital being deployed elsewhere where such activity is more welcomed and encouraged, highlights financial services provider Nedbank Corporate and Investment Banking (CIB) mining and resources co-head Nivaash Singh.

With insignificant exploration expenditure being invested in South Africa, he says the country’s mining sector is becoming more reliant on large mining companies, while new entrants, explorers, developers and even midtier companies are shying away.

When resources become depleted, there are no replacement operators that can take over in bringing substitute production to market, Singh says.

Another risk affecting South Africa’s mining sector is continually steep energy tariff hikes that mining companies will have to absorb, which, in turn, could negatively impact on their cost of production and profitability.

To reduce their reliance on price escalating grid power, many mining companies with sufficient capital are considering and commissioning offgrid power solutions.

“Initially, we had the standard independent power producer [IPP] model, either through energy wheeling or behind-the-meter [solutions], but that’s quickly changing . . . with the aggregator model, whereby one IPP will scale up a power plant to the point where it [has the ability to] enter into multiple power purchase contracts with a number of mining companies,” Singh elaborates.

He notes that, whichever model is being considered by miners, it is important to remember the risk associated with mitigating the cost of energy, rather than solely focusing on the energy availability factor.

Meanwhile, an efficient and reasonably priced logistics service provider capable of freighting commodities from mine sites to South Africa’s major ports is becoming increasingly essential in catalysing sectoral growth, as the sector relies on road transport or infrequent and inefficient rail transport.

Addressing Concerns, Attracting Interest

Nedbank implores mining companies, government and law enforcement authorities to make concerted efforts towards combating illegal mining activity in South Africa, which has had a significant impact on legitimate mining operations and general safety.

“As a bank, when we pick our clients that we want to provide facilities to, the first assessment we do is to look at the client’s operations to make sure . . . it is a secure operation that has the right protocols in place, [with] proper measures and security that will prevent unauthorised access to its operations by any person,” Singh explains.

Also, when an operation of a mining client reaches the end of its life, Nedbank CIB assists in ensuring that there are sufficient controls and rehabilitation reserves in place. Consequently, decommissioned mining operations have access to closure and land rehabilitation funds to ensure that the appropriate mine closure actions can be taken.

In terms of attracting investment, Singh says the recent announcement by Mineral and Petroleum Resources Minister Gwede Mantashe about the launch of a new mining cadastral system is well overdue, with the previous opaque and inefficient system being a major stumbling block to new investment in the sector.

For South Africa to reclaim its position as the biggest mining sector in Africa, Singh says there needs to be greater transparency regarding the ownership of mining licences and where such licence holders are situated – which is possible with a transparent and efficient cadastral system.

Government must also be more efficient and prompt when processing the awarding of mining licences if the country intends to create an investor-friendly mining sector, he concludes.